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The journey continues

While it's great that investors are doing SIPs in larger and larger numbers, an SIP by itself is only the second half of a job well done

The journey continues

About a year ago, when I wrote this column, I looked ahead for 15 more years and tried to extrapolate where we would be after another 15 years if the same rate of change could be maintained. Some simple arithmetic showed that were that to happen, then by the time 2032 rolled around, the Sensex would be around 3,00,000 points, Indian mutual funds would be managing Rs432 lakh crore and 74 per cent of that sum, i.e., Rs320 lakh crore would be equity.

As it happens, a year of reflection has convinced me that while I'm not willing to stick my neck out on market levels - which could be higher or lower than the projection - the mutual fund estimations would probably be exceeded. Over the last one year, the amount of money regularly flowing into equity funds through SIPs has gone up by 50 per cent. Unlike the gyrations of stock prices, I don't expect this number to be a flash in the pan. It's very likely that very high rates of growth in SIP flows will be maintained continuously for years to come. This is the key phenomenon, far more important than industry-wide numbers.

This is key because this is about you, the investor, and not the fund business. The more you invest through SIPs, the more money you will make in the long run and the better your experience will be. The better your experience is, the more you will invest. The more you invest, the more money you will make. Others around you will notice and the virtuous cycle will keep expanding and strengthening. This has been happening for a long time but I feel it has hit critical mass only in recent years.

I like to think that Value Research has played a role in this, and that this role is becoming more important now. While it's great that investors are doing SIPs in larger and larger numbers, an SIP by itself is only the second half of a job well done. The first half is still selecting the right kind of fund and within that, the right fund. The strange thing is that SIP is such a powerful technique that it manages to make sub-par fund choices also passable.

However, this is a kind of illusion and makes fund choices more important, especially if you have to meet your financial goals. The activity of fund investments and getting returns become a kind of a self-absorbing activity which can detract from the real financial goals you have and the focus that is needed to use the SIP tool to attain the goals.

As savers, we need to understand our real problems and find effective strategies to solve them.