SIP turbo charge spreads equity cult among retail investors in four years

The past four years have been one of the most momentous in India’s financial history. It’s the time when the Indian common man trooped to the markets in huge numbers, altering the fundamental manner in which they view the stock market and the direct and indirect ways in which they can invest in the markets to keep their heads above inflation and create wealth.

As a result, the mix of asset class of household savings in the country has changed fundamentally with equity being a dominant category in pooled funds. Significantly, equity accounts for about 60% share of the money mobilised by mutual funds.

Quoting Franklin Templeton data, The Economic Times has mentioned that the share of equity assets as a percentage of total mutual fund assets climbed to 60% in April. It was a mere 39.2% in December 2020 – only three and a half year ago.

The total assets under management of mutual funds have jumped to Rs 57.26 lakh crore in the same period, from Rs 31.02 lakh crore – a phenomenal rise of almost 85%.

One of the primary reasons for driving this equity cult, according to fund houses, is that the markets have witnessed a strong rally in the past four years. The rally is so robust that there is yet to be a significant correction.

In the 41 months between December 2020 and April 2024, Nifty 50 gained as much as 72%. The midcap and smallcap space jumped more than double of that rate. While Nifty Midcap 150 zoomed 151%, Nifty Smallcap 250 shot up by 178%.

This sharp rise increased investor appetite for equity mutual funds. “Investor composition in the overall pie has changed with individual investors now owning 60% of the industry assets. They are using mutual funds to allocate to equity, which in turn is driving up the share of these assets,” said Swarup Mohanty, vice-chairman and CEO of Mirae Asset Investment Managers.

The SIP culture has become the icing on the cake. All financial planners admit that SIP is a major driver of the equity cult. “SIPs have found favour with investors with many of them using this to increase allocation, stagger allocation to equity and meet long-term goals,” Vishal Dhawan, founder of Plan Ahead Wealth Managers, told the newspaper.

The share of equity in mutual fund assets have gone up from a mere 22.6% in December 2013 to 59.5% in April 2024. The share of equity in the MF investments each year goes like this – 31.3% (Dec 2014), 32.9% (Dec 2015), 30.4% (Dec 2016), 39.6% (Dec 2017), 39.2% (Dec 2018), 37.4% (Dec 2019), 39.2% (Dec 2020), 47.7% (Dec 2021), 54.6% (Dec 2022) and 59.7% (Dec 2023).

Contribution through SIPs performed a Bob Beamon-like leap – from Rs 1 lakh crore in 2019-20 to Rs 1.99 lakh crore in 2023-24.

Experts such as Dhawan also point out that some investors are selling off their physical assets and a part of the proceeds is being invested in equity mutual funds in search of higher returns. Debt funds have become a loser with indexation benefits no longer being available. In the process debt funds have become somewhat less attractive for investors.

“Lack of indexation benefit, need for stable fixed returns has led to investors moving some money to deposits and NCDs,” said Nikhil Gupta, founder of Sage Capital.

The AMFI website states, “The total number of accounts (or folios) as on April 30, 2024 stood at 18.15 crore, while the number of folios under Equity, Hybrid and Solution Oriented Schemes, wherein the maximum investment is from retail segment stood at about 14.54 crore.“

Funds flowing into the market through SIPs have been rising steadily for many months now with cumulative SIP contribution in April exceeding Rs 20,000 crore for the first time.