Investors’ demand for Systematic Investment Plans, or SIPs, continues to grow stronger, and their contributions have extended to record highs over the last few years. The rise in Mutual Fund (MF) investments through SIPs proves that the SIP investment plan is a successful investment medium for retail investors. It also indicates Indian investors’ growing maturity for equity investments. According to experts, investors will continue investing in India through MFs, positively impacting the markets.
The ever-increasing adoption of SIPs leads to innumerable SIPs getting registered every month, showing an increasing belief of investors in the instrument. Let’s look at why SIP investment plans have gained so much popularity in 2023.
- Smaller Investment Requirement
Indian retail investors moving towards MF SIPs is not a sudden shift. It has been a culmination of numerous events over the last two decades. Between 2008 and 2017, the Sensex returned just about 3.95% on a CAGR basis, which is lower than savings bank deposits. It typically represents the inherent risk of investing in a lump sum instrument. On the other hand, SIPs have performed exceedingly well since 2008, making them the best investment option without paying in a lump sum. Investors can invest small amounts according to their budgetary convenience.
- Insufficient Returns from Other Investment Avenues
Traditional investment avenues like gold, Fixed Deposits (FDs), and real estate properties do not appear as lucrative as earlier. The real estate market has been erratic since demonetisation, and lastly, the government has restricted gold holdings, leaving investors with very few investment options. The best SIP investment plan would be an incredible option to generate wealth without timing the market.
Volatility is one of the biggest reasons for putting money into a SIP investment plan. The investor typically allocates a certain amount each month, irrespective of the market level. The volatility risk exists due to various domestic and global factors. The solution to this issue is an MF SIP. Apart from providing the best protection against volatility, SIP also avoids the risk of ups and downs.
Demonetisation was unfavourable for liquidity, but it proved a boon for MFs. It is an efficiently regulated industry that hardly had any effect from demonetisation. That is because most MFs had fund flows through traditional banking channels. SIPs have actually gained momentum after the decision. Prospective investors can easily buy units after completing basic KYC formalities and expand their wealth without any hassle of regulatory compliance.
- Tax Benefits
Lastly, the best SIP investment plans are tax efficient, offering benefits like tax-free dividends and capital gains if the investor holds it for over a year. That makes SIP investments more attractive than property, FDs and gold.
The shift of Indian investors to MF SIPs is not sudden. It is a time-tested method of expanding long-term wealth in the markets. The key is to find an efficient SIP investment plan suitable to the investor’s capacity and risk appetite.