Unfazed by new virus variant, MF investors deploy record sums via SIPs

While investors across the world may be concerned about the spread of the new Omicron variant of the coronavirus, retail investors in India, it appears, are unfazed for now. At least that’s what the latest numbers compiled by the Association of Mutual Fund in India (AMFI) show. 

Cumulative inflows into mutual funds from systematic investment plans, or SIPs, have crossed the Rs 1 lakh crore mark in a year for the first time ever, according to AMFI data cited by The Economic Times.

Moreover, these domestic inflows have partially offset selling pressure from foreign portfolio investors, who have been pulling their money out from India and other emerging markets in an attempt at flight to safety. 

When was the previous annual high reached?

The previous annual high was in 2019 when SIP inflows reached Rs 98,612 crore during a single calendar year. 

What else do the numbers tell us?

The numbers tell us that as a result of the uptick from SIP inflows, domestic mutual funds deployed Rs 63,439 crore in the equity market while the FPIs invested close to Rs 43,193 crore in the first eleven months of 2021.

As a result, the share of local mutual funds in the total institutional equity assets under management (AUM) rose to 16.8% in November, the highest since February 2020, according to NSDL data, the report said.

The monthly SIP book has grown in each of the seven months up to November. In the past three months, the monthly flow remained above Rs 10,000 crore. As a result, the SIP book size averaged Rs 9,337 crore per month in 2021 compared with the long-term average of Rs 7,028 crore.

Individuals made up for about 54.9% of the mutual funds’ total assets in October 2021 compared with 51.7% a year ago, the AMFI data show.

But why are retail investors flocking to invest in the stock markets in such large numbers?

For one, the returns over the last 18 months have been very impressive, as the market bounced back from the lows of March and April 2020 that it had sunk t, in the wake of the national lockdown imposed in the wake of the coronavirus pandemic. 

Second, fixed-income instruments have been offering very meagre returns, forcing retail investors to take riskier bets. 

What have SIP returns looked like over the last three and five years?

The three-year and five-year SIP returns based on investment in the Sensex stocks were at a 12-year high of 26.3% and 19.4%, respectively. This is far above the 5-5.5% interest rate that bank fixed deposits are offering currently.

How have the assets under management (AUMs) grown?

The equity AUM increased at a two-year compound annual rate of 25% to Rs 17.43 lakh crore in November. The total folio count of equity funds reached 7.8 crore, of which 20% were added in the current year.