News

SIP: A Solid Investment Option to Empower India’s MF Industry

Submitted by admin on February 3rd, 2024

India’s mutual fund completed 50 years in 2013. It still had hardly any retail presence. As of March 2013, mutual fund had Rs 7 trillion in AUM (Asset Under Management), of which, about Rs 5 trillion was disbursed in institution-centric debt funds. Compared to it, bank deposits in India were pegged at Rs 67.5 trillion at the same time.

Since then, massive changes have happened.

In December, 2023, the Industry’s AUM hit a record Rs 50 trillion following the solid growth in SIP (Systematic Investment Plan) accounts. AUM tied to SIPs was valued at Rs 10 trillion. According to Industry pundits, there are more to come.

Misbah Baxamusa, the chief executive officer, NJ Wealth, says India’s mutual fund is still in its nascent stage of growth and even not closer to its potential. He adds that there is only a fewer investors in the field compared to those with demat accounts.

Solid Foundation

According to the investment experts, equity schemes are the most preferred retail products. As per the data from the AMFI (Association of Mutual Funds in India), equity funds were controlling only Rs 1.7 trillion in March, 2013.

MF’s failure to find a strong foothold in the retail sector prompted the regulators to take steps in September, 2012 to inject some energy in the industry.

The proactive measures included low-cost direct plans, expanding the distribution pool and incentives for mutual funds receiving significant flows from places in addition to India’s top 15 cities.

The revised regulation developed a platform to allow retail use of mutual funds. However, the momentum picked up only in 2017. Around the time, banks had accumulated enough liquid assets and also reduced fixed deposit rates following demonetisation in November, 2016. After bank deposits were found not appealing any more, the equity market was achieving new milestones.

Executives think that another factor also contributed to the brewing storm for the mutual fund industry in 2017. An initiative was taken to start an industry advertisement campaign to extend reach to prospective customers. The industry-funded campaign “Mutual Fund Sahi Hai” caught the attention of potential customers. The campaign was continued over the years and went viral through print, television and digital media.

It’s compulsory for mutual funds to reserve 2 basis points of their gross asset under management every year, which accounts to 980 crore for investor education, send 50% of it to AMFI which is responsible for running the campaign.

The campaign coupled with passive promotion has clicked in making mutual funds a mass product. However, the summary of mutual fund campaign and sale has remained unchanged: “Put in small sums into MFs on a regular basis and achieve your financial goals”. The effort blossomed into success.

Circulating the same message through different mediums and forms induces an effect on human psyche. And the purpose has been fulfilled. Mutual fund executives cite the increasing popularity of SIPs to prove the fact. In fact, the campaign slogan has surpassed mutual funds in popularity.

Advantages of SIPs

SIPs have emerged as a primary investment tool, at least for Indian youths and driven up the industry’s growth in recent times.

In addition to successful media campaign, the advantages of SIPs have also contributed to the popularity. These include recurring deposits as well as small investment compared to large ones to achieve individual financial goals.