Investors chose the SIP route to invest in 2023 with a strong inclination towards index funds

• At the start of 2023, India implemented the T+1 settlement system, improving the effectiveness of share market transactions.
  
• Among those who initiated their investment journey in the year 2023, 15% of their portfolio comprises Index funds.
  
• When it comes to goal planning, buying a home is the main goal among investors, followed by retirement.
  

In 2023, a strong influx of investments from domestic mutual funds, a revival in foreign acquisitions, and a consistent corporate profit scenario propelled India's primary indices to achieve their eighth consecutive year of growth.

The Nifty 50 and BSE Sensex witnessed increases of 20% and 18% respectively. India's market capitalisation surpassed the milestone of $4 trillion, securing its position as the world's fourth-largest market, trailing behind the United States, China, and Japan.

A report by online wealth management platform Kuvera, talks about some key trends and throws up some interesting insights into investor behaviour in 2023, based on the activity on their platform. We take a look.

The IPO rush

In 2023, Indian companies witnessed a surge in the number of initial public offerings (IPOs), setting a new record. However, the absence of substantial offerings resulted in India Inc.'s total funds raised falling significantly short of its peak.

Activity on the main boards remained subdued, with the overall amount raised declining from 2022. On a positive note, the SME exchanges experienced unprecedented success, achieving new highs in both the number of IPOs and the funds raised.

Important regulatory changes

2023 also saw a number of important regulatory changes being introduced.

As of January 27, 2023, India implemented the T+1 settlement system, improving the effectiveness of share market transactions. Under this system, shares are now credited to demat accounts within one day of purchase, a departure from the previous two-day process, enhancing transaction efficiency.

SEBI cracked down on financial influencers, with penalties imposed and considerations for stricter rules on associations between regulated and unregulated entities in what is now known as the "Finfluencer Saga."

SEBI also enforced mandatory nominee additions for demat and mutual fund account holders, enhancing security measures. Auto-debit systematic investment plans (SIP) now have a capped period of 30 years, departing from their previous perpetual nature. The indexation benefit available to debt mutual funds was also removed in the 2023 budget.

Furthermore, SEBI introduced a quantifiable material threshold for company disclosures, prompting a more thorough evaluation by companies before deciding whether to disclose information. These regulatory changes collectively contribute to increased transparency and accountability in the financial landscape.

SIPs drive the market

The regular inflow of money through SIPs provides a positive boost to the market, potentially leading to an annual increase of approximately 3%, assuming all other factors remain constant. This means that, on its own, the market could experience an uplift of about 3% each year due to these SIP inflows.

According to the report, applying a multiplier similar to recent research in the US market, every new ₹1 invested in the market might contribute to a ₹5 increase in the overall market value. Considering a monthly SIP of $2 billion, translating to an annual SIP of $24 billion, in a market of approximately $4 trillion, this could result in a significant impact, potentially leading to a ~3% annual return.

A roof over the head

When it comes to goal planning, buying a home and planning for retirement are the top most goals with 24% and 20% investors planning for these two goals respectively. Buying a car (16%) and education (9%) were the other goals of investors on the Kuvera platform.

Preference for index funds

Investors who recently joined the Kuvera platform are displaying an increasingly strong inclination towards Index funds. Among those who initiated their investment journey in the year 2023, 15% of their portfolio comprises Index funds, marking the highest percentage recorded to date.

This trend indicates a growing recognition and preference among newer investors for the stability and diversification offered by Index funds in their investment portfolios.

Also, on an average, investors have 8 schemes in their portfolio.