From banks to SIPs – the evolution of investment choices for Indian retail investors

In India, traditional banking institutions were once the go-to for households seeking savings and investments options, whether it was recurring deposits, fixed deposits or other government schemes. Individuals rarely went beyond their trusted banks for investments. However, a significant shift has taken place with the rise in investment awareness and accessible avenues. Retail investors are now embracing alternative options like systematic investment plans (SIPs), reflecting a move away from exclusive reliance on banks.

Stellar growth in SIPs

According to reports, the total AUM (assets under management) of the domestic mutual fund industry surged to Rs 50.78 trillion in December 2023, with a total of Rs 176.1 billion flowing in through SIPs and over 40 lakh new accounts being opened in the same month. The end of 2023 also witnessed the total number of unique investors climbing to an enviable 42.1 million, from 19.1 million five years ago.

Further, data sourced from the Association of Mutual Funds in India (AMFI) revealed a notable uptick in SIP contributions, which rose from Rs 926.93 billion in 2018-19 to Rs 1.42 trillion by February 2023, marking a substantial 53% increase over a span of five years. This surge underscores the growing appeal of SIPs, with an increasing number of individuals embracing this investment avenue to augment their earnings through modest financial commitments.

SIPs represent a systematic approach to mutual fund investment, enabling investors to allocate funds across various mutual fund schemes encompassing equity, debt, hybrid and commodity funds through regular contributions, as opposed to lump-sum investments.

Another intriguing statistic indicates that, over the last half decade, over 350 equity mutual funds have offered average SIP returns of over 21%, which means that investors who allocated Rs 5000 per month, to these schemes, for the last five years, would have seen their invested corpus rising from Rs 3 lakhs to 5.46 lakhs. This optimal compounding effect unlocked by SIPs makes the investment option extremely attractive to investors keen on attaining long-term wealth.

Future of SIPs

As more investors use the SIP route, the mutual fund industry has a promising future ahead. According to a recent report by Axis Capital, the Indian mutual fund industry is projected to achieve a valuation of Rs 100 trillion by 2030. India's mutual fund sector has witnessed exponential growth, doubling its AUM within a span of just four years. Previously, it took five years for the industry to achieve a similar doubling, going from Rs 12 lakh crore to Rs 25 lakh crore. The report anticipates that the current gross monthly SIP flow of approximately ~USD 200 million will expand by over three times by 2030, driven by increased participation of Indians in financial savings.

Given the varied benefits of SIPs, such as a systematic approach to investing in mutual funds, enabling investors to contribute small amounts regularly, their ability to promote financial discipline, mitigate market timing risks, and facilitate rupee-cost averaging, SIPs are set to garner greater traction in the years ahead.

Additionally, SIPs provide flexibility, affordability, and the potential for long-term wealth accumulation through diversified portfolio exposure, making it an excellent option for investors keen wealth creation in a sustained manner.

If you are also considering investing via SIP, then now is an opportune time to start your journey and capitalise on the current momentum in the market.

Disclaimer: The article is authored by Srikant Tapadiya, Founder, Vitamin-M. The opinions expressed are those of the author and do not necessarily reflect the views of Business Insider India. Do your own research (DYOR) before deciding to invest in any financial asset class. This article is published by the Insider Studios team. You can get in touch with them on insiderstudios@businessinsider.in.