Here’s why people are suddenly going for SIPs — and why the trend isn’t going to end anytime soon

• March 2021 saw the highest ever SIP net inflows of ₹91.8 billion.
• According to analysts, this because anyone who was looking to make easy money off of India’s economic recovery has already bagged their profits — or run out of patience.
• People still want to invest in the market and capitalise on India’s economic growth but, they want to do it without having to worry about the day-to-day nuances.

Whatever easy money was to be made in the market has been made. According to analysts, the next best bet for the common man, while also being safe, is systematic investment plans (SIPs).

The net inflow of SIPs was at its highest ever in March 2021 — worth ₹91.8 billion. The month was also the first time in eight months that equity funds saw inflows instead of outflows.

“A lot of demat accounts were opened during the pandemic. People went for investing in direct equities. Now that the easy money has been made, people will go back to normalisation of allocation of money,” Tarun Birani, the founder and director of TBNG Capital Advisors, told Business Insider India.

Last week, Groww became the second wealth management unicorn after Zerodha. During the course of the pandemic, Paytm Money introduced stock trading on its platform. Startups were offering low brokerage fees and an easy way to invest as they challenged legacy platforms like ICICI Direct or Kotak Securities.

“A lot of investors thought it would now become frictionless to buy stocks and creating a diversified portfolio is no longer difficult. But, what has happened in the last couple of months, that market is more turbulent on a day-to-day basis… Many don’t understand the nuances of the market if the market is generally going up,” said Dhirendra Kumar, the chief executive of Value Research.

According to analysts, the primary trigger for the uptake is a combination of three factors — liquidity, lower risk free rates and the pandemic shedding some of its uncertainty.

Take out a loan and make up for interest payments by investing in the market

The Reserve Bank of India (RBI) and the Indian government have been pumping money into the economy. They want to make sure that there is enough liquidity in the market to drive up demand so that the Indian economy can get back on its feet.

As April kicked off, RBI governor Shaktikanta Das told reporters that the apex banking institution has no plans of tightening liquidity in the market and will continue its accommodative stance for the next three months.

“There is ample liquidity. Because there is ample liquidity, the risk free rates will come off meaningfully. When that happens, generally people tend to take a risk,” explained Birani.

This means that if people have more money in hand — while inflation is in excess of 6% — they have an increased ability to invest. It also means that if they’re taking out a loan and the market is doing well, they think they can leverage their investments in the market to make up the difference.

Risk free rates of interest just aren’t going to cut it anymore

As a salaried individual, the safest ways to invest your money is by putting it in a savings account, locking it up in a fixed deposit or finding a government instrument to invest in.

Many parked their funds in the Employee Provident Fund (EPF). But in the most recent budget, the government capped the non-taxable amount at ₹2,50,000. Moreover, the return on fixed deposits doesn’t make up for inflation and savings account rates even less so.

This leaves the average investor with very few options. And, since investing directly into funds when the market is getting kicked around by daily speculation, SIPs is a safer option.

“Everybody was waiting for the big correction, which hasn’t happened. They’re losing patience. It’s better to have a plan rather than depend on the market,” said Kumar.

Is the SIP uptake here to stay?

As a salaried individual, one only thinks about assessment management or financial planning where the inflow of cash is certain. “If you feel confident about where that cash flow is coming from, you start allocating — whether it's in equity, gold or wherever they want to,” said Birani.

And, with the pandemic shedding its uncertainty, markets are on an upward trajectory. “With buoyant stock markets, we can only hope that the positive trend in equity flows is not a one-month or a year ending aberration but a return of investors to mutual funds and long-term investing,” said Gopal Kavalireddi, the head of research at FYERS — a tech-focused stockbroking and mutual funds investment platform.

Ratings agencies expect India to reclaim its growth as the fastest growing country in the financial year 2022, with GDP growth clocking in anywhere from 10.5% to over 13%. However, the rapid increase in the number of COVID cases across the country and the subsequent lockdowns could throw India’s economic recovery off track.

“If there is any blip in the momentum, it will be because people are biding their time to see how the new lockdown situation prevails. It may put people on the tenderhooks again,” said Birani.