SIP folios, inflows falling: Is it time for MFs to ring the alarm bells?
The mutual fund industry, which generally relies upon systematic investment plans or SIPs for equity fund inflows, has been showing a falling pattern in the quantity of new folios increases.
Mutual fund industry added 3 lakh folios in august as against an additional 5 lakh folios in July, According to data provided by an association of mutual funds in India.
In August, SIP inflows were Rs 8,230 crore slightly down from Rs 8,324 crore in July. The total amount collected through SIPs in June stood at Rs 8,122,13 crore. This resulted in inflows from SIPs too saw a marginal fall.
By and large, the rising clout of SIP AUM is a champion component and is vital to the example of overcoming the adversity of the Mutual fund industry as the streams are stickier and improve the tirelessness of equity AUMs.
However, SIP AUM came as a silver lining. The asset under management of SIPs rose to Rs 2.81 lakh crore in August from Rs 2.78 lakh crore in July.
MFs Not worried
The Mutual Fund industry is expected to see equity inflows of nearly Rs 1,00,000 crore in 2019 and 2020, If the current monthly run rate of SIP at Rs 8,000 crore is maintained, which is sizeable by any standard and this will also lead to rising in folios eventually, So Fall in folios is just an aberration due to equity market volatility, said a chief executive officer from a mid-sized mutual fund.
During irregular episodes of instability, Sensex fell 0.4 percent in August to a great extent on the back proposed FPI(Foreign portfolio investment) extra charge that prompted FPIs hauling out a colossal piece of investments from the domestic equity market. Further, frail auto sales likewise added to the pain.
In July and August, the budget proposal to hike surcharge on FPIs had spooked foreign investors, who withdrew more than $3.4 billion that is Rs 24,00 crore from domestic equities. In August, the massive capital outflows also put pressure on the rupee, which slumped to 72 levels against the US dollar in August.
On August 23, Finance Minister Nirmala Sitharaman announced the withdrawal of enhanced surcharge on short-term and long-term capital gains earned by foreign portfolio investors (FPIs) and domestic investors soothing market sentiment.
On the outlook for September 2019, Ns Venkatesh, chief Executive officer, AMFI, is also bullish on inflows through SIPs.Venkatesh said the fall in the monthly collection is marginal. We believe that based on their goals investors will continue to invest in mutual funds schemes through SIP. And the SIP numbers continue to remain stable, despite the market volatility.
SIPs are investment plans offered by Mutual funds that permit retail financial investors to put a fixed sum in a plan at fixed periodic intervals, state once per month as opposed to making a lump-sum investment.
SIP is similar to a recurring deposit where you deposit a small/fixed amount each month. The SIP installment amount could be as small as Rs 500 per month.
SIP is a very convenient method of investing in Mutual Funds. By issuing standing instructions to your bank to debit your account every month, one can avoid the hassle of having to write out a cheque.
This strategy has been picking up prevalence among Indian Mutual fund investors as it helps in rupee cost averaging and furthermore in putting resources into a restrained way without agonizing over volatility and timing of the market.
In the current scenario, buying at low prices and selling at higher prices works brilliantly because the volatility means you buy additional units at a lesser price, thus improving your ultimate returns. SIPs help investors average their cost over some time, fetching more units when prices are low and fewer units when prices are high.