Many individuals in their 20s have begun investing in SIP (Systematic Investment Plan) without a deep understanding of financial concepts, often influenced by social media content or advice from friends. Through conversations with friends and acquaintances, I have observed a trend of individuals across various income brackets, from those earning Rs 20,000/month to Rs 1 lakh/month, allocating a significant portion of their income towards SIP investments. If a large portion of the population were to accumulate significant wealth through SIP compounding over the next 10-20 years, there is concern about the potential impact on inflation and overall economic stability. Will SIPs see a downtrend this year?
Advice by Arjun Guha Thakurta, Executive Director, Anand Rathi Wealth Limited
SIPs have grown over the past decade as more people realise the power of disciplined investing and this trend in across urban and rural segment primarily due to the awareness programs by SEBI and media in general. People are realizing that SIPs and MFs are a convenient way of growing wealth. Between 2014 and 2024, while equity markets delivered a 12% CAGR, the share of equity and equity mutual funds in Indian households’ financial assets jumped from 5.3% to 16.4%. This shows that more people are slowly moving away from traditional savings options to explore higher-growth investments.
That said, 60% of household financial asset are still in low-risk options like deposits, small savings, and pension funds. Mutual funds, including SIPs, still make up a relatively small part of the overall financial portfolio. It is estimated that it will take another 10–15 years for mutual funds to become a significant chunk of Indian households’ investments.
As for inflation, it is influenced by many factors such as interest rates, government policies, global events, geo politics reacted price movements, not just investing trends. SIPs, while growing steadily, still have a long way to go before their impact on the economy becomes more visible.
For now, SIPs are likely to remain a strong, reliable choice for wealth creation, with no major downtrend expected anytime soon.
SIP investment
In recent years, systematic investment plans (SIPs) offered by mutual funds (MFs) have experienced significant growth and success. SIP involves investing a fixed amount of money into an MF at regular intervals, typically monthly, with a focus on equity MFs that primarily invest in stocks.
By April 2016, the total SIP investments in MFs amounted to Rs 3,122 crore. By December 2024, this figure had reached a record high of Rs 26,459 crore, showcasing a consistent upward trend. Notably, in both October and November 2024, SIP investments exceeded Rs 25,000 crore. It is estimated that approximately 90% of these investments are directed towards equity MFs, thereby contributing significantly to the stock market.
Overall, the surge in SIP investments reflects the popularity and effectiveness of this investment strategy in building wealth over time.
On September 26, 2024, the BSE Sensex, India’s leading stock market index, reached its peak at 85,836 points. By January 14, 2025, it had dropped by almost 11%. Despite this decline, the inflow of funds into Systematic Investment Plans (SIPs) has continued to increase. In September 2024, the amount stood at Rs 24,509 crore, rising to Rs 26,459 crore in December 2024, representing an 8% growth compared to September.
SIPs allow investors to benefit from cost averaging by consistently purchasing units of equity Mutual Funds (MFs) regardless of market fluctuations. This strategy enables investors to acquire more MF units at lower prices during market downturns, potentially leading to advantageous returns when stock prices rebound. Investing through SIPs helps investors overcome the psychological barrier of buying stocks during periods of decline.
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