Mutual Fund SIP: The Lok Sabha election result, where the Bharatiya Janata Party (BJP) got a slimmer majority, triggered a fresh correction in the market. On Tuesday, June 4, the day the counting took place, Sensex saw the sharpest drop in four years.
During the intraday trading, the Nifty 50 declined sharply by nearly 1,900 points, representing a 9% drop, while the Sensex fell by as much as 6,000 points. The market’s trepidation was evident, with widespread concerns regarding the composition and political stability of the forthcoming government.
A day later, the benchmark stock market indices experienced a significant recovery. The NSE Nifty 50 gained 735.87 points or 3.36% to settle at 22,620.35, while the BSE Sensex jumped 2303.19 points or 3.10% to 74,382.24. The broader indices ended in positive territory, with gain led by Large-cap and Midcap stocks.
Following the market’s recovery trajectory post-election day volatility, mutual fund investors are evaluating strategies for current market investments. It is to be noted that in the second term of BJP-led NDA government (2019-2024), the monthly SIP contributions rose from Rs 8,183 crore in May 2019 to Rs 20,371 crore by April 2024, as per reports. Additionally, the number of SIP accounts has grown significantly from 2.73 crore in June 2019 to 8.70 crore as of April 2024.
So how should investors tread this period?
Business Today spoke to Hrishikesh Palve, Director, Anand Rathi Wealth Limited, on whether to continue with SIPs or opt for lump sum investment. Here are the top points:
> SIPs are ideal for navigating market volatility and can be easily executed through mutual funds. Not all investors have a lump sum amount to start with, which makes SIPs a more practical choice. If you have lump sum available, investing it immediately can be advantageous. By investing the entire amount upfront, you start the compounding process right away, which can lead to faster growth over time.
> However, if you don’t have a lump sum, SIPs are the preferred route. They allow you to start investing smaller amounts at regular intervals. Along with that SIP, if you can complement strategies like step-up or occasional lump sum investment, you can steadily progress towards your goals comfortably.
Mutual Fund SIP vs Lump Sum Investment: Comparison of performance
Taking an example of a salaried person vs an investor with Rs 60 lakhs and another one who uses a combined mode of investing. Palve gives a breakup of profits earned by each.
| Investor A | Investor B | Investor C |
Lumpsum | ₹ 0 | ₹ 6,000,000 | ₹ 25,00,000 |
SIP | ₹ 25,000 | ₹ 0 | ₹ 25,000 |
Time | 20 | 20 | 20 |
Rate | 12% | 12% | 12% |
Corpus (In Cr) | Rs 2.5 | Rs 5.8 | Rs 4.88 |
Bottom line for SIP investors
During the second term of Prime Minister Modi’s administration, the mutual fund sector experienced significant growth. The number of mutual fund folios surged by approximately 118%, increasing from 83.2 million in May 2019 to 181.4 million in April 2024. Concurrently, the industry’s assets under management (AUM) rose by 121%, expanding from Rs 25.93 lakh crore in May 2019 to Rs 57.25 lakh crore by April 2024. Moreover, data compiled monthly by AMFI indicates a substantial increase in net inflows within the mutual fund sector, escalating from Rs 76,989.81 crore in May 2019 to Rs 2.39 lakh crore in April 2024.
In light of the uncertainty surrounding the recent election results, financial experts are urging SIP investors to stay focused on the long-term growth potential of the economy. Despite fluctuations in the market, experts believe that the outlook for growth remains positive. They recommend that investors stick to their SIP investment plan and even consider increasing their contributions during times of market correction. Trying to time the market is discouraged, with experts emphasizing the advantages of rupee cost averaging through SIPs.
Raamdeo Agrawal, Motilal Oswal Group, on Wednesday told BT TV that after a period of elections and politics, market now will follow the economy patterns and would settle down.
Talking about investment through, SIPs, Agarwal said: “I would like to mention that investing through SIP is best for those who are new to the market or who don’t understand the volatility in the market. In the last two days, many investors were confused about what to do in the coming days. Even I was planning my next few steps for a couple of hours. Therefore, new investors and risk-averse investors should go for SIPs. Moreover, in the current volatile market, your SIPs should continue. You should not stop investing through SIPs.”
By regularly investing a fixed amount of money, investors can take advantage of buying more units when prices are low and fewer units when prices are high. This approach ultimately leads to a lower average cost per unit over time, making it a wise strategy for long-term wealth accumulation.