The latest data put out by the Association of Mutual Funds of India (AMFI) on mutual fund SIPs is quite encouraging. There has been a sharp 53% growth in total SIPs in fiscal 2018 compared to fiscal 2017. What explains this huge traction on SIPs especially considering that the Nifty and the Sensex are already fairly valued?

The equity TINA factor…

There is no alternative (TINA) appears to be driving this demand for SIPs. Most retail investors have discovered the virtues of rupee cost averaging and the power of compounding in the last 4 years. The average diversified equity fund has given nothing less than 14-15% annualized and that is the kind of returns you don’t get in any other asset class. Weak returns on debt and the compliance worries over gold and real estate are actually forcing investors to gravitate towards equities.

Who cares about LTCG?

That appears to be the message from the SIP numbers. Investments in SIPs actually got accentuated in the month of February and March after the budget had announced the 10% tax on LTCG. The reasons are not far to seek. The net difference in CAGR returns on SIP is only marginally lower even after you consider the tax effect.

An appetite for passive…

What this also shows is that there is a huge appetite for passive investing in India. Most investors look at an equity SIP as a passive investment as they are not required to put in any effort. When investors have tasted the power of passive investment and the merits of discipline, they are not keen to shift. The big shift towards equity SIPs may have just about begun in India. May we live in interesting times!