SIP returns in last 3 yrs remain lacklustre even as inflows hit new high

From August, the highest-ever inflow of ₹32,297 crore through Systematic Investment Plans (SIP) in mutual funds has been recorded. Even so, most equity funds have delivered single-digit returns over the last three years. The overall SIP inflows have reached ₹1.58 lakh crore in the past five months, accounting for 45 percent of the total inflow of ₹3.50 lakh crore during the last fiscal year.

Apart from small and mid-cap funds, which have yielded an average return of 13 percent per SIP, all other schemes have given a single-digit return over the past three years, according to data from Geojit Research. Large and value funds have the least performance, with average SIP returns of 5 percent and 7 percent over three years, while large and mid-cap funds and flexi funds have returned 8 percent and 9 percent, respectively.

In the past year, however, small and mid-cap funds have delivered returns of 28 percent and 18 percent, driven by strong inflows in these schemes. Aditya Agarwal, Chief Investment Officer at Avisa Wealth Creators, notes that SIP growth remains consistent despite modest returns over the 1-3 year period, as investors now see SIPs as a disciplined, long-term wealth creation tool rather than a short-term return strategy.

Volatility does not necessarily imply heightened risk; instead, regular investing allows for rupee-cost averaging. Agarwal emphasizes that a well-balanced combination of active and passive funds can be effective, with active funds constituting the core portfolio and passive funds providing targeted market exposure at a lower cost.

Yudhajit Baul, founder of Yudhajit Financial Services, believes that despite geopolitical uncertainties, a weak monsoon, and high crude oil prices, earnings growth is expected to be robust in the September quarter. The surge in SIP flows during volatile markets underscores the maturing nature of retail investors. Baul concludes that despite modest equity mutual fund returns over the last two years, investors' confidence in the potential of Indian equities to compound their wealth and help them achieve financial goals remains strong.

Sriram BKR, Senior Investment Strategist at Geojit Financial Services, highlights the systematic approach of investing in volatile assets like equities, taking smaller steps for long-term goals. While he acknowledges that equity is a high-risk asset with potential extended periods of drawdowns, he stresses the importance of continuing with SIP even during low-return periods, as it helps investors stay committed to their long-term financial objectives.