As mutual fund investors look to manage their portfolios, it’s important to keep up with the latest news and trends. Passives and Systematic Investment Plans (SIPs) have recently been the big story in mutual fund flows. Investors increasingly moved away from traditional active investment strategies and favoured passive investing and SIPs which allow investors to set up an orderly and structured financial plan, investing regularly on a predetermined basis with fixed amounts at predefined intervals.
These two particular approaches to investing have become a major story throughout the mutual fund industry in 2022 as more investors recognize their benefits and embrace them as part of their investment strategy. So, let’s take a closer look to understand why.
The rise in popularity of passive investing
One reason for the rise in popularity of passive funds is that they are not only receiving better shares but also performing well in the markets. As compared to active equity funds, which had a net inflow of Rs 30,515 crores as of August 2022 end, passive funds had Rs 42,278 crores during the same duration.
Passive fund categories recorded an inflow of approximately Rs 13,623 crore with ETFs receiving approximately Rs 10,807 crore as of September 2022. This kind of performance has led many investors to turn towards passive funds as a reliable option for investing their money.
Also, passive investing incurs a lower expense ratio compared to actively managed funds as they require less research from fund managers to be effective. This type of investing also comes with adequate diversification and low risk as there is no pressure to outperform the market’s average returns. As an added bonus, passive investing requires minimal time since there is no need for constant tracking.
SIP inflows surge
The SIP inflows as of September 2022 were particularly impressive, with SIP inflows surging 2% month-on-month (MoM) to Rs 12,980 crore (according to data released by the Association of Mutual Funds in India).
SIPs have gained immense traction among investors due to their convenience and benefits. Since they allow investors to invest in small amounts periodically instead of lump sum payments, it helps them manage their finances better. Furthermore, since these investments are made over time regularly, they reduce risk exposure by averaging out costs over time – by buying more units when prices are low and fewer when prices are high, thus, bringing enhanced returns.
An SIP investment eliminates the need for investors to time the markets, as they can simply invest consistently over time and enjoy the benefits of compounding returns. Moreover, since SIPs require very low initial investments compared to other types of investments, they make it easier for people who don’t have large sums of money to grow their wealth over time. To ensure timely payments, investors can even automate their SIP instalments where a fixed amount will be automatically debited from their account on the specified date and invested in the selected mutual fund scheme.
With the increasing inflows into passive funds and SIPs, more and more investors are seeing the merits of these investment strategies. There are many reasons for this shift, but chief among them is the advantages that these approaches offer investors in terms of both lower fees and easier diversification that can help boost returns while making it simpler to stick to long-term financial goals.
Investing in a passive fund is as simple as any other mutual fund. An investor can purchase these funds online through a fund house’s website or a mutual fund investment app and choose SIP as the investing method. Both online and offline options provide the investor with convenience, flexibility, and access to different investment options for their personal goals. However, regardless of the method investors choose, it is important to consider factors like understanding the fund’s objective, expense ratio, fund performance, and, most importantly, if these factors align with their investment objectives.