What do you see as the big risk for SIP flows into Indian mutual funds? Will the flows continue or you see risks?

For the month of November 2021, SIP flows stood at a record level of Rs.11,005 crore. SIPs have been the one big story of mutual fund growth in the last couple of years. However, it is not just the SIP flows. The SIP folios stand at 4.78 and are adding around 15 lakh SIP folios net each month. The SIP AUM stands at Rs.5.50 trillion, which is nearly 30% of overall retail AUM. In short, SIPs have arrived, but there are risks too.

First, is that many of the millennial investors driving this SIP frenzy have never seen a prolonged market downturn. The last 2008 cycle was when most millennials were not in the market. Since 2013, markets have been moving steadily up, so it looks like mutual funds are an easy way to grow money. However, it can be quite unnerving to see the NAV of your mutual fund languish at negative returns for a long time. That would be a real test.

Another important factor is that debt returns are almost negative in real terms. That could get worse unless the RBI also starts hiking rates. That would mean more attractive debt yields and you could suddenly see a shift in investor bias from equities towards debt. That is the bigger risk for this SIP story. Too much optimism has never been a good idea.