The curious effect of mutual fund SIPs on Sensex, Nifty
6 years, 6 months ago

The curious effect of mutual fund SIPs on Sensex, Nifty

Live Mint  

Retail flows into equity mutual funds have historically followed a predictable pattern. Whenever one-year returns are poor for successive months, flows dry up and there are even net outflows from equity mutual funds, as was witnessed in early 2014 and 2016. According to the head of research at a multinational brokerage, “Domestic fund managers, faced with increasing flows in a market where valuations are already rich, have responded by increasing allocations to so-called quality stocks, resulting in extremely high valuations in a few select stocks.” It is no secret that broad market indices have held firm only because of a rally in a few stocks that have large weights in these indices. Even though flows from non-SIP sources into equity mutual funds continue to gyrate, based on market conditions, SIP flows provide hope. An important feature of SIP flows is that they are far stickier than one-time purchases, and are hence not expected to disappear, unless there is a meltdown, like the one during the 2008 financial crisis As one industry executive said recently, the catchphrase that comes to mind now is “Mutual fund sahi hain”, compared to the earlier “Mutual funds are subject to market risks”.

History of this topic

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