'SIPs make money for those...': Radhika Gupta shares her tips on investment, power of compounding

SIP investment: Amid recent discussions around the decline in SIP numbers and cancellations in FY25, Radhika Gupta, the CEO of Edelweiss Mutual Fund, highlighted the significance of SIPs in generating returns for investors. She emphasized that SIPs enable fund managers to invest capital gradually, ultimately benefiting those who utilise them.

Gupta noted that the monthly SIP contributions have reached Rs 26,000 crore, with a significant number of investors placing their trust in this investment strategy. This collective trust plays a crucial role in providing stability to the capital markets, especially during periods of sharp FII outflows.

Furthermore, Gupta highlighted the innovative nature of SIPs in catering not only to the investment needs but also to the regular savings requirements of Indian investors. The mutual fund industry has successfully developed this instrument, appealing to a wide range of investors in the country.

In a post on social media platform X, Gupta noted: "The mutual fund industry created an instrument that appeals not just to the investment needs, but the regular savings needs of Indian investors.  We spend time educating investors and money marketing this solution. Today, crores of investors - common investors - use it and trust it, and that collective trust is worth 26,000 crores a month.  That collective trust is what gives stability to our capital markets during periods of sharp FII outflows. SIPs make money for those who invest in them - check the ten-year returns of an SIP in an equity fund even when markets deliver very average returns - and SIPs allow fund managers to deploy capital gradually."

Investing in SIPs provides a tactical method to seize opportunities arising from market volatilities while upholding financial discipline. By utilizing SIPs, individuals can enhance their returns by utilizing rupee cost averaging and compounding advantages. Nevertheless, a lack of comprehension regarding investment products can result in substantial mistakes for numerous SIP investors, particularly those who are inexperienced in the market.

Gupta added: "When I met global counterparts they are impressed that the SIP has been part of creating a retail equity culture so quickly, something many countries are not able to do.  It is major progress from a day when equity markets were believed to be speculative "satta".  Individuals are now aspiring to save and build larger SIP books. Yes it isn't perfect.  But it works.  And works very well.  This accessible savings-cum-growth solution for a critical Indian need deserves to celebrated not belittled.  The clickbait articles of mutual funds being a scam and retail investors being silly do not do our citizens any service."

In his explanation of the SIP investment process, Arjun Guha Thakurta, Executive Director of Anand Rathi Wealth Limited, told Business Today that many SIP investors tend to select funds based on recent performance, particularly the returns from the previous year. 

He cautioned that short-term outperformance or underperformance may not be enduring, as even esteemed funds with a strong history can temporarily lag behind their counterparts and benchmarks due to variations in fund management strategies and market conditions.

"SIPs have grown over the past decade as more people realise the power of disciplined investing and this trend in across urban and rural segment primarily due to the awareness programs by SEBI and media in general. People are realizing that SIPs and MFs are a convenient way of growing wealth. Between 2014 and 2024, while equity markets delivered a 12% CAGR, the share of equity and equity mutual funds in Indian households' financial assets jumped from 5.3% to 16.4%. For now, SIPs are likely to remain a strong, reliable choice for wealth creation, with no major downtrend expected anytime soon," Thakurta said.