Lump sum MF investments dive as investors tread SIP path

Lump sum investments in equity and hybrid schemes of mutual funds (MFs) declined to Rs 17,900 crore in October — the lowest since January 2021.

The fall in lump sum investments comes even as flows through systematic investment plans (SIPs) rose to a new all-time high of Rs 13,000 crore in October.

The latest lump sum tally is just a third of the peak inflow of Rs 49,700 crore in July 2021.

In the past year, lump sum investments have largely been on a downward trajectory, reveals an analysis by Motilal Oswal Financial Services.

Volatility in the market and an uncertain global environment have discouraged investors from committing large sums to MF schemes.

In the past year, stock prices have swung wildly, with the benchmark Sensex dropping as much as 17 per cent to 51,360 and bouncing more 20 per cent to breach nearly 63,000.

The fall in mid-caps and small-caps has been even sharper, with the latter still trading substantially below their record highs.

Top MF distributors say that they have been advising their clients to avoid lump sum investment due to geopolitical uncertainties, runaway inflation, and expensive valuations.

“We are asking investors to take the systematic transfer plan (STP) route if they have a large sum to invest,” says Anand district-based MF distributor Nikhil Thakkar.

Akhil Chaturvedi, chief business officer, Motilal Oswal Asset Management Company, says a staggered approach is a better investment strategy in the existing scenario.

“Markets in India have been quite resilient and outperforming global counterparts.

"There is a valuation premium to India versus peers.

"This leads to probable fear of correction in the short term, thus staggering of investments is a better strategy, and therefore, we are seeing higher SIP and STP registrations than lump sum flows at this stage,” says Chaturvedi.

STP is an investment mode wherein investors park a large sum in very short-term debt schemes like liquid or ultra-short and transfer small portions to equity schemes.

This helps an investor average out the purchase price and saves him/her from catching a market high.

Under SIP, an investor invests a fixed sum every month in an MF scheme.

Meanwhile, a lump sum investment entails putting in a large sum at one go.

Given the prevailing environment, the MF industry and financial advisors have long been asking investors to take the systematic routes (SIP or STP) to invest in equities.

These routes eliminate the need to time the market.

The market has been surging, notwithstanding the consensus earnings estimates getting revised downwards.

Since April, the Nifty consensus earnings per share for 2022-23 (FY23) has been cut by 6 per cent; for 2023-24 (FY24), by 2 per cent.

Analysts expect further cuts in earnings as sales growth is expected to remain muted. As a result, Morgan Stanley Capital International (MSCI) India is trading at a price-to-earnings multiple of 22x and 19x its estimated earnings for FY23 and FY24, respectively — nearly double the MSCI Emerging Market’s.

Experts say investors can increase their lump sum investments if valuations come down to comfortable levels or look at investing in themes focused on the domestic economy.

“We continue to maintain our neutral view on Indian equities, supported by constructive views on Indian macros and improved health of corporations, including banks.

"We recommend investors remain prudent in their equity allocation strategy and focus on sectors or companies with high domestic exposure as the global outlook remains unfavourable.

"We believe any sharp correction could provide a buying opportunity,” said Credit Suisse Wealth Management India, in a recent note