Page 27 - Banking Finance September 2024

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minimizes the impact of market volatility, making index funds and Exchange-Traded Funds (ETFs). These
SIPs an attractive option for long-term investors. funds offer investors a low-cost, transparent, and efficient
way to gain exposure to broad market indices.
3. Convenience and Flexibility: SIPs offer
unparalleled convenience and flexibility, allowing
investors to start with as little as INR 500 per month. Key Drivers of Passive Investing Growth
The automatic deduction of SIP amounts from bank 1. Cost Efficiency: One of the primary drivers of the
accounts ensures a disciplined approach to investing, rise in passive investing is its cost efficiency. Passive
which is crucial for long-term wealth creation. funds generally have lower expense ratios compared
Investors also have the flexibility to increase or to actively managed funds because they do not
decrease their SIP amounts, pause investments, or require extensive research or active management. In
even discontinue SIPs without any penalty. a price-sensitive market like India, lower costs have
been a significant factor in the increasing popularity
4. Rising Popularity of Equity Mutual Funds: Equity
of index funds and ETFs.
mutual funds have gained traction among Indian
investors seeking higher returns in a low-interest-rate 2. Market Efficiency Hypothesis: The belief that
environment. As a result, SIPs in equity funds have markets are efficient and that it is difficult to
seen significant inflows, with investors using SIPs as consistently outperform the market through active
a means to participate in the equity markets without management has led many investors to prefer passive
the need for large, lump-sum investments. investing. By simply tracking an index, investors can
achieve market returns without the risks associated
Data on SIP Growth with active stock selection.
The growth of SIPs in India has been nothing short of 3. Performance of Active vs. Passive Funds: In
phenomenal. According to data from the Association of recent years, a growing number of actively managed
Mutual Funds in India (AMFI), the total SIP contribution funds have struggled to outperform their benchmark
in India crossed INR 1 lakh crore for the first time in indices, leading investors to question the value of
the financial year 2021-22, marking a significant active management. This trend has further fueled the
milestone. As of July 2024, the total number of SIP shift towards passive investing, where investors can
accounts stood at over 6 crore, with monthly SIP inflows
consistently exceeding INR 14,000 crore.

The average SIP ticket size has also seen a gradual
increase, reflecting the growing confidence of investors
in this investment method. From an average SIP
contribution of INR 2,000 per month in 2010, the figure
has now increased to approximately INR 3,500 per month
in 2024. This growth is indicative of the trust that Indian
investors have placed in SIPs as a reliable and effective
tool for long-term wealth creation.

The Rise of Passive Investing
Passive investing, which involves investing in funds that
track a market index rather than actively selecting
individual securities, has gained significant traction in
India. The primary vehicles for passive investing are

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