Zerodha Fund House highlights surge in SIP adoption, up 89% from March 2022; discusses benefits of step-up SIPs

In a recent study, Zerodha Fund House reported a remarkable surge in the adoption of Systematic Investment Plans (SIPs) among retail investors, positioning SIPs as a prominent mode of investment in mutual funds. The study highlights an exponential increase in both the number of SIP accounts and the contributions made, signaling a shift towards disciplined and regular investing. As of June 2024, SIP assets under management (AUM) represent approximately 20 percent of the overall mutual fund industry AUM, underscoring the growing popularity of this investment strategy.

The data reveals a significant rise in SIP accounts, with the number increasing by 59 percent from 5.28 crore in March 2022 to 8.4 crore in March 2024. This upward trend has continued into FY25, with the total number of outstanding SIP accounts surpassing 9 crore as of July 2024. SIP contributions have also shown substantial growth, climbing by 56 percent from approximately ₹12,000 crore to around ₹19,000 crore between March 2022 and March 2024, showcased the report. In the initial months of FY25, SIP contributions exceeded ₹23,000 crore, marking an impressive 89 percent increase from March 2022.

Despite the growth in contributions and accounts, the average SIP amount has remained relatively stable, fluctuating between ₹2,200 and ₹2,500 over the past few years, noted the report.

Vishal Jain, CEO of Zerodha Fund House, emphasized the importance of maintaining discipline in SIP investments: "To fully maximize the benefits of SIPs over the long term, investors should stay disciplined with their investments irrespective of market conditions and also consider progressively increasing their contribution amounts in tandem with their growing incomes. This strategic approach to stepping up SIPs ensures that your investments keep pace with inflation and changing financial goals.”

The Strategic Advantage of Step-Up SIPs

Step-Up SIPs, a strategic variation of regular SIPs, present an advantageous approach for increasing investment contributions as income levels rise. This approach allows investors to adjust their SIP amounts in line with their income growth. Data illustrates the potential benefits of this strategy: A regular monthly SIP of ₹1,000 in Nifty LargeMidcap 250 TRI, from the inception of the index to March 2024, would accumulate an investment value exceeding ₹12 lakh, observed the Zerodha Fund House report.

It further underscored that by incorporating a 5 percent annual step-up, the value of this SIP could grow to approximately ₹17 lakh by March 31, 2024. With a 15 percent annual step-up, the value could reach around ₹35 lakh, and with a 25 percent annual step-up, it could approach an impressive ₹84 lakh. This demonstrates how gradually increasing SIP contributions in alignment with income growth can lead to significant long-term wealth accumulation.

For salaried individuals who typically experience annual salary hikes and bonuses, a Step-Up SIP strategy allows for an investment approach that adjusts contributions in sync with rising income levels. This method not only maximizes the growth potential of investments but also helps in building a substantial corpus over time.

"The idea is simple: As your income rises, a gradual increase in the SIP contribution may potentially lead to an accumulation of higher corpus in the long term. Most salaried individuals expect a yearly salary hike and may get bonuses on an annual basis. Hence, one may opt for an investment approach which steps up your SIP amount in line with the rising income levels," said the report.

The data from Zerodha Fund House underscores the transformative impact of SIPs on the investment landscape, highlighting their role in encouraging disciplined investing. The continued rise in SIP accounts and contributions reflects a growing confidence in this investment strategy. Maintaining a disciplined approach and progressively increasing SIP contributions can help investors achieve their financial goals and build substantial wealth over the long term.

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