A favourite pastime of those in the business of managing other people’s money (OPM) is telling us that the retail mutual fund (MF) investor has matured because the amount of money being invested through systematic investment plans (SIP) has grown by leaps and bounds.
In 2019-20, ₹1 trillion was invested through SIPs, jumping to ₹3.5 trillion in 2025-26. During April to July 2026, a total of ₹1.26 trillion has been invested, which is more than the total in any year up to 2021-22.
So, are SIPs really the success story they are made out to be? They are. And here’s why.
SIPs and equity MFs aren’t the only way to invest in stocks indirectly. There’s also unit-linked insurance plans (Ulips), which are basically MFs with some insurance.
Ulips were popular and heavily mis-sold through the 2000s and 2010s, as they paid huge commissions that came out of the money investors put into them, reducing the amount that got invested in stocks. Further, it was next to impossible to figure out which were the best Ulips to invest in.
Basically, an equity MF was and is better than an average Ulip, but it lacked the kind of marketing that Ulips had. To address this, the MF industry launched the ‘Mutual Funds Sahi Hai’ (are right) campaign in March 2017, with investing through the SIP route promoted as a key part of this message.
Indeed, SIPs have several things going for them. By investing regularly, an investor doesn’t try to time the market. Many retail investors end up buying when stock prices peak and then lose money. Also, given that a fixed sum is invested every month, it builds a regular savings habit.
Nonetheless, it’s safe to argue that the popularity of SIPs has made them victims of their own success, with perhaps too much money now being invested through them.
The vast sums going into them have added significantly to Indian demand for stocks and helped push up and sustain prices. As prices went up, so did the attraction of investing in stocks. The number of equity MF folios jumped from 63 million as of March 2020 to 123 million by March 2024 to 183 million by March 2026. Net inflows into equity MFs peaked at ₹4.2 trillion in 2024-25 and were at ₹3.5 trillion in 2025-26. A lot of this was SIP money.
India’s stock market, though, is slightly lower than the level it was two years ago, despite SIP inflows remaining very strong. Why?
Higher stock prices also pushed up valuations, as company earnings failed to keep pace. These elevated valuations were a key reason why foreign institutional investors sold Indian stocks. They have net sold stocks worth ₹4.1 trillion since April 2024.
High valuations also allowed a lot of loss-making startups funded by venture capitalists to list at extremely high prices. Many promoters also reduced their stakes. A lot of this was financed through SIP money. After all, every seller needs a buyer.
This impacted returns too. The average 3-year regular SIP return on flexicap funds—a popular category of equity MFs—is 7.8% per year, which is low, considering what investors have gotten used to. Five-year returns average a decent 11.8% a year, while the 10-year returns average an annual 14.1%, which is quite good.
Nonetheless, there are three things to keep in mind.
First, those earning double-digit returns started investing before SIPs became popular. So, they could buy MF units at significantly lower prices than those who started investing in the last few years.
Second, the equity MF universe used to be much smaller. There was less competition for buying shares, making it easier for fund managers to find stocks at reasonable prices—something SIP investors of the last few years haven’t benefited from.
Third, with so much money going into SIPs, cost averaging, which allows investors to buy more MF units when prices fall, hasn’t come into play properly.
So, what’s the impact? In 2025-26, the number of SIP folios fell marginally in comparison with 2024-25. Further, during 2025-26, the number of folios in the ₹501-1,000 range—which forms around a third of the overall folios—shrunk 4.3% from their 2024-25 count and 3.7% in comparison with the 2023-24 figure.
When it comes to SIPs of over ₹1,000, in 2025-26, they grew just 1.8% from the 2024-25 count, a sharp slowdown from the 22% growth seen from 2023-24 to 2024-25. Also, as of March 2026, 34% of SIP money had been invested for more than five years. Note that the SIP as a concept is still relatively young.
Moreover, as of June 2026, close to 40% of the equity assets of MFs were held for up to just two years, with 22% being held just up to a year. So many investors continue to look at equity MFs as a short-term investment.
SIPs worked particularly well when stock prices were lower, competition for stocks was less intense and cost averaging meant more units bought when prices fell. Those conditions have changed. Hence, past returns simply can’t be extrapolated into the future.
So, before the OPM wallahs put the SIP success story into yet another AI-generated presentation deck, perhaps they should also tell investors that this investing game has changed.
The author is an economic commentator and a writer.