retail investors: Will retail investors brave market swings to stay put?

One of the steadiest sources of money flows into the stock market in recent years faces the risk of ebbing in 2025 if equities fail to repeat performances in the recent past. Flows through systematic investment plans (SIPs) into equity mutual funds-the equivalent of recurring fixed deposits in banks-crossed a record ₹25,000 crore every month in the past three thanks to strong returns. But amid forecasts for a tough year for stocks in 2025, market participants are wondering whether individual investors will pour money into equity schemes.

SIPs have been a convenient way for retail investors to put small amounts into mutual fund schemes every month. Of this, 90-95% went into equity-oriented funds. The numbers speak about their popularity. In FY21, flows through SIPs were ₹8,007 crore, doubling from ₹3,660 crore in FY17. One reason for their popularity is strong returns from equity mutual funds. Investments made in Nifty 50 through SIPs have returned an average 14.36% over the last three years. That from the Nifty Midcap 150 was 29.89% and 31.85% from the Nifty Small cap 250 index against 7-7.5% from fixed deposits.

The Nifty has gained in each of the past nine years. But with foreign investors turning sellers in local stocks and concerns over corporate earnings-considered a key reason for the recent bull run-there is uncertainty over the winning run continuing in 2025.The real test for SIP flows would be a market drawdown or low-single-digit returns. Though such instances are the best time to deploy capital, it needs to be seen if investor behaviour will be any different this time.