What is Core & Satellite strategy?

Mutual fund investors thronged to redeem en-masse from their SIP (systematic investment plans) accounts, pulling out about Rs 11,140 crores in December, the highest since April 2021. This comes amidst Nifty jumping by over 20% and the Sensex rising by about 19% in 2023. 

Experts attribute this outflow to hefty profit-booking on part of investors, since industry trends suggest that SIP redemptions jump every time the market goes up significantly. Notably, as data suggests, investors redeemed about Rs 9,000 crore each in May and July 2023, when markets were performing well. 

Overall, mutual funds saw net SIP inflows of Rs 85,870 crores in 2023, as against a gross SIP inflow of Rs 1.8 lakh crore. In 2022, mutual funds received gross SIPs worth Rs 1.5 lakh crore, while net SIP inflow stood at Rs 78,700 crores. 

However, per AMFI data, both SIP contribution (Rs 17,610.16 crores) and number of SIP accounts (7,63,65,924) recorded their all-time highs last month. Even the SIP AUM stood at Rs 9,95,925.39 crores for December 2023, as compared to Rs 9,31,333.09 crores for November 2023. 

Media reports suggest that in December, investors made gross purchases of Rs 50,000 crores, while also making gross redemptions of Rs 33,670 crores. 

Another reason for these withdrawals could be to fund year-end vacations and other plans. This might explain why debt funds, which are usually invested in with a short-term perspective, saw outflows worth Rs 75,559.93 crores. On the other hand, equity mutual funds saw inflows of about Rs 16,997.09

Overall, individual investor’s participation remains high, with them holding 60.1% share in total industry assets, up from 57.8% in December 2022. AMFI data notes that as of December 2023, individual investors held Rs 30.70 lakh crore in mutual funds, a 30.33% jump from the figures recorded in December 2022.

Viral Bhatt, founder, MoneyMantra, a Mumbai-based personal finance advisory, advises against frequent withdrawals, since they hinder wealth compounding. 

“The market is cyclical and there will always be ups and downs. Just because the market is doing well now doesn’t mean it will continue to do so forever. On the other hand, SIPs are a long-term investment strategy and are designed to ride out market volatility. By investing through SIPs, you are essentially averaging your cost of investment, which can help you protect your capital in the event of a market downturn”, he notes.