In recent years, Systematic Investment Plans (SIPs) have become a favored tool for young investors looking to build wealth, as shown by the latest data from AMFI. In December 2024, SIP inflows surpassed Rs 26,000 crore, marking a remarkable 50% growth year-on-year.
Starting early in investing is crucial, as it allows for the power of compounding to work in one's favor. This article explores how investors in their early 30s are leveraging SIPs, the strategies they use to allocate their investments across various mutual fund categories, and the returns they've achieved since 2021 across different fund types.
Over the past four years, benchmark equity indices have seen a rise of over 60%. However, a market correction of more than 10% in the past few months has impacted mutual funds across categories. This article focuses on how SIP investors under 35 have managed their portfolios since 2021, including their strategies, asset allocation, and performance.
In conversations with these young professionals, all under 35, a common theme emerged. These investors view mutual funds as a stable path for financial growth and are crafting portfolios that balance safety with potential high returns, showing a preference for largecap funds and selective exposure to smallcap funds. Here's a closer look at their strategies and experiences.
The Importance of Largecap Funds
For these investors, largecap funds are the foundation of their portfolios. Allocating 50-60% of their SIP investments to largecap funds, they value the safety and steady growth these funds offer, particularly during market fluctuations.
Ankit Tyagi, 32, an IT professional, shared, “Largecap funds give me the assurance that my money is safe, and I know I’ll see decent growth over the long term.” Similarly, Deepak Gehlot, a marketing professional, emphasized that largecap SIPs form the core of his portfolio due to their stability and consistent growth.
Balancing Risk with Smallcap Funds
While largecap funds offer stability, these investors also allocate about 20% of their portfolios to smallcap funds in pursuit of higher returns. Despite their volatility, smallcap funds are seen as a valuable component for long-term wealth creation.
Sumit Sharma, a media professional, explained, “I’m comfortable taking some risks with smallcap funds because they have the potential to deliver impressive returns over time. It’s about balancing safety with ambition.”
Since January 2021, smallcap fund SIPs in their portfolios have delivered returns of 20-30%, showcasing their growth potential. However, the recent market correction has tempered these returns, highlighting the volatility of smallcap investments.
Diversifying with Flexicap and Multicap Funds
To diversify further, these investors dedicate another 20-30% of their portfolios to flexicap and multicap funds. These funds offer exposure to companies of varying sizes, providing a balanced risk-reward profile.
Vijoy Shankar Roy, a user research professional, said, “Flexicap funds let me hedge my bets. They’re a great middle ground between stability and growth.”
Steering Clear of Thematic and Sectoral Funds
Interestingly, none of the investors we spoke with have ventured into thematic or sectoral funds, citing their complexity and higher risk.
“Thematic funds require timing and deep understanding,” Roy noted. “I’d rather stick to diversified funds that already have some thematic exposure.”
This caution also extends to New Fund Offers (NFOs), which they avoid due to the lack of track records and the perceived redundancy in the market.
SIPs for Wealth Creation, Not Tax Saving
A consistent theme among these investors is that their focus with SIPs is on wealth-building, not tax-saving. They prefer traditional instruments like NPS and PPF for tax-saving, ensuring their mutual fund investments are aimed solely at long-term returns.
“Tax-saving is important, but I’ve already maxed out my 80C limit with PPF and insurance,” Ankit Tyagi said. “When it comes to SIPs, my focus is on long-term growth.”
Adapting Strategies for the Future
Roy has taken a unique approach by incorporating multi-asset allocation funds, which diversify across equities, debt, gold, and REITs. These funds align with his goal of achieving stability while ensuring steady growth.
“Multi-asset allocation funds are a safety net for me,” he explained. “They don’t have huge drawdowns, and they fit well into my long-term plans.”
As his income rises, Roy plans to increase his SIP contributions, viewing mutual funds as the cornerstone of his financial future alongside traditional investments like fixed deposits.
Mixed Returns Since 2021
Despite the recent market correction, these investors have seen positive returns from their SIPs. Largecap funds have delivered up to 15% returns, while smallcap funds have yielded 20-30% growth. However, all agree that the correction has limited what could have been even stronger results.
While the market is unpredictable, these young professionals believe that SIPs will continue to perform well over the long term.
Conclusion
For these investors, SIPs have proven to be an essential wealth-building tool. By focusing on a combination of largecap, smallcap, flexicap, and multicap funds, they've created portfolios that balance safety with high returns. As they refine their strategies and continue investing, it’s clear that mutual funds are central to their long-term financial growth plans.
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