SIP was the successful Sharma ji ka ladka. Now it has a problem

Har shaks bhaagta hai yahan bheed ki taraf,
phir ye bhi chahta hai ki usse raasta mile.
– Waseem Barelvi

Kaun seekhta hai sirf baton se,
Sabke liye ek hadsa zaroori hai.
– Jaun Elia

How we fight, tooth and nail, against gaining real insight. Against letting go of what makes us suffer.
– Helen Garner, How To End a Story – Collected Diaries.  

Rs 30,954 crore. 

In May 2026, that’s the total amount of money that was invested in mutual funds (MFs) through systematic investment plans (SIPs).

SIP is a complicated term which simply describes a way of regularly investing in an MF scheme. Most of this money is invested in equity MFs, which in turn, invest a bulk of the money collected in stocks listed on Indian stock exchanges.

In March 2026, Rs 32,087 crore was invested in MFs through SIPs – the highest ever.

In April 2026, Rs 31,115 crore was invested in MFs through SIPs – the second highest ever.

A total of Rs 94,156 crore has been invested in MFs through SIPs in the last three months. 

This is more than the money invested in MFs through SIPs in 2016-17, 2017-18 and 2018-19, respectively. What once took an entire year of SIP investments has now happened in three months.

And It’s pretty close to the money invested in 2019-20 and 2020-21, respectively.

Long story short – SIPs have become a very popular form of investing. In fact, they have become so big that they are now hurting the Indian economy and the average retail investor. And that’s what this piece is all about. 

My SIP story

On a very rainy day in September 2005, I was interviewed by a now defunct newspaper to write on personal finance. I had no idea about personal finance.

I was offered the job a few days later and I took it. With the benefit of hindsight, I can say, both sides were rather desperate.

In December 2005, I started my first two SIPs. One of them was in a scheme called SBI Magnum Tax Gain. I don’t remember the name of the other scheme.

A few months of writing and reading on personal finance convinced me that this was the best way to invest. 

With a daily job it was next to impossible to have the time to research stocks and invest in them. Plus SIPs were a disciplined way of investing – or so I thought. You kept investing a fixed amount month on month and hoped that it grew.

For more than 20 years now I have more or less stuck to SIPs. There have been periods when money has been tight – given that I work as a freelance writer – leading to no investments. And there was also a period when I briefly lost faith in SIPs.

When I first started investing in SIPs it was a novelty. MFs didn’t really advertise about it – at least nowhere as hard as they do now.

In fact, some of my male colleagues who were totally cued into the stock market’s daily ups and downs thought that SIPs were for sissies.

But given that I didn’t have to do much after choosing the schemes to invest in, I persevered. 

Mutual fund sahi hai

Now, equity MFs are not the only way of indirectly investing in stocks. There are Unit Linked Insurance Plans (ULIPs) too. ULIPs are basically MFs which come with a dash of life insurance.

In the 2000s and the early 2010s, insurance companies selling ULIPs offered a lot of upfront commission to those selling it. Hence, ULIPs were very popular – meaning mis-sold.

You walked into a bank wanting to do a fixed deposit and you were sold a ULIP. 

There were multiple problems with ULIPs.

First, a lot of the premium paid was simply used to pay commissions and not invested. 

Second, it was next to impossible to figure out which ULIP had given the best returns in the past.

Third, three years into the ULIP, agents and bankers selling ULIPs would appear again and try convincing you to ditch the current ULIP and buy a new one. It made sense for them simply because the ULIP commissions in the first two years were on the higher side. 

Fourth, insurance companies were allowed to use celebrities to advertise. MFs weren’t.

All this came together to make ULIPs a very popular form of mis-selling, and there weren’t enough agents, banks and wealth managers who wanted to sell MFs. And then things started to change. 

First, many investors who had invested in ULIPs between 2005 and 2011 figured out that they had barely made any returns and had been taken for a ride. There was a regulatory crackdown on high insurance commissions as well.

Second, in March 2017, the Association of Mutual Funds in India (AMFI), the mutual fund lobby, launched the mutual fund sahi hai investor education initiative. At the same time, the Securities and Exchange Board of India (SEBI) allowed MFs to use celebrities to endorse products at the industry level.

This change let Sachin Tendulkar, Mahendra Singh Dhoni and Rohit Sharma, become a part of the mutual fund sahi hai campaign. In that sense, these celebrities essentially helped project MFs as an everyday FMCG product that could be a part of daily conversations and lives.

Suddenly, MFs were not an exotic product. But they were humanised. SIPs benefited from this. 

Third, the rise of cheap smartphones, the availability of cheap internet bandwidth and the advent of low-cost easy to use apps, made do it yourself (DIY) investing easier and popular. 

Further, people were allowed to work-from-home during the pandemic, making DIY investing easier, benefitting SIPs.

Thanks to the work-from-home dynamic investing in futures and options and cryptos and punting on online money games also took off. 

Fourth, during and post the pandemic, interest rates were cut to very low levels, in order to encourage corporates to borrow and expand, and consumers to borrow and spend, in the hope of propelling economic activity and economic growth. 

The low interest rates on fixed deposits pushed investors to look for higher returns elsewhere. The rise of SIPs benefitted from this phenomenon too. 

Fifth, at the end of the day nothing succeeds like success. Take a look at the chart. It plots the SIP inflows every month (in Rs crore) against the level of the BSE Sensex – India’s most popular stock market index – at the end of the preceding month. So, for May 2026, it plots the SIP inflows for the month with the Sensex level at the end of April 2026. 

Source: Association of Mutual Funds in India and bseindia.com

What does this chart tell us? It shows what I like to term the reverse law of demand.

The law of demand essentially states that, all other things remaining the same, the demand for something will go up if the price falls. This basic law does not apply to investing. What applies is the reverse law of demand.

Money comes pouring into stocks or equity MFs – once stock prices have already gone up. Retail investors need that affirmation. 

Which is precisely what the above chart shows us. As stock prices went from strength to strength so did the money flowing into MFs through SIPs.

The last few months have been an exception to this. But then once something becomes popular its momentum keeps driving it.

Indeed, those in the business of managing other people’s money (OPM) – fund managers, wealth managers, chartered accountants, investment advisors, mutual fund distributors and others – often talk about the growing maturity of SIP investors. But for the most part, investors have simply been chasing performance.

SIPs and the fallacy of composition

There are situations in life where what’s good at an individual micro level isn’t so at the broader macro or societal level.

A simple example of this is the act of saving money. If an individual saves more money it makes sense. But if the whole society starts saving more money, there’s likely to be a problem, simply because one man’s spending is another man's income. Such situations are referred to as the fallacy of composition.

SIPs have been going through this dynamic.

When I first started SIPing in 2005, there wasn’t any data shared on the total amount of money being invested in MFs through SIPs – which tells us that it couldn’t have been much. 

Indeed, the publicly available data on SIPs starts from April 2016. In 2016-17, a total of Rs 43,921 crore was invested through SIPs. Ten years later, in April and May 2026, Rs 62,069 crore was invested in MFs through SIPs.

So, in just two months, SIPs attracted 41% more money than they did in an entire year a decade ago.

In 2025-26, close to Rs 3.5 lakh crore was invested through SIPs around eight times in comparison to the amount in 2016-17. And this has impacts.

First, the supply of stocks large and liquid enough to absorb substantial MF investments – coming through the SIP route or otherwise – hasn’t grown nearly as fast as the flood of money that investors have poured into MFs over the years.

So, there has been a huge mismatch in the demand for investing in stocks and their supply. (For those looking for more details and a more nuanced argument can read this August 2024 speech by Ananth Narayanan, a former whole-time member of SEBI.)

One consequence of this was the rapid rise in the price of many mid-level and smaller stocks, without a similar increase in their earnings.

This is basically the stock market’s version of inflation. When too much money chases goods and services, prices rise at a faster pace, and that leads to higher inflation.

Similarly, when too much money chases stocks, their prices rise faster than their earnings. Or as Narayanan put it in his August 2024 speech: “The price of over 30 percent of midcap and small stocks have more than tripled over the last 3 years.” Stock prices peaked in late September 2024.

Second, this fast rise in stock prices brought the reverse law of demand into play, when more money was invested in equity MFs looking at the past performance of stocks, and this drove stock prices further, at least up until 2024.  

Third, the higher stock prices encouraged insiders to sell their shares to essentially cash in and take some money and risk off the table.

As Charles Kindleberger writes in Manias, Panics and Crashes: “The purchases of securities… by ‘outsiders’ mean that the ‘insiders’ – those who own these assets – sell them and realise profits; if the outsiders are buyers, then the sellers must be insiders. At every moment the purchases of… stocks by the outsiders are necessarily balanced by the sales of the insiders – usually at ever-higher prices.”

This dynamic has been playing out in the Indian stock market over the last few years. Foreign institutional investors (FIIs) are a good example of the insiders of the system selling out.

In 2024-25 and 2025-26, the FIIs net sold Indian stocks worth around Rs 3.1 lakh crore. 

As Shankar Sharma, the founder of the AI company GQ FinXRay, wrote in January 2025 for moneycontrol.com: “When FIIs decide to sell, they need somebody to buy.” Or when insiders sell, outsiders – that is retail investors among others – are buying.

The money coming through SIPs has been helping finance the FII sale. 

In 2024-25 and 2025-26, a total of Rs 6.4 lakh crore came into SIPs. This money didn’t just help finance the FIIs selling, it also helped finance a good chunk of the IPO boom – another form of selling by the insiders of the stock market. 

In 2024 and 2025, IPOs raised more than Rs 3.8 lakh crore. During the period more than Rs 6 lakh crore was invested through SIPs.

This allowed many loss-making venture capitalist funded companies to sell their shares at extremely high prices, and pass on the risk of owning such firms to retail investors.

Other than this, a few multinational companies (MNCs) listed their Indian subsidiaries, allowing their owners to sell shares to Indian retail investors. 

Of course, the retail investors didn’t just include the SIP investors, but also included those investing lump sums in MFs and those investing in IPOs and stocks directly. 

Over and above this, many promoters of listed companies – another set of insiders – sold some chunk of the shares they owned.

A January 2026 report in the Mint points out using figures from the PRIME Database that in 2025, promoters of already listed firms sold shares worth Rs 1.38 lakh crore against Rs 1.12 lakh crore in 2024. 

All this was financed by the humble retail investors, many of whom like me, were religiously SIPing month on month. 

Fourth, when FIIs sell shares, or foreign VCs list startups at exorbitant prices or MNCs list their Indian subsidiaries, they get paid in rupees. These rupees are then converted into dollars or other foreign currencies and repatriated out of India.

This increases the demand for dollars and in the process weakens the value of the rupee. Of course, this isn’t the only reason why the Indian rupee has lost considerable value against the dollar and other foreign currencies, but it is one of the major reasons. 

The irony is that many economists and policy makers have identified India’s penchant for gold buying as a major reason for the weakening of the rupee, but nobody seems to be blaming the humble and successful SIP. 

Cost averaging  

Around two and a half months back I was invited to record a podcast with a financial influencer. Given that I didn’t say things that he perhaps wanted me to say, the podcast was canned. 

During the course of our conversation I had asked him: What’s the most important reason to SIP? Given that all financial influencers are products of the bull market in stocks that India saw between 2020 and 2024, he mumbled and fumbled, offering a few answers, but not the right one. 

The most important reason to SIP is cost averaging. Of course, there are other reasons like the discipline of investing etc. But the basic idea behind SIP or regular investing in MFs is cost averaging. 

But the fallacy of composition impacting SIPs has taken this investment strategy at the heart of SIPing out of the equation.

Let’s understand how through an extremely simplistic example.

Let’s say you invest Rs 10,000 in an SIP every month. The net asset value (NAV) or the price of a single unit of the MF in the first month is Rs 10. You end up buying 1,000 units of the scheme (Rs 10,000 divided by Rs 10.)

The next month the NAV has fallen to Rs 5. You buy 2,000 units of the scheme (Rs 10,000 divided by Rs 5.)

Now, you own 3,000 units in the scheme (1,000 units plus 2,000 units).

In the third month, before your SIP is due, the NAV of the scheme has gone back to Rs 10. Your 3,000 units are now worth Rs 30,000 (3,000 units multiplied by Rs 10.)

This is when you have invested Rs 20,000 in the scheme. 

As mentioned earlier, this is an extremely simplistic example to show why SIP as a strategy exists. It exists so an investor can cash in on the stock prices going up and down – or being volatile – as the OPM crowd likes to put it.

You buy fewer units when stock prices have gone up. You buy more units when stock prices have fallen. And once the prices go up again the units bought when prices had fallen are worth significantly more, thus benefitting the investor. 

The trouble is that the flood of money flowing into SIPs over the last few years has taken volatility out of the equation.

Between March 2020 and September 2024, stock prices only went one way – and that was up. And they haven’t fallen much since. 

Which is why SIP returns on equity MF schemes have been limited.

Let’s take the case of flexi-cap schemes – which invest across small, mid and large stocks – and have become a fairly popular form of investing in the last few years. 

As of June 12, 2026, the two year SIP return on these schemes was 0.2 percent per year on average. Which basically means no returns. 

The average SIP return on these schemes over three years was 5.1 percent per year. For four years, it was 8.8 percent per year. For five years, it was 10 percent.

Now 10 percent per year return isn’t that bad exactly. It’s decent. But you need to consider the fact that a long-term capital gains tax needs to be paid on these gains. Also, you and I are taking on the risk of investing in stocks.

It’s hardly surprising that there have been a spate of news reports and bites by OPM wallahs stating that SIPs are long-term products, which they are.

Nonetheless, one of the benefits of experience is that you tend to remember things. In the 2000s, when the first efforts to market SIPs were happening, for most OPM wallahs, the long-term was three years. 

Now, the average SIP return on flexi-cap schemes over seven years was 13.1 percent per year. For 10 years it’s 13.2 percent per year on average.

So, decent returns have been earnt for those who have stayed invested. Nonetheless, there are a few points that need to be kept in mind here.

The reasons

First, investors who have earned these returns started investing much before the pandemic. So, they had the benefit of buying MF units at a lower price allowing cost averaging to come into play – something that hasn’t happened much in the last five to six years. 

Second, there were fewer flexi-cap schemes and equity MFs that existed 10 years back in comparison to now. So, competition for buying stocks was lesser and that benefitted investors. The SIP boom which has ended up hurting SIP investors hadn’t happened. 

Third, a lot of things happened just before, during and after the pandemic which helped drive up stock prices. These were one time reasons which cannot really be replicated.

In September 2019, the government cut the corporate income tax rate. This drove up corporate profits.

During the pandemic, the interest rates fell dramatically. This helped corporates pay lower interest on their borrowings, which also drove up their profits. It helped them repay their borrowings much faster. 

Demonetisation, the botched up implementation of the goods and services tax, and the spread of the pandemic, badly hurt the informal sector and the smaller firms.

This increasing formalisation helped firms listed on the stock exchange capture a larger part of the Indian economy.

The government increased its capital expenditure to drive up economic activity during and post the pandemic. This helped many listed companies, driving up their stock prices.

Of course, cheaper internet, cheaper smartphones and the rise of easy to use investing apps, all fuelled money into the stock market. The benefit of this dynamic seems to have peaked. 

Also, FIIs invested a whopping Rs 2.7 lakh crore or $37 billion in Indian stocks in 2020-21. This drove up stock prices and encouraged Indian retail investors to bet big on stocks in the years to come.

All these factors aren’t going to repeat. So, SIP returns are going to be subdued in the next few years. 

The economy versus the stock market

India grew by 7.7 percent in 2025-26 and that’s a very good rate of growth. So, shouldn’t that translate into stock market gains too? At least, that’s a question that many retail investors are asking. 

The devil as always is in the detail.

First, the FIIs have net sold Indian stocks worth Rs 4.65 lakh crore or close to $51 billion from April 2024 to June 12, 2026. As explained above SIP investors and retail investors have financed this sale.

The point being that a major part of the stock market is largely interested in selling stocks, and that will limit the returns. 

Second, it is important to understand why FIIs have been selling. The valuations – that is prices of Indian stocks with respect to the money they have been making or are expected to make – have been on the higher side.

Third, India lacks an artificial intelligence story, something that is the flavour of the season. This is not something that can be set right immediately or even over the next few years.

To develop artificial intelligence capabilities Indian corporates need to spend money on research, which they don’t like doing. 

As the latest Economic Survey points out: “Capital allocation horizons remain short. Despite notable exceptions, Indian corporate investment is characterised by low R&D intensity, caution in frontier manufacturing, and concentration in real estate–linked, regulated, or quasi monopolistic sectors.”

The problem isn’t a lack of money. The problem is where this money wants to go. Many of the people who control capital in India think like financiers and financiers usually look for quick and high returns.

Artificial intelligence doesn’t work that way. It requires patience, involves uncertainty and may take years to generate meaningful profits.

Which is why India has no artificial intelligence stories of some scale in which FIIs can invest.

As a result, money tends to flow into other areas that promise faster returns.

One area – and I say this on the basis of experience as well as some data – that a lot of money seems to have flown is the entire business of managing other people’s money or OPM as I like to call it.

The financial, real estate and professional services sector has grown 11.7 percent per year on average from 2018-19 to 2025-26, on a nominal basis not adjusted for inflation.

Now, separate data for financial services businesses isn’t available. My guess is the growth would be faster than 11.7 percent.

The overall GDP – or the economic size of an economy in a year – has grown 9.5 percent per year on average during the period. (I have used the old GDP series to make these calculations because the new GDP series currently has data starting only from 2022-23.)

Be it new stock brokers, mutual funds, wealth management firms, alternative investment funds, individuals, portfolio management services, etc. – there has been a huge rush to enter the OPM business.

There are more sellers of the idea of investing in stocks – directly and indirectly – out there, than was the case in the past. It’s a reasonably easy business to enter and has fewer hassles than running other businesses in India.

This is another reason behind the flood of Indian retail money that has come into stocks. The supply of new sellers of the idea of investing in stocks has created its own demand.

And this also explains all the sustained cacophony around investing in stocks and no questions asked on SIPs – despite the lack of returns for over two years now.

Fourth, many of the OPM wallahs often let their political views shape their investment advice, hurting retail investors without them even realising it.

Fifth, in 2025-26, India’s GDP growth rate – as per the new GDP series – was 7.7 percent. This is real GDP growth which has been adjusted for inflation. The nominal GDP growth which isn’t adjusted for inflation stood at 8.9 percent. 

The stock market is more impacted by the nominal GDP growth rate. And India’s nominal GDP growth rate has slowed down over the years.

This essentially shows a slower growth in economic activity and that impacts the sales and earnings of firms listed on the stock exchange.

Of course, this does not mean that inflation doesn’t matter. It does. But so does nominal growth.

Now, why the growth in economic activity has been slowing down, is a question that needs to be answered in detail, but this isn’t the place to do it. 

Further, one impact or cause of this – depending on how one looks at it – is that India’s rich or high net worth individuals are now more interested in investing in stocks and equity MFs than in real businesses.

If stocks can give double digit returns quickly, as was the case between early 2020 and late 2024, why bother investing in any business.

Sixth, there is another important point which the mainstream media seems to have skipped totally. Nonetheless, anyone serious about investing in Indian stocks couldn’t have missed it at all.

Earlier this year India moved to a new GDP series. The private consumption expenditure – the money you and I spend on buying goods and services – has actually shrunk in comparison to the old GDP series. 

In 2025-26, the private consumption expenditure figure as per the old GDP series was Rs 219.6 lakh crore. As per the new GDP series it was 10.5 percent lower at Rs 196.5 lakh crore.

This isn’t a phenomenon just limited to 2025-26. The data for the new series is currently available from 2022-23. In each of these years, the private consumption expenditure figure for the new GDP series is 9.7 percent to 11.5 percent lower than the old GDP series.

Over four years, the consumption figure is lower by Rs 80 lakh crore. What this shows is that India’s consumption market was nowhere as big as it was made out to be.

So, where does that leave us?

Or if I were to put it as a former boss of mine used to tell me every few months: What do we do now?

Should you stop your SIP? I haven’t. That said, I have scaled back my investments through this route.

Also, I am hoping that others do stop their SIPs. No – that’s not an evil thought.

This will allow some cost averaging to come into the picture. A stock market cannot only keep going up. It also has to go down if SIP investors are to make decent money.

Further, it’s important to remember that the days when you could flip MFs and make money left right and centre, and quickly, are over. 

The good times don’t last forever.

Of course, the end of the war in West Asia – as seems to be the story going around right now – may help push up stock prices a bit. 

Nonetheless, the thing to remember is that the FIIs didn’t start selling Indian stocks only after the war started. They have been doing so for a while now.

Given this, the boring cliches continue to apply. Don’t bet all your money on stocks and equity MFs. Have money spread across different asset classes. 

Do remember that fixed deposits (FDs) may be boring, but they are necessary. You may be stupid if you are betting all your money on FDs, but you are definitely an idiot if you don’t have any money invested in them. 

Have an emergency fund for a minimum of six months saved away. 

If you have a home loan EMI to pay, be slightly conservative with your investments. 

Also, try holding on to the job you have.

Beyond this, I never claimed I had all the answers. 

As my favourite living Urdu poet – Waseem Barelvi – warned at the beginning of this piece, crowds run towards where everyone else is, and want to create their own space as well.

India’s SIP crowd, made up of lazy investors like me, did that too – straight into expensive stocks, weaker returns and someone else’s profitable exit.

But then I have been SIPing since 2005. Most investors have latched on only in the last few years. So, there is a difference.

Which is why retail investors need to hope and pray that the FIIs come back to the Indian stock market.

Because the one thing the last couple of years has shown us about our OPM wallahs is: “Beta tumse na ho payega”.

Vivek Kaul is an economic commentator and a writer.

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