ET Wealth Expo | India is still in SIP accumulation phase; SWPs may gain relevance in 25 years: Vikas Khemani

India’s systematic investment plan (SIP) growth story is far from over, as household exposure to equities remains low and a large section of investors is still in the wealth-accumulation phase, according to Vikas Khemani, founder and chief investment officer of Carnelian Asset Management and Advisors.

Speaking at the ET Wealth Expo in Mumbai on Friday, Khemani said he believes systematic withdrawal plans (SWPs) may take another 25 years to become widely relevant in India as the country’s population ages and more investors move towards retirement.

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Commenting on SWP adoption, Khemani said, “It's an important concept when you actually get into distribution mode. I mean, for most people, by and large, people who are doing SIPs, I assume they are in the accumulation mode.”

Khemani said the recurring debate around how long SIP inflows can continue overlooks the relatively low level of equity participation among Indian households. Even if monthly SIP contributions rise to Rs 1 lakh crore, he believes there will still be significant room for growth.

“India’s household exposure to equity is still in single digits. It will go to 15-20-25% over the next 10-15 years,” he said, arguing that the country’s equity-investing journey is still at an early stage.

He also pointed out that more than 60% of SIPs are below Rs 3,000, highlighting how the investment route is being used by a broad base of small investors. According to him, SIPs should be viewed primarily as a savings tool rather than an investment product whose returns investors need to track every day.

Khemani compared SIPs with recurring deposits that earlier generations used to build savings over time. Many investors, he said, are not constantly checking the returns on their investments. Instead, they continue putting away small amounts with the expectation that their money will accumulate gradually over five to 10 years.

He cited examples of people around him who invest through SIPs but do not regularly monitor their returns. Their focus, he said, is on building a corpus over time.

This, according to Khemani, is why concerns about SIP inflows becoming unsustainable may be premature. With household equity exposure still in single digits and a large number of investors contributing relatively small amounts, he believes the trend has a long runway.

Khemani believes India is still largely in a savings and wealth-accumulation phase rather than a retirement phase. As a result, he said, the discussion around SWPs may be premature at the broader market level.

He pointed to the country's young population as an important factor. Unlike ageing economies such as the US, where a larger proportion of people may need regular withdrawals from their accumulated investments, India is still building its pool of long-term investors.

“India is the youngest nation. We are in a saving mode. We are not in a retirement mode,” he said.

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In his view, SWPs are likely to become more relevant as the population ages and a larger number of investors move from accumulating wealth to drawing down their savings. He expects this shift to take time, suggesting that SWPs may begin to gain systemic relevance only after about 25 years.

For now, he believes the focus should remain on the country's expanding base of SIP investors and the long-term accumulation of household savings through market-linked investments.

(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own and do not represent the views of The Economic Times.)

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