Is high mutual fund inflows good or bad for long term return expectation?
In February, mutual fund SIP inflows increased 8% to an hit an all time high. Had DIIs not stepped in, Nifty might have crashed to 20000 levels. I as an SIP investor wanted to accumulate units at new lower levels like 19000-20000 but that never came to be. Since Aug 2024, retailers have been accumulating units at the same 22000-26000 levels. My question is that, the DII mentality to always buy the dip almost like muscle memory regardless of circumstances, bad for long term high CAGR expectation?
High mutual fund inflows are not “bad” for long-term returns, but they do change the market dynamics – I agree.
[But remember, SIP money is actually our own money.]
When a lot of money keeps coming regularly through SIPs, it ensures there are always buyers in the market.
This often reduces sharp corrections because DIIs (Mutual Funds) keep investing.
– In bad times (like now) – it protects the market from falling too low.
– In good times (like a bull market), it can push the market to higher levels.
For investors like you who want to accumulate at lower levels, this can be frustrating.
If markets don’t correct deeply, your average buying price stays higher.
These days, markets do not crash like it did in 2008 or before.
Such deep corrections will never happen again, I think. Why? Because back in 2008 days, DIIs flows were much weaker. Our mutual fund industry was only starting to take shape back then.
But let me tell you, this “buy-the-dip” behavior by DIIs isn’t necessarily harmful.
It brings stability and reduces panic crashes.
Yes, it prevents the market from going too low, but in a bull market, it touches peaks like never before.
So again, the same rule applies – buy the dip (whatever is available) and wait for peaks of the bull market. We can expect the same level of returns.
