Opinion: Opinion | A Broken System: Why Your SIPs Have Stopped Giving You Good Returns

One of the most disconcerting aspects of the stock market today for millions of Indian investors is the lack of a crash. The Nifty has been trading at high levels for the last three years, while earnings have slowly closed the gap.

It can be especially weird for an investor who started investing during the post-pandemic boom. The money keeps going out of the bank account, but the wealth doesn't seem to be going anywhere. That experience is worth more than the tried-and-true recommendation to just stick it out.

There has been a larger shift in India's financial economy. The country has accumulated a vast stockpile of domestic capital at a time when valuations, corporate profits, and global capital flows are under pressure. SIP assets in March this year were ₹15.11 lakh crore, about one-fifth of the mutual fund industry's assets.

The equity risk premium is a way to grasp the underlying problem. Some valuations reached levels in 2023 where the premium investors demanded for taking on equity risk became unusually low. At current prices, investors were essentially willing to pay less for riskier stocks than for relatively safer government bonds.

The correction that followed has, therefore, been unusual. Instead of a dramatic drop in prices, earnings have had to rise to justify valuations, which economists refer to as a "time correction." A market can correct itself by lowering prices.

It can also correct by letting earnings and nominal GDP grow while prices remain broadly unchanged. The latter has been seen in India, with nominal GDP growth still in the 8.6% to 8.9% range. Valuation remains the main theme.

For years, India's market has traded at a premium to many emerging-market peers, who have been willing to pay for better growth, institutionalisation, and the promise of higher corporate profits. But this premium cannot increase indefinitely.

The more investors pay today, the more growth they are already paying for. It is here that the Indian SIP revolution takes an unexpected macroeconomic twist. SIPs were developed on a sound behavioural basis: invest regularly, don't try to time the market, and don't bunch purchases together at different prices.

The underlying reasoning is correct. What has changed is the amount of money being transferred through the system. In March 2026, SIP contributions reached Rs 32,000 crore per month, with 9.72 crore active SIP accounts. By July, monthly contributions stood at Rs 31,961 crore.

SIP assets in March were Rs 15.11 lakh crore, about one-fifth of the mutual fund industry's assets. The mutual fund industry has grown rapidly too, with assets reaching Rs 85.76 lakh crore in July 2026, almost six times their level a decade earlier.

India thus has something that it didn't have in previous market cycles. That has been a key factor in market resilience. According to a recent Reuters report, foreign investors have sold about Rs 2.4 trillion worth of Indian stocks in 2026, with domestic investors serving as a significant counterweight.

This resilience has a darker side. The amount of domestic liquidity can affect the rate of valuation changes. Eventually, markets need to align the price that investors are willing to pay, the earnings that companies can make, and the return on alternative investments.

Persistent inflows affect the first much more rapidly than the second. To call SIPs a bubble, therefore, would miss the more interesting development. Financial savings have emerged as a stabilising force that can change how an expensive market corrects.

The adjustment doesn't have to be a dramatic drop in prices; it can be a gradual process over several years with relatively low returns. There's another irony in this. The investors who helped shape India's equity market with regular monthly investments are now entering a very different environment from the one in which the SIP culture started.