Although the monthly net inflows through SIPs may have set a new record in May at Rs 20,904 crore—the eleventh consecutive month of a record high—industry participants are concerned about the SIP stoppage ratio, which has also reached an all-time high.
The industry authority for mutual funds, the Association of Mutual Funds in India (AMFI), has released new statistics indicating that 49.74 lakh SIP accounts were opened in May, down from 63.65 lakh one month earlier.
Additionally, throughout the time, the number of discontinuations rose by 32.21 percent, from 33.25 lakh to 43.96 lakh from the preceding month. Because of this, in May, the ratio of SIPs stopped as a proportion of newly registered SIPs (often referred to as the SIP stoppage or closure ratio in the industry) was at 88.38 percent.
This has surpassed the record high of 80.69 percent set in May 2020 for the ratio. Both new SIP registrations and terminated SIP registrations reached all-time highs in April and May. The ratio, which calculates the proportion of SIPs discontinued or expired as a percentage of newly registered SIPs, is a result of this.
Meanwhile, analysts think that a number of causes are driving this tendency. The CEO of GEPL Capital's mutual funds, Rupesh Bhansali, called the trend "alarming" and said that one possible explanation may be the current KYC validation procedure.
He said that the present market values, which many perceive excessive, are also acting as a stimulus as many investors are booking profits and ending their SIPs. He stated that many SIPs have been canceled since KYC validations were not completed.
Industry participants claim that another reason is that a lot of banks and other institutions have been sluggish to promote SIPs due to apprehension over the outcome of the elections and the direction of the market.
According to them, fewer SIP investments have been made recently than in the previous three to four months since a significant portion of investors are being cautious and waiting for a clearer path for the market.
It's interesting to note that, despite an increase in new SIP registrations, the rate of growth is slower than in prior months since the majority of new registrations are being driven by new fund offers. For example, an NFO by HDFC - Manufacturing Fund - raised over Rs 9,500 crore, with a sizable contribution coming from SIPs.
The all-time high stoppage ratio is unquestionably enough for concern, according to Sharekhan by BNP Paribas SVP and Head of Super Investment Gautam Kalia.
It implies that individuals are attempting to timing the market because they think it is overpriced. Before reentering, some of them are holding out for the market to correct. He said that many customers are reallocating their current SIPs among funds. "Another reason is that investors are looking at allocating lumpsum amounts given the large equity inflows and the collections from NFOs," he said.
Swarup Mohanty, the CEO and Vice Chairman of Mirae Asset Investment Managers, thinks that investors are acting like long-term savers making snap judgments.
According to him, SIPs shouldn't be terminated because of market volatility because doing so shows that the monthly obligations aren't understood. If investors are discontinuing their SIPs, they must accept volatility and pursue more education, he claims.
