📷 Image Credits: Moneycontrol
In May, the Association of Mutual Funds in India (AMFI) reported that while there was a significant increase in the number of new SIP accounts registered, the SIP stoppage ratio also reached a new high. According to the data, 49.74 lakh new SIP accounts were registered in May, compared to 63.65 lakh accounts the previous month. The discontinuations of SIPs also increased by 32.21 percent during this period, rising to 43.96 lakh from 33.25 lakh in the previous month. This has resulted in the SIP stoppage ratio standing at 88.38 percent in May, surpassing the previous high recorded in May 2020.
Industry analysts attribute this trend to a combination of factors. Rupesh Bhansali, head of mutual funds at GEPL Capital, expressed concern over the trend and suggested that the ongoing KYC validation process may be contributing to the increase in SIP stoppages. He mentioned that incomplete KYC validations have led to the discontinuation of many SIPs. Additionally, the current expensive market valuations have prompted many investors to book profits and discontinue their SIPs.
Another factor that industry players point out is the reduced marketing efforts by banks and institutions due to uncertainty surrounding elections and market direction. This cautious approach from investors waiting for a clearer market direction has led to a decrease in SIP investments, impacting the overall numbers compared to the previous months. Although the number of new SIP registrations is on the rise, the rate of increase is lower than in previous months, with a significant portion of new registrations driven by new fund offerings such as HDFC’s Manufacturing Fund NFO which collected around Rs 9,500 crore, including a considerable commitment through SIPs.
Gautam Kalia, SVP and Head – Super Investor at Sharekhan by BNP Paribas, highlighted the concerning stoppage ratio and suggested that some investors may be trying to time the market by discontinuing their SIPs, believing it to be overvalued. This behavior indicates that some investors are waiting for a market correction before re-entering or are opting to allocate lump sum amounts instead of continuing with SIPs. Similarly, Swarup Mohanty, Vice Chairman and CEO of Mirae Asset Investment Managers, emphasized the importance of long-term investment strategies, stating that discontinuing SIPs due to market volatility reflects a lack of understanding of the concept.
Overall, despite the increase in new SIP registrations, the rising SIP stoppage ratio in India raises concerns among industry experts. It reflects a mix of cautious investor behavior, market uncertainty, and the need for better investor education to navigate through volatile market conditions and investment decisions.
