The Association of Mutual Funds in India (AMFI) released its latest data, revealing that May potentially broke all records for Systematic Investment Plans (SIPs).
Net inflows through SIPs surged to approximately Rs 20,904 crore, marking the 11th consecutive month of reaching new highs. However, amid this impressive growth, industry experts have sounded the alarm over a concerning trend: the SIP stoppage ratio has also reached an all-time high.
In May, AMFI reported the registration of 49.74 lakh new SIP accounts, a decrease from the 63.65 lakh recorded in the previous month. Conversely, discontinuations spiked by 32.21 percent, totaling 43.96 lakh compared to 33.25 lakh in the previous month. Consequently, the SIP stoppage ratio, representing the percentage of stopped SIPs against newly registered ones, soared to 88.38 percent, surpassing the previous record of 80.69 percent in May 2020.
In a report by Moneycontrol, analysts pinned this trend to various factors. Rupesh Bhansali, head of mutual funds at GEPL Capital, highlighted the ongoing Know Your Customer (KYC) validation process and expensive market valuations as potential catalysts for SIP discontinuations. Moreover, uncertainty surrounding elections and market direction has led many banks and institutions to slow down SIP marketing efforts.
Despite an increase in new SIP registrations, the rate of growth has decelerated compared to previous months. This slowdown is partly attributed to investors’ cautious approach, awaiting clearer market signals. Additionally, the majority of new registrations are driven by new fund offerings rather than organic growth.
Gautam Kalia, SVP and Head of Super Investor at Sharekhan by BNP Paribas, expressed concern over the high stoppage ratio, indicating investors’ attempts to time the market or allocate lump sum amounts amid market volatility.
Swarup Mohanty, Vice Chairman and CEO of Mirae Asset Investment Managers, highlighted the importance of understanding SIPs as a long-term investment strategy, urging investors to embrace volatility rather than discontinuing their SIPs prematurely.
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Two records: India bet big on SIPs in May, but it also gave up on them big time
