SIP stoppage ratio jumps in January; are investors turning cautious on SIPs?

The Nifty 50 index is down around five percent over the last six months, while the Sensex is down around four percent. More importantly, the broader indices – BSE MidCap and BSE SmallCap – are hovering around bear market territory, having fallen nearly 20 percent from the recent highs.

Is investor confidence around SIPs declining? While some experts see the rise in SIP cancellations and dip in inflows as an alarming trend, others consider this a normal behaviour during periods of heightened market volatility, while expecting things to improve once the market stabilises.

This time, however, the dip comes amidst a social media furore over investing in SIPs, especially in the mid and small cap space. Many mutual fund houses have doubled down on their messaging, encouraging investors to remain invested for the long-term and not to exit or discontinue due to concerns around market volatility or overvaluation.

The Nifty 50 index is down around five percent over the last six months, while the Sensex is down around four percent. More importantly, the broader indices – BSE MidCap and BSE SmallCap – are hovering around bear market territory, having fallen nearly 20 percent from the recent highs.

Meanwhile, data for the month of January shows that the stoppage ratio surged to nearly 109 percent, a significant jump from 82.73 percent in December and 60.72 percent in September last year. This metric, which reflects the percentage of discontinued or expired SIPs relative to new registrations, suggests that more investors are pulling back from their investments.

Investor exits and tenure-ended accounts hit 61.33 lakh in January, up from 44.90 lakh in the previous month, even as new SIP registrations saw a rise to 56.19 lakh from 54.27 lakh. SIP inflows for the month saw a minor dip to Rs 26,400 crore from Rs 26,459 crore in December, as per data from the Association of Mutual Funds in India (AMFI).

Some industry experts have voiced concerns over this trend. Aashish Somaiyaa, CEO of WhiteOak Capital AMC, said, "It is a concern if at the first sign of trouble investors are cancelling SIPs.” He further added that he "won’t be surprised if the trend accelerates in February."

"It is the AMC industry's job not just to manage funds and outperform benchmarks but to do handholding of investors and intermediaries, communicating consistently with investors and buttressing the message of longevity," he said.

However, some caution against reading too much into the data at this stage. Sachin Jain, Managing Partner, Scripbox, pointed out that it is premature to label this a declining trend.

"I don’t see this as a trend yet. The last two quarters show a demand drop, with auto and consumer durable consumption down. Inflation and lower consumer confidence may have led to higher spending, impacting SIP numbers short-term," he explained. While acknowledging that market corrections could influence sentiment, Jain maintained that SIP inflows remain strong.

To investors, Jain suggested, "We believe that this is the time to align your asset allocation with your risk appetite with a slightly conservative stance towards equity. Be cautiously optimistic."

Meanwhile, Ventura Securities' Juzer Gabajiwala remains optimistic despite the dip. "SIP stoppage increases when markets dip, which is normal. While SIPs are for the long term, sharp market drops trigger panic, leading to higher stoppages. Over the past 4-5 years, markets haven’t dipped significantly, so stoppages remained low. Now, with a larger SIP book, the numbers appear bigger, but the impact is minimal,” he explained.

Incidentally, industry body AMFI highlighted the fact that the decline in SIP flows was marginal and the de-growth in accounts was primarily due to a reconciliation between the exchanges and the RTAs, leading to a correction of around 25 lakh accounts.

Had this not been considered, there would have been a positive growth of 20–25 lakh accounts. Regarding the reconciliation, AMFI chief Venkat Chalasani explained, "In 2024, SEBI issued a circular stating that any SIP accounts discontinued for more than three months must be closed. Some accounts were initially left out when this rule took effect on April 1, 2024. However, during this month, those accounts were identified and cleaned up."

The regulator also recently announced the launch of ‘MITRA’ (Mutual Fund Investment Tracing and Retrieval Assistant), to help investors trace their unclaimed or inactive mutual fund folios. SEBI had directed Registrar and Transfer Agents (RTAs) to work with AMCs to create the platform.

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