The novel coronavirus, or COVID-19, impact along with the pause facility provided by some mutual fund houses have dragged down inflows in systematic investment plans or SIPs to below Rs 8,000 crore.
SIP inflows in June fell to Rs 7,927.11 crore from Rs 8,123.03 crore in May, a fall of 2.4 percent.
On the rationale behind the fall in SIP inflows, NS Venkatesh, CEO, Association of Mutual Funds in India (AMFI), said, “The small dip in SIPs is largely because of the COVID impact as cash flows have got affected. Plus the (MF) industry has also provided a SIP pause facility, so a lot of people have opted for pause facility because of which inflows have fallen marginally,” Venkatesh said.
Echoing Venkatesh’s view, G Pradeepkumar, CEO, Union AMC, added, “The slowdown in monthly SIP contribution has been worrying, but it is not completely unexpected given the strain on cash flows and incomes experienced by many investors on account of the COVID-19 situation. Once the economic situation improves, the flows should also pick up."
Almost all big fund houses such as Nippon India MF, ICICI Pru MF, Tata MF, and Aditya Birla Sun Life MF have offered an SIP pause facility.
To avail this facility, investors have to send an email to AMCs mentioning the folio number. As per the start and end date (not more than three months) mentioned by the investor, the pause facility is carried out.
The SIP restarts automatically after the pause period is over.
Notice of the pause should be received 30 days prior to the subsequent SIP date. Investors can avail this facility only once in the tenure of the existing SIP.
Last month, around 10,000 new SIPs were registered.
The total number of SIP folios saw a marginal jump to 3.23 crore from 3.20 crore.
Assets under management (AUM) from SIPs rose to Rs 3 lakh crore from Rs 2.76 lakh crore.
What are SIPs?
SIP is an investment method offered by mutual funds wherein one could invest a fixed amount in a mutual fund scheme periodically at fixed intervals - say once a month instead of making a lump-sum investment.
The SIP instalment amount could be as small as Rs 500 per month. SIP is similar to a recurring deposit where you deposit a small/fixed amount every month.
SIPs help the investor average his cost over a period of time, fetching more units when prices are low and fewer units when prices are high.
Generally, buying at low prices and selling at a higher prices in SIPs work brilliantly because the market volatility allows you to buy additional units at a lesser price and hence your ultimate returns will be very good.