Moneycontrol
Last Updated : Mar 14, 2019 02:34 PM IST | Source: Moneycontrol.com

What is prompting investors to discontinue SIPs?

As per data with Association of Mutual Funds in India, collections via SIPs stood at Rs 8,095 crore last month - higher than January - while industry witnessed 4.96 lakh discontinuations of accounts.

Himadri Buch @himadribuch

Himadri Buch

Moneycontrol News

Systematic investment plans, popularly known as SIPs, seem to be losing sheen.

As per data with Association of Mutual Funds in India, collections via SIPs stood at Rs 8,095 crore last month - higher than January - while industry witnessed 4.96 lakh discontinuations of accounts.

However, the silver lining is that the number of SIPs discontinued in February were less than that of December and January - 5.36 lakh discontinuations.

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Indian Mutual Funds have currently about 2.59 crore (25.9 million) SIP accounts through which investors regularly invest in Indian Mutual Fund schemes.

Volatile markets & Aadhaar impact

Fund managers said that volatile equity market have played spoilsport while some said SIPs may have lost some of its sheen after Unique Identification Authority of India (UIDAI) disallowed Aadhaar-based authentication to complete Know Your Client (KYC) norms.

Generally, the MF industry used to add close to 10 lakh SIPs each month before the Supreme Court verdict on Aadhaar, AMFI data shows that the industry had added merely 7 lakh SIP accounts each month since November.

On October 12 last year, UIDAI wrote to the MF industry — the registrar and transfer agents (R&T) and some online distributors — asking them to discontinue using Aadhaar-based authentication to complete KYC norms.

In September 2018, the Supreme Court verdict banned the use of Aadhaar data for financial transactions. This means a Permanent Account Number (PAN) is mandatory for every investor KYC.

Poor performance

"Lacklustre performance across equity scheme categories in the past one-year, where majority of large cap funds, mid cap funds, small cap funds, multi cap funds, have under-performed their respective benchmark indices. As a result, those who started SIPs towards the end of 2017 haven't made much money in last 12-15 months," said a fund manager from a private fund house.

Large-cap, mid-cap and small cap mutual fund categories have delivered negative returns in the range of 4-10 percent in the last one year.

In terms of net SIPs, which is new SIP registered minus discontinued SIPs, the numbers are falling even faster. In fact, in February 2018, the industry added just 2.58 lakh net new SIP accounts, compared with 2.62 lakh accounts in January, as per AMFI.

AMFI data also reveals that the number of SIP discontinuations have increased in the current financial year compared to FY18.

In FY18, the total discontinuation of SIP accounts stood at 34.83 lakh, while in 11 months of FY19, this number has already touched 52.99 lakh.

On the other hand, the number of new SIPs registered in FY18 was 116.41 lakh, while until February, 100.67 lakh news SIPs were registered.

MF DATA

Inflows into equity funds, including equity linked saving schemes, have declined 17 percent on a month-on-month (MoM) basis to Rs 5,122 crore in February.

Monthly equity inflows have come off significantly from the high of Rs 20,308 crore seen in November 2017.

Assets under management (AUM) for the MF industry stood at Rs 23.16 lakh crore as at February-end, almost flat compared to the previous month.
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First Published on Mar 14, 2019 02:34 pm
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