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Decline in SIP inflows during April: Early signs of investor fatigue?

As firms cut salaries and retrench staff, more investors may decide to reduce or stop their investments

May 08, 2020 / 08:34 PM IST

Has the mutual fund SIP (systematic investment plan) juggernaut finally slowed? It would seem so, as there has been a mild dip in the SIP inflows during April.

Of course, the numbers are still healthy, as investors continue to repose their faith in mutual funds and prefer the Systematic investment plan (SIP) route to take exposure. But with a deteriorating economic and jobs scenario, there are questions on the sustainability of SIP inflows.

Investors pumped in  Rs 8376 crore in mutual funds via SIPs during April, a tad lower than in March. The number of new SIPs registered fell to 7.26 lakh from 8.49 lakh in March.

Assets under management through the SIP mode stand at Rs 2.75 lakh crore for April 2020. Despite 23 per cent fall in Nifty 50 index,  investors have been holding on to their SIPs so far.

Worrying economic situation


“If the COVID-19 pandemic continues and the lockdown does not end, then we will see more job losses and salary cuts,” says Suresh Sadagopan, founder of Ladder 7 Financial Advisory. He foresees investors stopping their SIP to tide over cash crunches. “This is not a panic situation caused by the fall in stock markets. This is a bigger problem where investors have to conserve cash in uncertain times,” he adds. The number of SIPs discontinued stood at 5.32 lakh in April compared to 6.02 lakh in March.

The macroeconomic situation is worsening. For the week ended May 3, 2020, the unemployment rate stood at a whopping 27.1 per cent. As corporates cur salaries and retrench staff, more investors may decide to reduce or stop their investments.

“Investors are afraid to commit their money in uncertain times; and some do not want to continue SIPs in falling markets despite their ability to do so,” says Anup Bhaiya, founder and managing director of Money Honey Financial Services. “We calls from investors asking for cancellation of SIP. But when the benefits of SIPs in falling markets are explained, they are willing to continue,” Bhaiya says.

SIPs are ideal for achieving long-term goals. Though falling markets are a good time to invest in equities, investors must assess their cashflows before registering for an SIP. “Investors should first plan for liquidity and contingency needs before investing in equities for the long term,” says Suresh.

If you have your emergency fund in place and have amounts that you do not need for the next five years, you may consider starting an SIP or a systematic transfer plan. Bhaiya recommends investments in multi-cap funds with good track records.
Nikhil Walavalkar
first published: May 8, 2020 08:24 pm

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