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

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.