Most fund managers agree that the mutual fund industry has witnessed drop both in terms of new SIP registrations as well as in the number of discontinuations
Systematic investment plans (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.
Data collated by the Association of Mutual Funds in India (AMFI) reveals that since November last year the mutual fund (MF) industry on an average added 7.23 lakh SIP accounts each month. In the early part of the financial year, the industry added more than 10 lakh SIPs each month.
Similarly, the number of SIP discontinuations in FY19 has increased from 3.99 lakh in April to 5.36 in December 2018.
While AMFI refused to share the data, Moneycontrol talked to fund managers who highlighted this trend.
On October 12, 2018, the 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.
On the rationale behind the fall in SIP accounts, Viral Berawala, Chief Investment Officer, Essel Mutual Fund, said, “Disallowing Aadhaar is one of the reasons for the drop in SIPs. Also, if one looks at market returns in the last 12 months, it is negative. So, that may have also prompted investors to discontinue SIPs.”
Concurring with Berawala, another fund manager from a bank-sponsored fund house said, “Our fund house has also witnessed investors opting to move out from SIPs. This has impacted gross inflow of investments as well as new SIP investments.”
Most fund managers agree that the MF industry has seen a drop both in terms of new SIP registrations as well as the number of discontinuations.
Going by AMFI data, the overall industry saw net MF inflows fall 6.7 percent month-on-month to Rs 6,158 crore. Also, redemption into equity schemes stood at Rs 11,397 crore in January from Rs 11,234 crore in December
Asset managers said that investors may also be desisting to invest ahead of the general elections scheduled in April-May due to political uncertainty.
Indian MFs have currently about 2.57 crore SIP accounts through which investors regularly invest in schemes.
Systematic Investment Plan, or SIP as it is commonly known, is an investment plan offered by MFs, wherein one could invest a fixed amount in a 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 and is similar to a recurring deposit, where you deposit a small/fixed amount every month.
SIP is a very convenient method of investing in MFs via standing instructions to debit your bank account every month, without the hassle of having to write out a cheque each time.AMFI data shows that the MF industry had added about 9.31 lakh SIP accounts each month on an average during FY19, with an average SIP size of about Rs 3,150 per SIP account.