For every 3 new SIP accounts, 2 discontinued in Aug & Sept

Systematic investment plans or SIPS, which have cushioned the mutual fund (MF) industry amid volatility in equity flows, are also showing signs of weakness. According to industry estimates, the SIP closure ratio — the number of discontinued SIPS as a share of new SIPS registered— climbed to 66 per cent in August and September. This meant that for every three SIP accounts opened, two SIP accounts were discontinued over the last two months.

According to industry officials, it is largely the weaker hands that have led to the spike in the closure ratio. “Investors, who had entered the markets with a shorter investment horizon, have been disappointed with the returns they have seen so far. At the same time, pushing SIPS has not been easy to new investors, with trailing returns not showing a strong track record of late,” said a senior executive of a fund house.

“There is a general pessimism due to the negative newsflow and events, which are keeping investors on the sidelines,” said Rahul Parikh, CEO of Bajaj Capital.

In September, the number of new SIPS registered stood at 850,000, and the number of discontinued SIPS was 563,000. While SIP closures have remained steady at around 550,000 in the current financial year, it is the decline in new SIP registrations which has triggered the spike in the SIP closure ratio. At 850,000, the number of new SIP registrations is 16 per cent lower than July's tally of 1,019,000.

“There is a slowdown in lumpsum equity flows (i.e. tactical investments made in MF products as against systematic investments). This underscores that there is still money waiting on the sidelines,” said Kaustubh Belapurkar, director of mutual fund research at Morningstar India.

In September, the MF industry garnered equity flows of ~6,609 crore, which was 27 per cent lower than the previous month. The monthly contribution through SIPS has, so far, remained intact at around ~8,000 crore, even as growth has largely remained marginal on a monthly basis. In the oneyear period, the mid- and small-cap schemes have yielded tepid returns of 4.9 per cent and 0.2 per cent, respectively.

“Investors, who were looking to make quick gains in the mid- and small-cap space, are actively looking for exit opportunities,” said another fund manager.

Industry observers say the overall equity flows coming into the MF industry could come under pressure if SIPS see any significant slowdown.

Anecdotal evidence suggests that a large part of SIP flows is directed towards equity schemes. This implies that SIP flows already account for 51 per cent of the industry's gross equity inflows (~16,053 crore in September).