Mutual funds finding it tough to retain SIP investors
Mumbai: The mutual fund industry is facing the challenge of retaining the monthly systematic investors with the number of SIPs being discontinued rising steadily as investors who entered the market at the peak of the cycle have not been adequately rewarded and many waiting for the opportune time to reenter the market.
The mutual fund (MF) industry is facing a unique challenge of retaining the monthly systematic investors with the number of SIP being discontinued increasing steadily as investors who entered the market at the peak of the cycle having a bitter experience and many others waiting for the opportune time to reenter the market.
Moreover, the pause facility in SIP introduced by MFs during the peak of the Covid pandemic is being used liberally by investors to start and stop monthly deductions from the accounts.
The SIP accounts that were discontinued in the first six months of this fiscal have increased 57 per cent to 20.69 lakh in September against 13.21 lakh in April even as the equity markets turned volatile and concern being raised by experts on high market valuations amid uncertain global geopolitical developments.
SUSPENSION OF SIPS
In fact, the suspension of SIPs last month were up 6 per cent when compared with 19.59 lakh logged in August, according to the Association of Mutual Funds in India data.
Though the collections through SIP has touched a new high of ₹16,042 crore in September against ₹15,814 crore logged in the previous months as the number of new SIP accounts opened touched 36.77 lakh last month. Kavitha Narayan, VicePresident and Head Research and New Initiatives, Capricorne Mindframe, said a lot of investors initiate their SIP investments based on the past performance of a fund, only to realise that they have entered too late and decide to exit or pause their SIPs owing to the negative returns that they make.
“We often see investors entering into a fund when markets are at the peak — rather than the other way around, only to realise that the reported returns do not match their realised returns,” she added.
Expectations of positive returns over the short term and the lack of an experienced handholding in the form of a financial advisor often leads investors to look for instant gratification, an approach which has likely led a lot of investors to pause or stop their SIP investments, said Narayan.