Shutterstock.comThe shrinking disposable income in the hands of retail investors and a fear of job loss has started affecting the inflows through the systematic investment planning (SIP) route. The ratio of discontinued SIPs and the new SIPs – the discontinuance ratio – hit a record high of 81% in May 2020, according to the data from the Association of Mutual Funds in India (AMFI). It was 61% in December 2019 while its 50-month average was 49%.
In May, 6.5 lakh of SIPs were discontinued, the highest so far whereas 8.1 lakh new SIPs were registered. “SIPs can be considered as a type discretionary purchase, which can be either cancelled or postponed during tough economic conditions,” said the marketing head of a leading asset management company on the condition of anonymity.
The total SIP book dropped to Rs 8,123 crore in May, the lowest in the 11 months. It fell by nearly 3% sequentially for the second month in row. According to Amar Shah, head of retail and institutional sales at ICICI Pru AMC, SIP discontinuance rose due to the recent sharp fall in equities. “SIP renewals were also slow since investors preferred to raise the level of cash in hand in uncertain times. Further, closure of AMC branches due to the lockdown affected new SIP registration,” he added. The renewals of matured SIPs form over one-third of the new SIPs.
The average SIP return of the large cap funds fell by 15% and 4.8% for one-year and three-year periods respectively, according to the data from Accord Fintech. The SIP return for a five-year tenure was measly 0.8%.
The assets under management (AUM) of the domestic equity funds nearly doubled in four years to Rs 10 lakh crore in May 2020, according to NSDL data. The total SIP AUM increased by 21% annually in four years to Rs 2.8 lakh crore in May. The total outstanding SIP accounts rose by 32% annually in the past four years to 3.2 crore at the end of May 2020.
Industry trackers remain optimistic about the revival in the rate of new SIPs in the coming months. “A 10% variation in the SIP book is not a cause of worry. Given the falling rate on fixed deposits, SIP remains an attractive option in the long term,” said Shah.
Piyush Gupta, Associate Director at CRISIL Research said the rate of discontinuance will lower once the visibility of disposable income improves.
In May, 6.5 lakh of SIPs were discontinued, the highest so far whereas 8.1 lakh new SIPs were registered. “SIPs can be considered as a type discretionary purchase, which can be either cancelled or postponed during tough economic conditions,” said the marketing head of a leading asset management company on the condition of anonymity.
The total SIP book dropped to Rs 8,123 crore in May, the lowest in the 11 months. It fell by nearly 3% sequentially for the second month in row. According to Amar Shah, head of retail and institutional sales at ICICI Pru AMC, SIP discontinuance rose due to the recent sharp fall in equities. “SIP renewals were also slow since investors preferred to raise the level of cash in hand in uncertain times. Further, closure of AMC branches due to the lockdown affected new SIP registration,” he added. The renewals of matured SIPs form over one-third of the new SIPs.
The average SIP return of the large cap funds fell by 15% and 4.8% for one-year and three-year periods respectively, according to the data from Accord Fintech. The SIP return for a five-year tenure was measly 0.8%.
The assets under management (AUM) of the domestic equity funds nearly doubled in four years to Rs 10 lakh crore in May 2020, according to NSDL data. The total SIP AUM increased by 21% annually in four years to Rs 2.8 lakh crore in May. The total outstanding SIP accounts rose by 32% annually in the past four years to 3.2 crore at the end of May 2020.
Industry trackers remain optimistic about the revival in the rate of new SIPs in the coming months. “A 10% variation in the SIP book is not a cause of worry. Given the falling rate on fixed deposits, SIP remains an attractive option in the long term,” said Shah.
Piyush Gupta, Associate Director at CRISIL Research said the rate of discontinuance will lower once the visibility of disposable income improves.
( Originally published on Jun 18, 2020 )
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