SIPs lose shine, 1.6 m accounts closed in 2011

Though financial experts advise retail investors to stick to systematic investment plans (SIPs) in a fluctuating market to maximise gains, the domestic mutual fund industry with assets of over Rs 6.81 trillion is losing its grip over its most trusted source of equity inflows.

The latest data of registrar firms Computer Age Management Services (CAMS) and Karvy Computershare point out that investors discontinued as much as 1.66 million SIP accounts in 2011.
A study by CAMS, which compiles data for 17 fund houses that contribute at least 59 per cent of the industry’s assets, reveals that SIP account cancellations per month have almost doubled from 59,867 in January 2011 to 115,204 in December 2011.

A similar study by Karvy Computershare that enlists data for the rest of the industry shows that during the March-December period, the fund houses have lost at least Rs 113.33 crore of such assured inflows per SIP cycle in equity schemes. The Karvy data for the 10-month period shows cancellations of 7.26 lakh SIP accounts. Cancellations are most prevalent among investors who pay more than Rs 5,000 a month for SIPs.

Even worse is that the Rs 5,001–10,000 slab witnessed negative net additions during the period and has been negative in five out of ten months, it pointed out. “It is primarily equity schemes which clearly have seen negative net additions in almost all the investment slabs except for those below Rs 1,000. This is another reason why the average ticket size of SIP investments is constantly moving downwards,” said the Karvy report. It may be noted that SIP is touted as the most affordable way of investing in a mutual fund, with instalments of as low as Rs 50. While fund managers prescribe investors the SIP route as investments are spread out and there is no attempt to time the market. 

Introduced in 1990, the concept of SIP clicked because investing through SIPs, investors will not only be able to buy more units, as compared with lump-sum investments- in a given tenure, but they also be saved from the risk of losing money at one go in the event of a market fall.
As less risky and more affordable, SIPs thus have managed to account for a major part of retail sales for the domestic fund industry.

Commenting on the trend, Value Research India CEO Dhirendra Kumar said: “During NFO (new fund offer) days two-and-a-half years back, SIPs were being touted as a magic way to make profits. But now investors have lost patience in SIPs. When someone invests for two years and sees no return, he leaves. The sustained decline in the market has resulted in such discontinuation of SIPs in equity schemes, Kumar added.

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