SIP collections drop to Rs 96,000 cr in FY21 amid pandemic-led disruptions

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The Mutual fund industry saw its collections through SIPs dropping 4 per cent to Rs 96,000 crore in the 2020-21 fiscal, as COVID-19 induced lockdowns led to income uncertainty.

Going forward, success of the vaccination drive, better than expected economic scenario and higher incomes can be the factors that will have an impact on systematic investment plan or SIP flows, Gopal Kavalireddi, Head of research, FYERS, said.

While a few of the economic indicators like GST collections, auto and housing sales look positive, IIP and inflation data along with intermittent lockdowns can affect the economic progress in the ongoing fiscal, he added.

A total of Rs 96,080 crore was collected through SIP in just concluded fiscal, lower than Rs 1,00,084 crore garnered in 2019-20, as per the Association of Mutual Funds in India (AMFI).

Inflows into SIPs have averaged about Rs 8,000 crore for the 12 months till March this year.

Systematic investment plans or SIPs have been the the preferred route for retail investors to invest in mutual funds as it helps them reduce market timing risk.

The mutual fund SIP contribution has increased steadily over the years. From Rs 43,921 crore collected in 2016-17, Rs 67,190 crore in 2017-18, Rs 92,693 crore in 2018-19, the SIP contribution hit the Rs 1 lakh crore mark in 2019-20.

Quantum Mutual Fund Chief Executive Jimmy Patel attributed the decline in SIP numbers to coronavirus-induced lockdown as several investors chose to stop their SIPs.

"With the coronavirus pandemic resulting in lockdowns in March 2020 and raising income uncertainty, many investors opted to pause their SIPs. This was evident from the decrease in SIP inflows post March 2020. From a high of Rs 8,641 crore the contribution decreased for 11 consecutive months, before it could breach the previous highs," FYERS' Kavalireddi said.

The March 2021 SIP contribution of Rs 9,182 crore is robust. Of this, close to Rs 500 crore would be a spillover from February (shorter month and end of the month holidays), he added.

Gautam Kalia, Head Investment Solutions, Sharekhan by BNP Paribas, said that market correction in March-April of 2020 in tandem with the pan-India lockdown was a novel experience and many retail investors reacted by stopping their SIPs and electing instead to wait and watch.

In addition, the lockdown also impaired the physical distribution efforts across the industry and finally, the market rally in October-November 2020 led a lot of investors to book profits and the historic high levels deterred new investors, he said.

Harshad Chetanwala, co-founder Mywealthgrowth.com, said the decline in fund mobilisation through SIPs could be due to several investors chose to stop their SIPs in falling market which was the case for first few months of previous year.

Along with that, last year there were a lot of people who were facing job cuts or salary cut due to pandemic, and they had to keep money for their mandatory expenses and had to stop their SIPs, he noted.

Currently, mutual funds have 3.73 crore SIP accounts through which investors regularly invest in Indian mutual fund schemes.

A total of 1.41 crore SIPs were registered in the fiscal year ended on March 31, 2020, while 86 lakh were discontinued or whose tenure completed.

According to Sharekhan by BNP Paribas, market collection on SIP to be higher than last two years given the uncertainty surrounding the pandemic, the increased volatility of the market and the high index values, retail clients will increasingly prefer a staggered investment approach.

Kalia said that investors are gradually accepting that the high market levels that have persisted for the last 3-4 months, are probably here to stay.

"SIPs should continue to grow in this fiscal year as things get more normalise. The recovery was happening at a reasonable pace almost a month ago, however, second wave of Covid-19 in India can have some impact on that recovery," Mywealthgrowth.com's Chetanwala said.

But unlike last time, there are many learnings from previous lockdown and way to handle the situation, and businesses have been able to control cost due to last year's lockdown and the operations in many industries have been tuned to manage situation, he added.

Quantum Mutual Fund's Patel suggested investors to continue their SIPs even in times of falling market.

SIP is an investment plan offered by mutual funds, wherein one can invest a fixed amount in a mutual fund scheme periodically at fixed intervals, once a month, instead of making a lump sum investment.

It is similar to a recurring deposit where an investor deposits a fixed amount every month.