SIP discontinuation drops in May as equity markets hit new record highs

Systematic investment plans (SIPs) discontinuation in May at 660,000 was lowest since June 2020. The surge in equity markets helped boost returns and investor sentiment, with many of them deciding to continue with their monthly investments. The benchmark Nifty rallied close to 7 per cent in May and surpassed its previous all-time highs made in February.

In the last few months SIPs discontinuation were in the range between 700,000 and 800,000. The closure figure includes SIPs that were discontinued and the ones whose tenure gets completed.

Jimmy Patel, MD and CEO at Quantum AMC said, “Despite the ongoing pandemic, industry has continued to see net inflows into equity funds. I think with markets rising and positive long-term returns, investors have continued to stay invested in SIPs.”

SIP is a method of investing wherein an investor chooses a mutual fund scheme and invests the fixed amount of his choice at fixed intervals. Market participants say that till a few months ago, three year returns of equity funds were in single digit, but with sharp surge in the markets the long-term returns of the markets have also improved-prompting investors to stay invested.

Typically, investors register a SIPs for three years and continue with the investments if the returns are positive. In the last three years, large cap, mid cap and small cap funds have given average returns of 13-14 per cent.

While in the last one year the returns have been 55 per cent for large cap funds and 74 per cent for mid cap funds. Small Cap funds have delivered returns in excess of 100 per cent in the last one year.

In May, equity funds also saw net inflows of Rs 10,083 crore, continuing its three-month positive streak. Despite the closure of SIPs slowing down, the mutual fund industry fears that if there is sharp correction in the market, discontinuation of SIPs will go up drastically.