Record high new SIPs in July but discontinuation jumps, too

Profit booking in rising markets seen as one of the main reasons for high discontinuation

Discontinuation of systematic investment plans climbed to 855,000 in July, the highest in the current financial year, even as the number of new account openings surged to a record of 2.38 million.

According to market participants, the SIPs tenure of which got completed were not being renewed but the number of discontinuation would reduce in the coming months amid the rise in the markets and strong returns by equity funds.  In the current financial year, around 2.99 million SIPs got discontinued or tenure of which got completed.

D P Singh, chief business officer at SBI MF, said:  “While there new investors are coming through the SIP mode, some investors are also booking profits. Second, now a large number of SIPs are registered as perpetual. Earlier, distributors used to do SIPs on the dated basis; they are not able to reach out to the investors upon the completion of tenure. So, now SIPs close by default and not by design.”

SIP is a method of investing wherein an investor chooses a mutual fund scheme and invests a fixed amount at fixed intervals. Market participants say that equity MFs don’t have the feature of autorenewal, wherein SIPs get automatically renewed once the tenure gets complete. If this feature is widely implemented, SIP discontinuation would drastically come down. 

 In July, new SIP registrations stood around 2.38 million -- the highest-ever recorded by the MF industry. Investments through SIPs also increased in July, compared to June. The SIP contribution in July stood at Rs 9,609 crore, against Rs 9,155 crore in June, and the AUM rose to Rs 5.03 trillion.

But some players are wary that investors are now nervous, given the sharp rise in the markets. “While new investors are coming into the MF fold, many others are moving away from equities or other debt and hybrid products. Once there is a correction in the market, we expect more flows into equity funds,” said a CEO of the mid-size fund house. 

Over the past year, the Sensex has gained 46.74 per cent, while mid-cap and small-cap indices have delivered returns of 58.66 per cent and 89.14 per cent, respectively.