SIP account closures hit Indian Mutual Funds for the first time since 2022

For the first time since 2022, the Indian mutual fund industry is witnessing a net closure in SIP (Systematic Investment Plan) accounts, raising red flags about changing investor behavior and confidence, as per an analysis by Elara Capital. 

 

SIPs, known for their resilience during market volatility, remained steady even during past market disruptions—most notably during the 2022–23 correction sparked by the Russia-Ukraine conflict. Back then, while lump sum flows fluctuated, SIP accounts continued to grow, reflecting long-term investor commitment.

 

But 2025 tells a different story. Starting January, the mutual fund industry has seen more SIP accounts being closed than opened—a reversal that hasn't occurred in over two years. This shift suggests growing caution among retail investors amid evolving market conditions.

 

The concern doesn’t stop at SIPs. Lump sum investments, particularly into mutual funds, have also slowed significantly. After peaking at Rs 43,000 crore in October 2024—with Rs 21,400 crore funneled into ETFs and index funds—inflows have been on a steady decline, noted Elara Capital. 

 

This pattern of redemptions mirrors historical trends:

• First wave of lump sum withdrawals occurred in 2020, post-COVID market turmoil.
• Second wave hit between April and July 2023, following another correction.
• In both cases, redemptions typically lagged the correction, signaling investors often exit after the damage is done.

 

"More concerning, however, is the increasing number of SIP account closures since the beginning of this calendar year. Notably, during the 2022–23 correction triggered by the Russia Ukraine crisis, SIP accounts didn’t see net closures. This emerging trend warrants close monitoring," said Sunil Jain of Elara Capital. 

 

The pace of new folio additions in mutual funds serves as a strong indicator of the breadth of retail participation. While fund flows are often influenced by investor size, the number of new folios offers a clearer picture of how widely investors are engaging with the market.

 

"In March, new folio additions in Smallcap funds dropped to 182,000— the lowest monthly figure since June 2022. Overall equity mutual funds also saw a slowdown, with only 1.5 million new folios added— the slowest growth since July 2023. Since January 2025, Thematic funds have recorded a 75% decline in new folio additions, followed by Smallcap funds at 67% and Midcap funds at 63%. In contrast, Flexicap, Value, and Largecap funds have been the least affected.

 

We've previously flagged our concern that a large number of new investors in Midcap and Thematic/Sectoral funds entered the market after the June 2024 election results. Many of these investors are already facing losses, and the impact is now visible in the declining flows into Thematic and Sectoral funds. However, flows into Small and Midcap funds have, so far, remained resilient," said Elara Capital's Jain.