SIP account openings surge, but premature closures also on the rise

The domestic mutual fund (MF) industry has seen a record surge in systematic investment plan (SIP) registrations, but this growth has also been accompanied by a rising trend of premature SIP account closures.

  In 2023, the industry recorded 34.8 million SIP registrations, but only 18.2 million of these accounts remained active by the end of 2024. This translates to a 48 per cent closure rate within two years of registration.

  In contrast, the premature closure rate was lower in previous years. In 2022, 25.7 million SIPs were registered, with 42 per cent of these accounts closing by the end of 2023.

  The data, shared by sources, is derived from SIP longevity figures in the monthly Association of Mutual Funds in India (Amfi) report, which is available only to fund houses.

  The data shows the number of SIP accounts in different age brackets. To determine the number of SIPs started in 2023 and active until the end of 2024, total SIP registrations in 2023 is compared with the number of SIP accounts that were one to two years old as of December 31, 2024.

  SIPs are recommended by the industry and investment experts for long-term equity MF investment, ideally for more than three years.

 

According to MF officials, the rising number of both SIP registrations and closures indicates that investors are churning their portfolios at a higher rate.

  “The rising cancellations of SIP accounts are largely a result of higher share of fintech platforms in these cancellations,” said D P Singh, deputy managing director & joint chief executive officer of SBI MF.

  Fintech platforms like Groww, Zerodha, and others have gained popularity in recent years due to their ease of investment and commission-free direct plans. However, investments through these platforms tend to have shorter holding periods compared to traditional distribution channels, such as banks and individual distributors.

  According to a recent report by Amfi, a larger proportion of regular plan investments have holding periods exceeding five years compared to direct plans, which are primarily distributed through fintech platforms and online channels. 

  As of March 2024, 21.2 per cent of regular plan investments had holding periods of over five years, whereas only 7.7 per cent of direct plan investments had similar holding periods.

  “This reflects that the impact of guidance given by intermediaries has historically been helpful in fostering long-term investor  discipline,” the report said, noting that direct plans were only introduced in 2013.

 

Experts also point out that the rise in SIP account churn can be attributed to the SIP edit options provided by some online platforms, which can lead to new SIP registrations.

 

The MF industry has been adding SIP accounts at a record pace, with active SIP accounts surpassing 100 million for the first time in 2024, accompanied by 26.8 million net additions. However, the recent equity market correction has slowed SIP registrations.