A sharp drop in new systematic investment plan accounts in November has highlighted a trend of high cancellations of SIPs by investors this year. The so-called ‘SIP cancellation ratio' spiked to 79% in the month. But this ratio may be a little misleading.
According to information released by the Association of Mutual Funds in India, a total of 49.5 lakh new SIP accounts were added in November. Cancellations, meanwhile, stood at 39.1 lakh — 79% of new additions. Despite the cancellations, though, the total number of outstanding SIPs rose to 10.23 crore — a new record.
The average monthly SIP cancellations stand at 37.7 lakh in the first eight months of the current financial year. Meanwhile, average new additions per month stood at 60.6 lakh.
Dhirendra Kumar, chief executive officer of Value Research states that investors typically pause or withdraw SIPs when they face immediate financial needs, such as during festive seasons. He emphasises that these temporary pauses are often incorrectly labelled as cancellations. Kumar believes that as long as the overall number of SIP accounts and new investors continues to grow, there is no cause for concern.
The high cancellation does somewhat overshadow the mutual fund industry's longstanding record run, which halted last month only. In November, after hitting fresh records every month for 16 months, the gross inflows through this route fell by only about Rs 3 crore to Rs 25,319.7 crore.
The AMFI refuses to share the net inflows through SIPs, which account for withdrawals and cancellations, with the media. However, industry insiders have pointed out that the net inflows have fallen to below 40% of gross inflows this year.
Gross SIP nos are ofcourse dazzling...!
but at ~38% the ratio of Net SIP flow has hit a new low this year !#mutualfunds #PersonalFinance #SIP #investing pic.twitter.com/rKu3PDWWwpBut this too is not alarming, according to industry participants. In a conversation with NDTV Profit in June, Kalpen Parekh, managing director and chief executive officer of DSP Mutual Fund had said, “This data has been there forever.” The ratio of gross-to-net SIP inflows has always been around 40–50% and this is "business as usual", he said.
Some part of the cancellation of SIPs is driven by individuals that have bought into the concept but have not seen results, according to Mohit Gang, the co-founder and CEO of Moneyfront. Long-term investors, however, continue to use the SIP route to great effect and those investments are durable, he said.
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