Mutual Funds Industry Undertakes One-Time Clean-Up Of SIP Folios
Number of ‘cancelled’ SIP folios spiked in April as old, dormant accounts are de-recognised.
As many as 1.62 crore Systematic Investment Plan folios were counted as ‘cancelled’ by the mutual fund industry in April, resulting in a 13% reduction in outstanding SIP accounts. This led to fears that retail investors had stopped their SIPs, amid elevated uncertainty in equity markets. This inference is incorrect and the drop in SIP folios is actually a result of a one-time clean up by the mutual fund industry, according to the Association of Mutual Funds in India.
“The reconciliation and de-recognition of dormant SIP accounts were undertaken to comply with SEBI’s regulatory norms, which mandate that SIPs should be treated as ceased or discontinued under certain conditions,” AMFI said in response to a query by NDTV Profit.
In early 2024, the Securities and Exchange Board of India introduced regulations that required mutual funds to mark SIPs that had missed three instalments as cancelled. This was implemented in April 2024, and according to AMFI, was done prospectively.
However, there were a number of accounts that fit the criteria to be considered cancelled, but which were not. The mutual fund industry decided to complete the exercise in April, resulting in a large de-recognition of dormant SIP accounts.
“Yes, this is a one-time exercise, primarily addressing legacy SIPs that had failed prior to SEBI’s guidelines but had not been purged from the system. Going forward, AMCs are expected to implement automatic recognition of failed SIPs, based on the failure criteria laid out by SEBI,” AMFI said.
To be sure, the reduction in the number of accounts had no bearing on inflows into the mutual fund industry through the SIP route. Indeed, gross inflows through SIPs hit a record high in April at Rs 26,632 crore. A total of 8.38 crore SIP folios contributed this amount during the month. These are tagged by the AMFI as ‘contributing accounts’. They can be likened to active subscribers in the telecom space.
The number of contributing accounts rose by 27 lakh on a net basis in April.
