Retail investors are reportedly hitting the brakes on their systematic investment plans (SIPs) in January, pushing the SIP stoppage ratio—discontinued or expired SIPs against new registrations—to a staggering 109%, the highest since April last year, according to a February 13 note by JM Financial Institutional Securities.
The number of outstanding SIP accounts dipped slightly, from 103.2 million in December to 102.7 million in January, a modest 0.5% decline.
But does this signal a deeper crisis in investor sentiment?
Market experts believe the situation isn’t as dire as it appears. While the dip in outstanding SIPs reflects shaken retail confidence amid recent stock market corrections, it does not indicate a collapse in SIP contributions.
Total SIP assets under management dropped from ₹13.6 trillion in December to ₹13.2 trillion in January, according to the Association of Mutual Funds of India (Amfi). However, experts suggest that a significant chunk of the SIP closures stemmed from a reconciliation process between stock exchanges and registrar and transfer agents, which led to the closure of 2.5 million SIP accounts.
Additionally, several investors have been restructuring their portfolios, consolidating smaller SIPs into larger ones, or shifting to different investment modes. Mutual fund distributors also routinely rebalance client SIPs, contributing to the churn.
Jay Kothari, senior vice president of equities at DSP Mutual Fund, in a Mint report stressed that SIP closures would be a concern only if contributions began declining over time. While the slowdown may persist for a few months, he doesn’t expect outstanding SIP accounts to fall back to last April’s 87 million levels. “It is not a structural problem yet,” he said.
The recent stock market correction has unnerved many retail investors. The Nifty 50 surged nearly 90% over the past five years, but in the past six months alone, it has shed 6.56%. SIP returns across large-cap, mid-cap, and small-cap funds have turned negative, amplifying investor anxiety.
An expert noted that many investors, particularly those who entered the market post-COVID, had never experienced such deep corrections and were now pausing their SIPs, adding that halting SIPs during downturns could be a costly mistake, as market corrections offer an opportunity to accumulate more units at lower prices. “If you are investing in equity mutual funds towards your long-term goals, this is the best time to continue your SIPs,” the expert said.
Some high-net-worth individuals (HNIs) have shifted their SIP contributions into fixed-income instruments, rebalancing their asset allocation toward safer bets like fixed deposits. Trideep Bhattacharya, president and chief investment officer-equities at Edelweiss Asset Management Co., pointed out that SIP cancellations tend to correct within three months. He dismissed the idea that stopping SIPs during downturns prevents losses, highlighting that SIPs mitigate price risk over time.
“Our study shows that the risk of capital loss declines significantly with a longer investment horizon, dropping from about 10% at five years to less than 1% at 10 years. However, to benefit from this, investors must stay invested for the long term,” he said.
Despite the rise in stoppages, total SIP inflows remained strong, touching ₹26,400 crore in January—marking a 40.1% increase from ₹18,838 crore last year. Feroze Azeez, deputy CEO at Anand Rathi Wealth, emphasized that the focus should be on net inflows rather than just the stoppage ratio.