Wobbly market forces investors to go slow on SIPs

MUMBAI: Systematic investment plans (SIPs) may be on a break. The wobbly stock markets appear to have rattled retail investors, who until now have been pouring large sums of money into equity mutual funds through monthly instalments.

Flows into equity MFs through SIPs dipped by Rs 420 crore in April, the most for a month in two years, from a record Rs 7,110 crore in March.

Wealth managers said the recent weakness in the market, which eroded the value of equity holdings, could have prompted investors to stop SIPs for the time being.


While this is the third time in two years that monthly SIP collections have fallen, the declines were relatively lower on the previous occasions.

In February 2018, they had dipped by Rs 219 crore and in February 2017, the drop was Rs 45 crore.

“The popularity of mutual funds had led to a number of new investors entering and investing using SIPs for short tenures without any distributor or financial planner support. They randomly stop or do not renew SIPs the moment they see negative returns or when there is volatility in the markets,” said Nisreen Mamaji, CFP at Moneyworks Financial Advisors.

The BSE MidCap and the BSE Small-Cap indices have each retreated 13% from their highs in January, while the benchmark 30-share Sensex declined 2.5% during this period, shrinking the one-year gains on many equity funds.

Inflows Via SIPs Rose 53% in FY18
“Seeing choppy markets, investors postpone SIPs that come up for renewal,” said A Balasubramaniam, CEO of Aditya Birla Sunlife Mutual Fund.

There have been record flows into equity and equity-linked mutual funds in the past year. Inflows through SIPs rose 53% to Rs 67,190 crore in 2017-18 from Rs 43,921crore in the previous year.

SIPs through equity and balanced funds have been considered the backbone of domestic flows into the stock markets in the past four years. Monthly SIP collections have grown from Rs 1,206 crore in March 2014 to Rs 2,719 crore in March 2016 and a record Rs 7,110 crore in March 2018.

The stock market could remain volatile with the rupee weakening against the dollar and sentiment remaining brittle because of state elections scheduled this year. Financial planners are asking investors to stick to their asset allocation given that equities could see a volatile year.

“After making huge profits in midcap funds, many believe it is a year not to take undue risk. Hence, additional money is going to fixed income products,” said Anup Bhaiya, MD and CEO, Money Honey Financial Services.