Mutual fund investment: SIP (systematic investment plan) are under scanner these days as Indian stock market has been rising continuously for the last four months. This is beause like Indian stock market, mutual funds SIP contribution in India touched record high in May 2023. However, a dark side in the Indian mutual fund industry, which has emerged among the monthly SIP investors is pause or closure of SIP accounts.
According to tax and investment experts, new age investors flocking to stock market and catch the rally is one of the major reasons for mutual funds SIP getting paused or closed in Indian mutual funds industry. However, they said that such impatience in mutual funds investment is dangerous as it lead to wrong investment decision.
Rising cases of mutual funds SIP pause
Highlighting the grey side of mutual funds SIP investments in India, Mohit Gang, CEO at Moneyfront — a subsidiary of Niyogin Fintech said, “Mutual funds SIP contribution per month in Indian MF Industry has hit a record high of ₹14,750 crore in May 2023. Just two years back this number was about ₹8,800 crore per month, indicating 67 per cent jump in monthly mutual funds SIP investment. This speaks volumes about the increasing confidence of retail investors in Equity as an asset class and also in the virtue of financial savings.”
However, Mohit Garg highlighted a dark side of the Indian mutual funds industry citing, “There is a dark side to this story, which is often left untold. Last year in May, for every ₹3000 of gross SIP flow almost ₹1000 worth of old SIP was getting closed or paused. This pause/close number has shockingly doubled now. As per recent data, Net to Gross ratio in SIP has fallen to a historic low of 39 per cent now. Which means net inflow of SIP was only ₹5,696 crore in May 2023 vis a vis gross number of ₹14,750 crore.
Asked about the rising cases of pause or closure of mutual fund SIPs, Utkarsh Sinha, Managing Director at Bexley Advisors — a boutique investment bank firm said, “If you notice the trend in the past couple of years, SIP investments – and retail participation in equity markets in general – have seen a sharp rise on account of strong equity markets performance, excess of investible capital and a rise in savings spurred by decline in consumption due to COVID. While that trend still continues, retail participants are unfortunately most prone to the fallacy of buying high and selling low: retail investors tend to get excited about the market when it is showing a secular rise, and spurn it in bearish times. Logically, it is often the opposite of the prudent move.”
Sinha went on to add that we might be seeing now, to a small extent, might be a waning of retail interest in investing as the growth rate in equity returns is beginning to plateau, at least for the short term. “Fundamentally, this is no different from majority retail behavior during any period of slower than expected growth, or indeed during bear-runs, which I don’t feel we are experiencing yet,” Sinha added.
Mutual funds: Why investors are pausing monthly SIP
On reason for mutual funds monthly SIP pause or closure in India, Mohit Gang of Moneyfront said, “Key reason for this seems to be lot of new young investors who are flocking to market and trying to catch trends. They invest looking at last 1 year returns and often take hasty bets. This leads to quick disappointment and even quicker closure of SIPs. Most of the new-age investors, today are impatient and don’t believe in proper goal-based investing or proper asset-allocation based approach. This often leads to wrong investment calls. Also, patience is a virtue long-lost on investors.”
Garg went on to add that market cycles are getting longer and one has to be really patient for 3-5 years, to reap real benefit of SIPs. Most investors ignore this and move from one scheme to another in search for higher returns.
“We have also seen lot of experienced investors trying to time the market and make good of the volatility. But data proves that this approach never works in long-term and often does more harm than good,” Gard concluded.
Source By: livemint
