SIP inflows drop for 6th month in September; investors prefer to maintain liquidity

Investment in mutual funds through SIPs remained lacklustre with inflow dropping for the sixth-consecutive month to Rs 7,788 crore in September amid challenging economic environment.

The trend is expected to reverse only slowly as investors feel more confident to save more once their own income stream stabilises, said Vidya Bala, co-founder of Primeinvestor.in.

However, the industry added 7.37 lakh folios last month as compared to 4.5 lakh in August, data from the Association of Mutual Funds in India (Amfi) showed.

Bala said folio numbers may not suggest real inflows into SIP as an investor mightly simply be adding folios without adding more investments.

As per the data, the industry raised Rs 7,788 crore through SIP route last month, compared to Rs 7,791 crore garnered in August.

Investment in September 2020 hit the lowest level since September 2018, when fund collection through the route stood at Rs 7,727 crore.

Further, fund collection through SIP was Rs 7,831 crore in July this year,  it dropped below Rs 8,000-crore mark in June to Rs 7,917 crore. It was at Rs 8,123 crore in May, Rs 8,376 crore in April and Rs 8,641 crore in March.

“The investment through the SIPs have dropped because investors want to maintain some kind of liquidity at their end at present as the situation is uncertain when it comes to their jobs and businesses,” said Harshad Chetanwala, MywealthGrowth.com.

Bala said SIP inflows still remain lacklustre as many retail investors paused or stopped SIP during the lockdown. The high market levels have also meant that those who stopped hesitate to start now, expecting a correction.

“Contributions towards SIPs are seeing a declining trend as investors are reacting to market volatility and also personal circumstances resulting from job losses, salary cuts and preference for safer assets and liquidity during uncertainty,” said Gautam Kalia, head of investment solutions at Sharekhan by BNP Paribas.

This is also reflected in the increase in pace of monthly SIP discontinuations and expiries that have gone up from 5.40 lakh in April to 7.30 lakh in September, he added.

Gopal Kavalireddi, head of research at FYERS, said the SIP inflow has been flat on a month-on-month basis but over the last six months, the flows have fallen by 10 per cent, which coincides with the onset of lockdowns owing to coronavirus pandemic.  According to him, as work-from-home became the new normal, investors in general, who rarely had the time for active investing, started doing so. With 6 million new demat accounts opened in the last 9 months, investors are taking interest in direct equities, owing to availability of time.  “It can be safe to assume that the amount set aside for mutual fund investments has been redirected to direct equities. This assumption stems on the back of relatively poor performance of actively managed mutual funds in recent times,” he added.

Besides, equity mutual funds, which mainly depends on SIP for flows, saw a withdrawal of Rs 734 crore last month.

Currently, mutual funds have over 3.34 crore SIP accounts through which investors regularly invest in Indian mutual fund schemes.

Chetanwala said new investors got a very good opportunity to invest during a falling market in February and March.  He suggested investors to hold these investment for long-term rather than selling it just because these investments have generated higher return in short time due to recovery.   “The key will be to continue the SIPs if they started with SIPs and hold on with their investment for longer period as they have entered the markets at very attractive valuations,” he added.

SIP is an investment plan offered by mutual funds, wherein one can invest a fixed amount in a mutual fund scheme periodically at fixed intervals, once a month, instead of making a lump sum investment.

It is similar to a recurring deposit where an investor deposits a fixed amount every month.