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SIPs closure ratio spikes to 70% in March, highest in previous fiscal

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April 17, 2020

The closure rate for systematic investment plans (SIPs) saw a big jump in March, climbing to 70 per cent, indicating that for every three new registrations, at least two requests were made for stopping

Both closure ratio and number of closures were the highest seen in FY20. Closure requests crossed the 600,000-mark for first time in FY20. At 70 per cent, it was significantly higher than the 11-month average of 57.4 per cent, seen in the mutual fund (MF) industry.

“The 70 per cent closure ratio could be among the highest levels. The sharp decline in new registrations largely led to this spike,” said the senior executive of a fund house.

The number of new registrations saw a sharp 25 per cent decline, from 1.14 million registrations in February to 849,000 in March.

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“A combination of market volatility and slowdown in economic activity is playing on the minds of investors. The sharp market correction has chipped away a large chunk of 5-6 year SIP returns that investors had seen in their portfolios,” said Alok Agarwala, chief research and investment officer, Bajaj Capital.

“Investors are also concerned over the lockdown impacting their monthly income, which is prompting them to stall equity allocations and conserve cash for now,” he added.

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In March, the benchmark Nifty saw a sharp correction of 23.24 per cent. The broader market indices declined further, with the Nifty Midcap falling 30 per cent during the month.

— which are used by investors to make monthly investments in the — have so far given cushion to the Rs 25-trillion MF industry, during volatile phases.

Even as the saw heightened volatility in March, gross contribution through grew marginally by 1.5 per cent to Rs 8,641 crore.

However, industry participants say that the April numbers will be critical, as SIP closures could spike further in the coming months.

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“There is uncertainty among clients with respect to future cash flows, whether salaried or self-employed. They feel it may be better to hold off SIPs for now, as servicing other obligations and conserving cash has become a priority,” said Ritesh Sheth, co-founder of Tejas Consultancy.

After climbing to 66 per cent in August and September 2019, the SIP closure ratio had, until now, hovered around the 50 per cent-mark. In February, it stood at 50.4 per cent — which meant that for every two SIP accounts opened, there was one request for closure.

Advisors say clients from industries like aviation and hospitality —directly impacted by global disruptions — have sent queries on discontinuing their allocations.

“If the lockdown continues, and more industries start seeing a slowdown, such queries are likely to rise further in the short term,” said an MF advisor.

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