The closure ratio for systematic investment plans (SIPs) saw a sharp jump in March, climbing to 70 per cen and indicating that for every three new SIP registrations, at least two requests were made for closure.
Both SIP closure ratio and the number of closures were the highest in FY20. The SIP closure requests crossed 600,000-mark for first time in FY20. At 70 per cent, the closure ratio was significantly higher than 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 level seen in a long period. However, sharp decline in new registrations has largely led to this spike,” said a senior executive of a fund house who didn’t want to be named.
The number of new SIP registrations declined: from 11.39 lakh in February; the numbers dipped by 25 per cent to 849,000 in March.
“A combination of market volatility and slowdown in economic activity is playing on the minds of the investors. The sharp market correction has chipped away large part of five-six year SIP returns that investors were seeing in their portfolio,” said Alok Agarwala, chief research and investment officer at Bajaj Capital.
“Investors are also concerned with the Coronavirus-induced lockdown situation impacting their monthly income, which is prompting them to stall equity allocations and conserve cash for now,” he added.
In March, the benchmark Nifty saw sharp correction of 23.24 per cent. Broader market indices declined further with Nifty Midcap falling 30 per cent during the month.
SIPs — which are used by investors to make monthly investments in markets — have so far given cushion to the Rs 25-trillion MF industry during volatile periods.
Even as markets saw heightened volatility in March, gross contribution through SIPs grew marginally by 1.5 per cent to Rs 8,641 crore.
However, industry participants say that April numbers will be critical to watch out for as SIP closures can see further spike in coming months.
“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 priority in the present environment,” said Ritesh Sheth, co-founder of Mumbai-based Tejas Consultancy.
After climbing to 66 per cent in August and September 2019, the SIP closure ratio had until now largely hovered around 50 per cent-mark. In February, it was at 50.4 per cent — which meant that for every two SIP accounts opened, there was one request for closure.
Advisors say clients belonging to industries such as aviation and hospitality, which are directly impacted by global disruptions caused by Coronavirus, have sent queries on discontinuing their SIP allocations.
“If the lockdown continues and more industries start to see a slowdown setting in, such queries are likely to rise further in short-term,” said an MF advisor.