Mutual Fund: SIP, also known as Systematic Investment Plan, is an organised method of investing in mutual funds. It involves making consistent contributions at fixed intervals to promote steady wealth accumulation over time. The unpredictable nature of the market often causes concern among investors.
Recently, Yadnya Investment Academy, a reputable source on financial matters, reported a significant uptick in the closure of mutual fund SIP accounts due to heightened market volatility. In December alone, a record-breaking 4.5 million SIP accounts were terminated, surpassing the previous high of 4.4 million closures in May 2024. This trend is concerning and warrants close attention.
“Record SIP cancellations in FY25 reflect a worrying trend—investors attempting to time the market amidst volatility. Instead of reacting to short-term movements, staying consistent with SIPs ensures long-term wealth creation,” Finfluencer Yadnya Investment Academy noted in a post on social media platform X.
However, it is important to take note that despite recent market closures and corrections, SIP inflows have remained steady. In December, a record amount of Rs 26,459 crore was invested in MF schemes through SIPs.
The decline in active SIP account additions can be attributed to the recent increase in account closures, with the industry only adding 0.9 million accounts in December, the lowest in seven months.
SIP investments offer a strategic approach to take advantage of market fluctuations while maintaining consistent financial discipline. Through SIPs, investors can optimize their returns by leveraging rupee cost averaging and compounding benefits. However, a lack of understanding about investment products can lead to significant errors for many SIP investors, especially those new to the market.
Arjun Guha Thakurta, Executive Director, Anand Rathi Wealth Limited, explaining the investment process said many SIP investors often choose funds based on recent performance, especially the returns over the past year. However, short-term outperformance or underperformance may be fleeting. Even reputable funds with a solid track record can temporarily fall behind their peers and benchmarks due to differences in fund management strategies and market conditions.
“SIPs have grown over the past decade as more people realise the power of disciplined investing and this trend in across urban and rural segment primarily due to the awareness programs by SEBI and media in general. People are realizing that SIPs and MFs are a convenient way of growing wealth. Between 2014 and 2024, while equity markets delivered a 12% CAGR, the share of equity and equity mutual funds in Indian households’ financial assets jumped from 5.3% to 16.4%. For now, SIPs are likely to remain a strong, reliable choice for wealth creation, with no major downtrend expected anytime soon,” Thakurta said.
Earlier this month, Sanjay Bembalkar, the Head of Equity at Union Asset Management Company Private Limited, noted that gross SIP flows have shown a promising increase of 50.2% year-on-year. Despite market volatility, investors have displayed unwavering confidence in mutual funds, with a growing number choosing to invest on days of market downturns.
“These numbers indicate structural change in investing culture, thought process maturity and awareness among investors,” he said. Investors have been continuing to invest in mutual funds despite market volatility, with an increasing percentage of investments coming on days of market lows.