Investors halt systematic investment plans as returns from equity schemes decline, driven by market volatility amid global events.
Recent analysis indicates that a notable increase in the discontinuation of systematic investment plans (SIPs) is likely as returns from equity mutual fund schemes have slipped into negative territory over the past one and two years. This trend reflects growing investor anxiety, particularly in the small and flexi-cap categories, which have yielded average losses of approximately 15 per cent and 14 per cent, respectively, in the last year, and 7 per cent and 5 per cent over the two-year period. The disappointing performance correlates with global market turbulence exacerbated by ongoing conflicts in West Asia.
Similarly, larger fund categories, including large cap and multi-cap schemes, have experienced declines of around 14 per cent and 13 per cent respectively over the last year, with reductions of 5 per cent each over the two-year timeframe, according to data from Geojit Research.
Investors are increasingly feeling the impact of this trend, as the stoppage ratio for SIPs has escalated to 76 per cent month-on-month as of February. Shweta Rajani, Head of Mutual Funds at Anand Rathi Wealth, acknowledged that such market downturns inevitably induce anxiety among investors about their SIP returns. “It is essential for investors to recognise that the true advantage of SIPs lies in accumulating more units during volatile market periods,” she remarked.
Harsh Gahlaut, co-founder and CEO of FinEdge, pointed to a dual impact on the SIP environment, with heightened stoppages occurring as investors respond to lower than anticipated returns, coupled with a noted decrease in new SIP registrations due to unappealing recent returns. “What we see now is a compounded effect: increased stoppages from investors reacting to unmet expectations, alongside a slowdown in new registrations,” he stated.
Shashank Udupa, a Fund Manager at smallcase, noted the difficulties newer investors face during such downturns, highlighting that the SIP structure is fundamentally designed for longer investment horizons. “Short-term underperformance is not uncommon in the equity cycle,” Udupa added, noting that pressures to pause SIPs are particularly strong among those who entered during the recent upward market trend.
Ponmudi R, CEO of Enrich Money, emphasised that SIPs are built to navigate through market fluctuations, with periods of negative returns crucial for long-term compounding. He stated, “Such stretches allow disciplined investors to accumulate units at lower valuations, thereby enhancing their overall investment outcomes.”
Hariprasad K, founder of Lifetime Wealth, echoed the sentiment that short-term corrections in the market should not deter investors. He mentioned that with the Nifty index correcting over 10 per cent from its peak and ongoing volatility, it is natural for returns on SIPs to turn negative, raising concerns among retail investors. However, he pointed out that reactions to this volatility vary, citing that investors involved in the market for two to three years are more likely to pause their SIPs, while those who have participated in the post-2020 rally may remain resolute.
Experts agree that halting SIPs during downturns undermines their foundational principle of rupee-cost averaging, as the greatest risk arises from exiting the market at the wrong time. Such insights are critical for investors as they navigate this challenging financial landscape.
