Covid-19: SIP inflows may be hit as investors' incomes come under pressure

Those with investments in most-affected sectors such as hospitality, airlines seek closures, other consider a pause

The slowdown in economic activity amid Coronavirus-induced lockdown is forcing mutual fund (MF) investors to consider closing or pausing their systematic investment plans (SIPs), with their monthly incomes coming under pressure due to the disruptions caused in various sectors.

Advisors say a combination of disappointing equity returns and fears of reduced income amid lockdown is driving investors towards stopping SIPs.

“Clients belonging to sectors such as airlines and hotel industry, which have been significantly affected by global disruptions caused by Coronavirus, have been forced to re-look at their SIP outgo. Also, some investors have seen pay-cuts during this period,” said Amol Joshi, founder of Plan Rupee Investment Services.

The stock market meltdown has heavily eroded returns of MF investors. After falling six per cent in February, the sell-off in the markets has intensified with the BSE benchmark Sensex shedding over 23 per cent in March. Industry estimates suggest that 85-90 per cent of SIP investors are exposed to equity assets.

“There is uncertainty among clients with respect to their future cash flows, whether they are salaried or self-employed. They feel that maybe it is better to hold off SIPs for now, as servicing obligations such as loan EMIs has become priority in current environment,” said Ritesh Sheth, co-founder of Mumbai-based Tejas Consultancy.

SIPs are monthly investment plans -- popular among salaried investors -- used for deploying investments in a systematic manner.

Industry participants say that SIP flows are likely to remain intact in March, but April numbers will be critical to watch out for.

“We are expecting to see Rs 8,000-8,200 crore of SIP flows in March, but April numbers could come under pressure,” said an executive of a fund house.

Steady flows from SIPs has so far given the Rs 27-trillion MF industry a steady stream of investor assets even as market volatility has spiked in recent months.

In February, SIP flows remained intact at Rs 8,513 crore, seeing a marginal dip of 0.2 per cent from previous month.

MF advisors say while some of the cash-strapped clients want to stop or pause their SIPs for time being, they are facing some challenges in making the requests with offline branches of MFs being shut during the lockdown. “Not all MFs have online facility for stopping or pausing their SIPs,” said an MF distributor.

According to industry sources, the Securities and Exchange Board of India has urged the 44-player MF industry to make the facility to stop or pause SIPs available on their websites on an urgent-basis so that investors are able to easily make request.

After climbing to 66 per cent in August and September, 2019, SIP closure ratio has largely hovered at 50 per cent-mark. In February, the closure ratio was at 50.4 per cent, which means that for every two SIP accounts opened, one request was for closure.

Through the pause option, an MF investor can temporarily hold off monthly SIP investments, whereas an MF investor will have to re-register after cancellation of the SIP.