SIP closures rise to highest in February as investors see dull return

The number of systematic investment plans (SIPs) closed rose to 789,000 in February: the highest this financial year. New registrations in February stood at 1.49 million as compared to 1.64 million in January.

Market players said dull returns in three years could have prompted some investors to close their accounts.

“Many investors had started investing in small cap schemes through SIPs three years ago, but even with the markets at elevated levels they have earned returns only in single digits. This could be one of the reasons why pulling out the money. Many investors are waiting to start their investments once there is correction in the markets,” said the chief executive officer of a leading fund house.

While the average one-year return for small cap funds are at 56 per cent but over a three-year period the returns drop to 8 per cent, data provided by Value Research shows.

Total contribution through the SIP route was nearly Rs 500 crore lower in February compared to January. Equity-oriented schemes continued to face redemption pressures and logged eight straight month of outflows at Rs 4,534 crore in February.

This financial year, 7.9 million SIP accounts have closed. This include SIPs discontinued and ones with tenures completed. On the other hand, 12.46 million new SIP accounts were registered, taking net additions to 4.56 million.

A SIP lets investors commit a fixed sum every month, compared to putting in a large sum at once. This route has helped the Rs 31.6-trillion mutual fund industry gather sizeable assets. Total assets under management for SIPs stood at Rs 4.21 trillion in February.

Some believe lofty valuations could be making investors wary of placing fresh bets at this juncture.

Akhil Chaturvedi, Head of Sales & Distribution at Motilal Oswal Asset Management Company on the outflows from the equity schemes said, “Some meaningful consolidation of markets could lead investors to come back and make fresh allocations at some stage, there is general worry on valuations and the current rally possibly unreal and therefore investors seem to be trying to time in some way.”

In February, the markets had rallied as much as 13 per cent, with Sensex and the Nifty scaling new lifetime highs of 52,154 and 15,315, respectively. Currently, the indices trade only 2 per cent below their record highs.