SIP closures loom as coronavirus outbreak takes a toll on the markets

The slowdown in economic activity amid the nationwide lockdown is forcing mutual fund (MF) investors to consider closing or pausing their systematic investment plans (SIPs), with their monthly income coming under pressure.

Advisors say a combination of disappointing equity returns and fear of reduced income is driving investors towards stopping SIPs. “Clients belonging to sectors, such as airlines and hotels, which have been significantly affected by global disruptions, 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 eroded returns of MF investors. After falling 6 per cent in February, the Sensex has declined over 23 per cent in March. Estimates suggest 85-90 per cent of SIP investors are exposed to equity assets.

“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 obligations, such as loan EMIs, has become priority in the present environment,” said Ritesh Sheth, co-founder of Mumbai-based Tejas Consultancy.

SIP flows are likely to remain intact in March, but April numbers will be critical for the MF industry. “We are expecting 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 have so far given the Rs 27-trillion MF industry a regular stream of investor assets, even as market volatility spiked in recent months.

SIP closures loom as coronavirus outbreak takes a toll on the markets

In February, SIP flows remained nearly intact at Rs 8,513 crore, compared to the previous month. MF advisors say while some cash-strapped clients want to stop or pause their SIPs, they are facing challenges in making requests with offline branches of MFs that are shut.

“Not all MFs have online facility for stopping or pausing SIPs,” said an MF distributor.

According to sources, the Securities and Exchange Board of India (Sebi) has urged the 44-player MF industry to make the facility to stop or pause SIPs available on their websites on an urgent basis, to enable investors to easily place requests.

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

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