Uncertain equity market conditions test investors\u2019\npatience. In addition, Foreign Portfolio Investors (FPIs) seem worried and have\neither been dumping Indian equities or turning cautious. Though the case is\nsimilar for domestic mutual funds, they, however, have been binging and buying,\nrecognising the value-buying opportunities in the sharply corrected market. <\/p>\n\n\n\n
As far as investors are concerned, they\nhave remained somewhat upbeat, but then again few have also begun to lose\npatience if we were to go by the Systematic Investment Plan (SIP) registration\ndata for March 2020. <\/p>\n\n\n\n
As of March 2020, the ratio of monthly SIP\nclosures to new registration was 57:100, i.e. for every 100 new SIP\nregistrations, 57 SIP mandates were discontinued. And as the markets came under\nthe weather in March, this ratio shot up to 70:100. In effect, 2 SIPs were discontinued\nfor every 3 new registrations. <\/p>\n\n\n\n
Table:\nIncreasing registration and cancellations\nof SIPs\u2026<\/em><\/strong><\/p>\n\n\n\n Note data for\nApril 2020 was not available at the time of writing this piece If this trend\ncontinues in the future, it will be a cause of concern not only for the mutual\nfund industry and advisors, but for the investors as well because discontinuing\nSIP, particularly in worthy mutual fund schemes, will be akin to applying\nbrakes on the journey of wealth creation, hamper overall financial planning,\nand preclude accomplishing the envisioned financial goals. <\/p>\n\n\n\n Why\ninvestors are closing their SIPs at this juncture?<\/strong><\/p>\n\n\n\n Besides the heightened volatility \u2013 almost\nlike a rollercoaster — factors such as uncertainty about income and a possible\nrise in unemployment have affected the new registrations and cancellations.\nThere is risk-aversion that has set in and the general perception is \u201cCash Is King<\/em>\u201d. <\/p>\n\n\n\n Usually, having at least a 3-5 year investment time horizon and continuing SIPs is necessary when investing in equity-oriented mutual funds. But as \u00a0SIPs in equity scheme started 3-4 years ago are generating paltry returns now due to the recent market slump, there are some investors who have begun to stop or discontinue SIPs. Either they are the first time investors who lack experience of dealing with equity markets, or have been unable to tolerate the rollercoaster ride of the Indian equity market of late (scared of volatility). <\/p>\n\n\n\n Here, the role of experienced financial advisors\nbecomes crucial. <\/p>\n\n\n\n As a financial advisor or a financial\nguardian, you should be able to explain to clients\/investors the reasons to\ncontinue SIPs and ask them the right questions to be able to address their\nworries. <\/p>\n\n\n\n For example, if an investor approaches you,\nthe kind of investor who has done everything right on her\/his part \u2014followed\nasset allocation, selected the best and appropriate mutual fund scheme\/s, and SIP-ped\ninto them yet failed to generate any meaningful return, as a financial advisor\nor financial guardian explain to them how unintelligent is it to step out of\nmarkets by discontinuing SIPs. <\/p>\n\n\n\n Many investors lose their path midway. And\nit happens as the market conditions turn bearish and turbulent, plus insecurity\npertaining to income as well as their job begins to set in and affects their\ndecision-making. When they run short of insight and the money-tap runs thin,\nthey tend to look short-term and compromise on their long-term financial\nwellbeing. But in the bargain, they do more harm than good to themselves. <\/p>\n\n\n\n Financial advisors must share past\nexperiences\u2026<\/p>\n\n\n\n Investors should know how those who opted\nout of markets during the fall of 2008 and early 2009, missed the massive upturn\nthat happened after March 2009 onwards. During the early part of recovery in\nMarch 2009, many investors thought those were just short-term impulses after a\nbear phase, but when UPA-II came to power, the Indian equity market rallied briskly\nnot giving a chance to those waited on the side-line to enter the market. Those\nwho did not discontinue their SIPs between February 2008 and March 2009, gained\nsubstantially. <\/p>\n\n\n\n In almost a d\u00e9j\u00e0 vu moment, the results of\nLok Sabha elections in 2014 were unexpected and those who had discontinued\ntheir SIPs during 2012 and 2013 repented latter. <\/p>\n\n\n\n Sharing historical evidence and experiences\ncan boost investors\u2019 confidence. And then, to sum up, you can give them\npointers on why they shouldn\u2019t discontinue SIPs. <\/p>\n\n\n\n Discontinuing\nthe SIP now means:<\/strong><\/p>\n\n\n\n Unless one\u2019s income is affected to a level\nwhere one has to choose between meeting household expenses and continuing SIPs,\ndiscontinuing your monthly investment commitments doesn\u2019t seem to be an\nintelligent choice. There as well, one should first look to reducing expenses by\nengaging in a prudent budgeting exercise. <\/p>\n\n\n\n The present lockdown conditions have taught\nmany of us a lesson on how much money we actually require to live a moderate\nlife without compromising on the essentials. Before SIPs are cancelled,\ninvestors must ensure that there\u2019s no further room to cut expenses. <\/p>\n\n\n\n Investors with high discretionary income may not have a problem of budgeting; they might simply want to stay away from uncertainty. If somebody does not want to increase the SIP contributions despite weaker markets, one should at least not discontinue or stop SIPs as it reduces the potential to generate returns in the future and hinders achieving those envisioned financial goals. <\/p>\n\n\n\n SIPs are meant for all market conditions\nand work best during bear market phases. Volatility is the very nature of the\nequity market; it is how we use it to our advantage, perceive the situation\nsensibly, and devise an efficient strategy that decides our investment success.\n<\/p>\n\n\n\n Recommend your clients\/investors not to\nstop SIPs in worthy mutual funds as far as possible.<\/p>\n","protected":false},"excerpt":{"rendered":" Uncertain equity market conditions test investors\u2019 patience. In addition, Foreign Portfolio Investors (FPIs) seem worried and have either been dumping Indian equities or turning cautious. Though the case is similar for domestic mutual funds, they, however, have been binging and buying, recognising the value-buying opportunities in the sharply corrected market. As far as investors are…<\/p>\n","protected":false},"author":3,"featured_media":1899,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"cybocfi_hide_featured_image":""},"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/1895"}],"collection":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/comments?post=1895"}],"version-history":[{"count":4,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/1895\/revisions"}],"predecessor-version":[{"id":1903,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/1895\/revisions\/1903"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media\/1899"}],"wp:attachment":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media?parent=1895"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/categories?post=1895"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/tags?post=1895"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n\t\n
\n \n Month<\/b><\/strong>\n <\/td> \n Total No. of outstanding SIP\n Accounts<\/b><\/strong>\n <\/td> \n No. of New SIPs registered<\/b><\/strong>\n <\/td> \n No. of SIPs discontinued<\/b><\/strong>\n <\/td> \n Monthly SIP Contribution (Rs crore)<\/b><\/strong>\n <\/td><\/tr> \n Mar-20\n <\/td> \n 312.0\n <\/td> \n 8.5\n <\/td> \n 6.0\n <\/td> \n 8,641\n <\/td><\/tr> \n Feb-20\n <\/td> \n 309.5\n <\/td> \n 11.4\n <\/td> \n 5.7\n <\/td> \n 8,513\n <\/td><\/tr> \n Jan-20\n <\/td> \n 303.9\n <\/td> \n 12.1\n <\/td> \n 6.0\n <\/td> \n 8,532\n <\/td><\/tr> \n Dec-19\n <\/td> \n 297.7\n <\/td> \n 9.6\n <\/td> \n 5.9\n <\/td> \n 8,518\n <\/td><\/tr> \n Nov-19\n <\/td> \n 294.0\n <\/td> \n 10.9\n <\/td> \n 5.6\n <\/td> \n 8,273\n <\/td><\/tr> \n Oct-19\n <\/td> \n 288.7\n <\/td> \n 10.0\n <\/td> \n 5.3\n <\/td> \n 8,246\n <\/td><\/tr> \n Sep-19\n <\/td> \n 284.0\n <\/td> \n 8.5\n <\/td> \n 5.6\n <\/td> \n 8,263\n <\/td><\/tr> \n Aug-19\n <\/td> \n 281.1\n <\/td> \n 8.8\n <\/td> \n 5.8\n <\/td> \n 8,231\n <\/td><\/tr> \n Jul-19\n <\/td> \n 278.1\n <\/td> \n 10.2\n <\/td> \n 5.6\n <\/td> \n 8,324\n <\/td><\/tr> \n Jun-19\n <\/td> \n 273.6\n <\/td> \n 9.3\n <\/td> \n 5.4\n <\/td> \n 8,122\n <\/td><\/tr> \n May-19\n <\/td> \n 269.7\n <\/td> \n 9.7\n <\/td> \n 5.9\n <\/td> \n 8,183\n <\/td><\/tr> \n Apr-19\n <\/td> \n 265.9\n <\/td> \n 9.0\n <\/td> \n 5.4\n <\/td> \n 8,238\n <\/td><\/tr><\/tbody><\/table><\/center>\n\n\n\n
\n(Source: AMFI)\n<\/p>\n\n\n\n