In January, SIP account closures surpassed new registrations for the first time.
The ongoing selloff is testing investors' patience with systematic investment plans (SIPs), a key pillar of market support.
In January, SIP account closures surpassed new registrations for the first time, with 6.1 million SIPs discontinued compared to 5.6 million new additions.
This marks the sixth consecutive month of decline in net SIP account additions.
Industry experts warn that if the market correction persists, the rate of closures could rise further.
Despite the slowdown in net additions, total SIP investments in January remained robust at Rs 26,400 crore (Rs 264 billion), only slightly lower than the record inflows seen in December 2024.
However, these figures represent gross investments, as data on net SIP inflows is not publicly available.
The Association of Mutual Funds in India (Amfi) clarified during a conference call on Wednesday that 2.5 million account closures last month were due to reconciliation between exchanges and registrar and transfer agents.
In accordance with regulatory norms, these accounts were marked as closed after SIPs were discontinued for three months.
Nevertheless, SIP additions have been slowing in recent months amid a market downturn from its peak in September.
In December, a record 4.5 million SIP accounts matured or were discontinued.
As a result, outstanding SIP accounts fell to 102.7 million in January, down from 103.2 million in December.
Meanwhile, assets under management for SIP accounts declined to Rs 13.2 trillion in January from a peak of Rs 13.82 trillion at the end of September.
Aashish P Sommaiyaa, CEO, WhiteOak Capital Asset Management Company, expressed concern: "If investors are cancelling SIPs at the first sign of trouble, it's worrying. This trend could accelerate in February."
"The asset management industry's role isn't just to outperform benchmarks but also to guide investors, emphasising the importance of long-term investing," Sommaiyaa added.
Since the market peak, the Nifty, Nifty Midcap 100, and Nifty Smallcap 100 have corrected by 13 per cent, 17 per cent, and 19 per cent, respectively.
While most investors remain in profit, the downturn has been a poor experience for many of the 10 million investors who began their mutual fund journey in the past year.
This trend is concerning, as strong domestic inflows have historically cushioned the impact of foreign portfolio investor outflows.
A Kotak Institutional Equities report noted, 'Retail investors' price-agnostic behaviour and continued purchases through direct and indirect routes have led to market overvaluation over the past nine to 12 months, delaying a sharper correction.'
The report added that retail investors' returns have lagged behind mid and smallcap indices, as many invested more heavily at higher market levels.
'The market may already be on thin ice, with 12-month trailing returns weakening and three- and six-month returns turning negative,; it said.
Around 18 per cent of new mutual fund investors were added in the first nine months of 2024-2025.
Venkat N Chalasani, chief executive, Amfi, emphasised, "We will continue to educate investors on the importance of staying invested through volatile phases, focusing on a disciplined, long-term approach to wealth creation."
Many industry players, however, do not view the rising SIP closures as a big concern yet.
Kaustubh Belapurkar, director of fund research at Morningstar India, explained, "SIPs are often set up for a specific period, and investors may shift their investments to other funds afterwards.
"Over the past year, net SIP additions have remained positive."
Belapurkar added that SIPs remain an excellent tool for disciplined market participation.
They allow investors to avoid timing the market while understanding risk/return dynamics.
Despite the selloff, equity-oriented schemes attracted net inflows of Rs 39,688 crore (Rs 396,88 billion) in January, underscoring the resilience of long-term investment strategies.
Feature Presentation: Ashish Narsale/Rediff.com
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