SIPs In Distress Mode: Market Fall Or Income Stress To Blame?

Data published by the Association of Mutual Fund in India (AMFI) revealed that SIP inflow has been falling since December 2024, something that has caught the attention of the policymakers and the market regulator, the Securities and Exchange Board of India (SEBI).

In February, the total SIP contribution stood at Rs 25,999 crore, lower than Rs 26,400 crore in January. In December, it was Rs 26,459 crore.

The number of active SIP accounts have fallen as well. According to AMFI data, about 44.50 lakh fresh SIP accounts were added last month. But the number of accounts that were discontinued stood at 54.70 lakh, significantly higher than the new additions.

While most analysts said that the fall in numbers was due to the stock market volatility driven by the Donald Trump administration’s threat of reciprocal tariffs which could lead to an all out trade war, the trend could also reflect the underlying stress over wages and jobs in the domestic market. 

As many as 462.62 lakh SIPs were either discontinued or their tenure ended between April and February, 2024-25, more than double of 224.37 in 2023-24.

“The three months data can't be a guiding factor, and definitely, no conclusion can be drawn from this, as the overall growth in SIP collection and mutual funds has been phenomenal,” a finance ministry official who did not wish to be identified told The Secretariat.

“What is undeniably true is that during times of global volatility, we need to strengthen our (stock) markets with the help of domestic institutional investors (DIIs),” he said.  

The total SIP investment in 2024-25 (from April to February) was recorded at Rs 2.63 lakh crore compared to Rs 1.99 lakh crore in 2023-24 (full fiscal year) — a whopping increase of more than 32 per cent.

That apart, a total of 639.66 lakh new SIPs were added during the current financial year so far. The number was 428.09 lakh in 2023-24. 

Will The New SEBI Chief Boost Stability?

For the Securities Exchange Board of India’s (SEBI) new chief Tuhin Kanta Pandey, who took charge of the market regulator from March 1, the immediate challenge will be to thrash out measures that reaffirm confidence of Indians in the stock market.

At a time when foreign institutional investors (FIIs) have been net sellers not only putting pressure on the stock market but also the Indian rupee, a strong performance by DIIs, which include mutual funds, insurance or pension products among others, would have somewhat cushioned the volatility.

Earlier, on several occasions, especially during the Covid period, DII investment, which are long term in nature, helped stabilise turbulence in the stock market.

At a recent event, Pandey underlined the importance of the DIIs in stabilising the markets.

"Now, increasing participation by domestic institutional investors, including mutual funds and pension funds, has resulted in greater domestic ownership and made Indian markets more resilient,” he said at the Moneycontrol Global Wealth Summit.

He noted that while foreign portfolio investors (FPIs) have been pulling out, DIIs have stepped in to fill the gap.

“As we intend to grow at the speed that we are aspiring, we need to have both domestic and foreign capital to support the growth momentum. With strong economic fundamentals and favourable demographics, India is a bright spot for long term investments,” Pandey said.

He also said that SEBI was conscious of the need to create a conducive environment to attract foreign capital.

Sources said that Pandey has held several discussions with stakeholders on the situation and could take measures that will boost investors’ confidence — especially the retail investors.

“Stock market is also a reflection of sentiments and overall confidence of the domestic policies and economic fundamentals, the market regulator will do the needful to ensure that the confidence is not shaken,” a person familiar with the developments said.

Mutual funds, considered more lucrative compared to several other asset classes including bank fixed deposits due to tax efficiency, have become a preferred investment route for a large number of Indians, looking for healthy and quick returns though dividends and capital gains.