SIP investments rising, so is SIP stoppage ratio!

Investment through SIP in mutual funds is increasing rapidly day by day. In May, investment through Mutual Fund SIP reached an all-time high. Consistently for the second month, investment through SIP has crossed more than Rs 20,000 crores. Along with reaching record levels of SIP investment, the number of people discontinuing SIP has also increased, resulting in a jump in SIP stoppage ratios to new heights. What is the SIP stoppage ratio? How many people have stopped their SIP and what are the reasons for it? Let’s find out.

SIP stoppage ratio shows the percentage of SIP accounts that are closed compared to new SIP accounts. Data from the Association of Mutual Funds in India (AMFI) shows that in May, the SIP stoppage ratio reached a record high of 88.4 percent.

Interestingly, this trend is at a time when investment in mutual funds through SIP is at a new high. According to AMFI data, SIP contributions to mutual funds reached Rs 20,904.37 crores in May. This is the highest level so far. This is 3 percent more than the inflows of Rs 20,371.47 crores through SIP in April 2024. May is the second consecutive month when SIP contribution has remained above 20 thousand crores.

While investment through SIP is continuously increasing, at the same time, the number of people stopping SIP has also increased. According to AMFI’s data, in May 2024, 49 lakh 74 thousand new SIPs were registered, while 43 lakh 96 thousand SIPs were either closed or their tenure completed. This means that the SIP stoppage ratio, which is the ratio of new SIPs and closed SIPs, reached 88.4 percent in May, which is significantly higher compared to the 52.2 percent SIP stoppage ratio in April.

Reduced SIP stoppage ratios are considered better as they indicate more investors staying invested in SIP.

Now let’s talk about some reasons for the increase in SIP stoppage ratios. According to a report in an English daily, one reason could be new rules related to SIP cancellation. According to a circular by SEBI, if a person misses three consecutive SIP installments, their SIP will be canceled. Earlier, asset management companies used to decide on SIP cancellations based on their discretion. The second reason could be that digital platforms did not adopt aggressive strategies to encourage new SIP accounts before the elections.

According to another report, there was considerable volatility in the equity market in May because voting for the Lok Sabha elections was underway and the results were uncertain. Market experts believe that some investors did a redemption of SIPs or stopped SIPs for this reason as well.

People investing in mutual funds through SIP should not stop their SIPs due to market volatility or any other reason. SIP provides the benefit of cost averaging, which means you buy more units with your fixed SIP amount during market downturns and fewer units when the market is up. This averages out your cost over a long period and increases the possibility of higher returns. So instead of stopping SIP, its better to continue it.