In November 2024, the SIP stoppage ratio spiked to the third highest ever in history. It shot up to 79.12% after the highest recorded in this year’s May at 88.38%. If you are an investor, this information can be helpful for you to understand market dynamics, and make wiser investment decisions. Let’s understand more about the SIP stoppage ratio, why it has shot up, and what this means for the investors or the market as a whole.
What is the SIP stoppage ratio?
The SIP stoppage ratio is a ratio that is derived as a percentage of discontinued systematic investment plans (SIP) or the expired ones, in respect to the new SIP registrations in a month. In November, this ratio stood at 79.12%, which means, that if 100 new SIPs were registered in the month, then 79.12 SIPs were discontinued or expired.
Key Insights from AMFI Data
In the month of November, as per Association of Mutual Funds in India’s (AMFI) data 49 lakh new SIPs were registered, which is way lower than the previous month’s 63.7 lakh registrations. On top of that, 39.14 lakh SIPs were discontinued in the month compared to October’s 38.8 lakh SIPs. Both these together pushed the SIP stoppage ratio to 79.12% in November.
However, this is not the only month, when this ratio surged, as for the past four months; it had been climbing up only. On the other hand, November was the second consecutive month when the new SIP registrations also slowed down.
It was last in July when this ratio dropped to around 40%, and since then it has only moved up. In May 2024, it spiked to 88.38%, which has been the highest to date.
Factors behind the slowdown of SIP investments
The markets have been volatile during the past few months, which has been the primary cause of concern for the investors, which led to the spike in the SIP stoppage ratio. New investors, usually avoid entering the market during a rough phase or volatile phase of the market. This has taken a toll on the new registrations. On the other hand, the existing investors are not enough sure or have clarity of the market, which is why they are skeptical about making new investments in the SIPs, and thus discontinuing them.
Furthermore, the geopolitical scenario has also affected the markets, and the recent market correction was a major factor for the high SIP stoppage ratio in November. In May the highest spike in this ratio was due to the Lok Sabha Elections in the country, while in November, it was the US elections, that kept the market on its toes.
Apart from these, the persistent weak global cues, along with escalating tension between Russia and Ukraine, and China’s economic stimulus left investors worried about the domestic market.
Another interesting factor noticed is that the direct SIPs are mostly under the radar of being discontinued, while the regular SIPs, which financial advisors manage showcased better resilience and higher investment volumes too.
Market Outlook
While the SIP investments are witnessing sluggishness, the net equity inflows remained stable in November amidst all the challenges. The net inflow was mainly driven by the strong investments in small-cap by retail investors, which also portrayed their confidence in the domestic market.
Having said that, experts suggest, that if the SIP discontinuation continues like this, it can affect the domestic market critically. This can take the market volatility to another level, which will in turn call for vigilance on retail participation.
Source: MoneyControl
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