In line with the sharp rise in number of retail investors in the stock markets over the last three months, the retail entry into the capital markets through mutual funds witnessed a significant revival as new systematic investment plan (SIP) registrations jumped to 9.13 lakh in June. The registrations had dropped to 7.5 lakh in April and 8.08 lakh in May 2020 after the Covid-19 pandemic resulted in a sharp fall in the markets in March. The average monthly new SIP registrations for the 12 months in FY20 stood at 9.82 lakh.
According to the data released by industry body Association of Mutual Funds in India (Amfi) on Tuesday, while the fresh registrations rose, the industry also witnessed a rise in number of SIPs getting discontinued. The industry witnessed 6.58 lakh SIPs getting discontinued, resulting into a net addition of 2.55 lakh SIPs in June. The net addition in April and May stood at 2.1 lakh and 1.56 lakh SIPs respectively. The net monthly average SIP addition for 2019-20 stood at 4.14 lakh.
“The fact is that the industry is witnessing fresh inflows and redemption at the same time. While an increase in savings pool and decline in discretionary spending for certain investors is resulting into fresh inflows into mutual funds and stock markets, financial emergency situation for many customers is resulting into redemption and closure of accounts,” said Nilesh Shah, MD of Kotak Mahindra AMC and Amfi chairman. He added that many investors in Tier-2 and Tier-3 cities who transact physically through their distributor were not able to do so in April and May, however, as things opened, they came to invest in May.
“Besides the cash flow issues that has led to many investors to stop their SIPs, a large number of investors, especially those in smaller towns and cities, who invest by physical visiting the branches, have not been able to re-register their SIPs after their SIP period,” said a senior official with another leading fund house.
The trend of inflow of new SIP registrations is in line with the rising retail participation in the stock market trade. Over the last three months the Central Depository Services Limited (CDSL) added 19.6 lakh investor accounts at a monthly average of 6.5 lakh accounts. By comparison, the average monthly investor addition for CDSL in 2019-20 stood at 3 lakh. Over the three months, even the share of retail investors in cash segment volume jumped to hit a decade high of 68 per cent in June.
Though SIP numbers rose significantly in June, the SIP contribution fell to a 21-month low of 7,917 in June. In April and May it amounted to Rs 8,376 crore and Rs 8,123 crore respectively.
The average monthly SIP contribution for FY20 was Rs 8,340 crore.
As SIP registrations witnessed an improvement month-on-month, industry insiders say that the situation is better now as many investors see Covid-19 as a short-term event and also see the fall in markets as an opportunity to invest.
Investor sentiment has also improved following a sharp revival in markets over the last couple three months. In line with and 18 per cent rise in benchmark Sensex between April 1 and June 30, the SIP AUM has also risen from Rs 2.39 lakh crore in March 2020 to Rs 3 lakh crore in June 2020. This is both a result of rise in markets and continuing fresh inflows that amount to Rs 24,416 crore between April and June.
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