While the mutual fund industry witnessed a net outflow of Rs 2,480 crore from equity-oriented schemes in July on account of rising redemptions and slowdown in gross inflows, data released by Association of Mutual Funds in India shows the industry witnessed closure of 7.16 lakh SIP accounts in July.
The number of SIPs getting discontinued or witnessing closure on account of tenure completion has been on a rise since the Covid pandemic. The number of SIPs that were discontinued in April stood at 5.4 lakh and rose to 6.52 lakh and 6.58 lakh in May and June, respectively. In July, it grew to 7.16 lakh accounts. Even SIP collection for the month fell for the fourth straight month to hit a 22-month low of Rs 7,830 crore.
The industry, however, witnessed a rise in number of outstanding SIPs to 3.27 crore, as it added a net (gross account additions less accounts getting closed) of 3.84 lakh new investor accounts in July. While the industry added 2.1 lakh new accounts in April, it added 1.56 lakh in May. In June and July, the numbers of net account additions rose by 2.55 lakh and 3.84 lakh, respectively.
The jump in new account opening is in line with the trend of retail investors looking to enter the market to take advantage of the fall in markets over the last four months. Industry insiders say over the past couple of months, while new investors have been looking to enter the market and have been opening new accounts with mutual funds to take advantage of dip in valuations on account of the pandemic, there are many existing investors who are making an exit. While some are selling their equity holding on account of drop in income levels, many large investors have been booking profits following a sharp recovery in markets since its fall in February and March.
“The industry is witnessing both redemption and fresh inflows. Redemptions have been on account of financial emergency conditions for some investors and profit booking reason for others. However, there are many households who have seen a fall in their discretionary spending and hence a rise in savings pool and that is resulting into fresh inflows,” said a senior official with a leading MF.
However, the trend of inflow of new SIP registrations is in line with the rising retail participation in stock market trade. Over the past four months, the Central Depository Services Limited added 29 lakh investor accounts and, in July, it aded 10 lakh investors accounts. By comparison, average monthly investor addition for CDSL in 2019-20 stood at 3 lakh. So, while the net SIP registrations witnessed an improvement month-on-month, industry insiders say the situation is improving as many investors see Covid-19 as a short-term event and also see the fall in markets as an opportunity to invest.
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