SIP Boom Continues, but Rising Premature Closures Raise Concerns

The Indian mutual fund industry has witnessed a surge in systematic investment plan (SIP) registrations, reflecting growing investor participation. However, this rise has also been accompanied by an increasing trend of premature SIP closures.

In 2023, a record 34.8 million SIP accounts were registered. However, by the end of 2024, only 18.2 million remained active, indicating a 48% closure rate within 2 years of registration. Comparatively, the 2022 SIP closure rate stood at 42%, highlighting a rising trend of investor churn.

Data Insights from AMFI Reports

According to figures derived from the Association of Mutual Funds in India (Amfi) report, available only to fund houses, the number of active SIP accounts is determined by tracking different age brackets. By comparing SIP registrations in 2023 with the number of SIP accounts that were 1 to 2 years old as of December 31, 2024, the closure rate can be estimated.

While SIPs are often recommended for long-term equity investments, ideally exceeding 3 years, the data suggests that many investors are discontinuing their investments much earlier.

Growing Investor Churn in SIPs

According to a news report, the increasing number of both SIP registrations and closures indicates that investors are frequently churning their portfolios. This suggests a shift in investor behaviour, with many opting for short-term commitments rather than long-term wealth creation.

Impact of Fintech Platforms on SIP Longevity

The rise of fintech platforms has played a key role in the growing SIP participation. However, a news report indicates that SIPs registered via fintech platforms tend to have shorter holding periods compared to those distributed through intermediaries.

As of March 2024:

• 21.2% of regular plan investments had a holding period of over 5 years.
• In contrast, only 7.7% of direct plan investments remained active for the same period.

“This reflects that the impact of guidance given by intermediaries has historically been helpful in fostering long-term investor discipline,” the report said.

SIP Edits and Portfolio Restructuring

A report also highlights that the increasing churn rate in SIP accounts is partly due to the SIP edit options provided by some online platforms. This feature enables investors to modify their SIPs, leading to frequent new registrations but also more premature closures.

Market Volatility Slows SIP Registrations

Despite the high churn rate, the mutual fund industry has continued to add SIP accounts at a record pace. In 2024, active SIP accounts surpassed 100 million, with a net addition of 26.8 million accounts.

However, the recent equity market correction has slowed SIP registrations, as market volatility often influences investor sentiment.

Conclusion

While SIPs remain a popular investment route, the rising rate of premature closures raises concerns about investor discipline and long-term financial planning. The evolving role of fintech platforms and the impact of market corrections will be key factors in shaping SIP investment trends in the coming years.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Mutual Fund investments in the securities market are subject to market risks, read all the related documents carefully before investing.