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MF News Nine out of 10 direct plan investors exit their SIPs within five years

Nine out of 10 direct plan investors exit their SIPs within five years

Just 9% of the direct plan SIP AUM remain active for over five years.
Nishant Patnaik Feb 10, 2019

It seems direct plan investors could do with a bit of handholding.

The latest AMFI data on longevity of SIP accounts shows that most investors who started SIPs through direct plans discontinue their SIPs within five years.

Of the total SIP AUM of Rs.23,500 crore in direct plans, just 9% or Rs.2,069 crore remain invested for over five years. The rest, 21,500 crore of SIP AUM in direct plans have been redeemed within five years.

However, in terms of no. of folios, 61% or 17 lakh SIP accounts opened through direct plans have been active for over five years. A rough calculation shows that each of these SIP folios has Rs.12,000 as on December 2018.

If we delve deeper into the SIP longevity data, most assets in direct plan SIPs are redeemed within 2 years.  While 41% of SIP AUM or Rs.9610 crore was redeemed within a year, the industry saw an outflow of Rs.5900 crore or 25% between 1 and 2 years.

Expert attribute this to lack of patience among direct plan investors. In fact, a Karvy report which looked at investor behaviour in both stable market and volatile markets found that while direct investments have increased, investors who invested in mutual funds through direct plans redeemed their investment when the markets turned volatile. “Over 80% of the redemptions were carried out with a holding period of less than one year in case of direct investments. This clearly indicates that as soon as markets turned volatile, direct investors decided to move out of mutual funds while distributors, especially IFAs, could convince their investors to stay invested for benefits of long term investments. It is clearly evident that direct investors get worried due to lack of guidance and take a decision to leave the fund as soon as the markets turn choppy. Mutual fund is not a product meant for short term investments,” says the report.

On the contrary, most investors who invested in SIPs through regular plan show sign of maturity. Of the total SIP AUM of Rs.2.17 lakh crore in regular plans, close to 20% or Rs.42,000 stay invested for over five years. In absolute terms, 1.37 crore SIPs or 60% folios remain active for over five years. Each of these SIP folios has roughly over Rs.31,000 as on December 2018.

Early redemption from SIPs is also prevalent in regular plans too. Close to 31% or Rs.67,000 crore regular plan SIPs AUM redeemed within a year and 22% or Rs. 48,000 crore between 1 and 2 years.

Overall, the industry has seen 18% of SIP AUM remain invested for over 5 years.

Currently, SIP AUM is Rs.2,40,147 crore which is 10.5% of the overall MF Industry AUM. The AMFI data shows that SIPs in regular plans account for 89% of the total SIPs. Of the 2.54 crore SIP folios, distributors have created 89% of SIP accounts i.e. 2.26 crore. In absolute terms, SIP contribution in regular plans account for 88% of the total inflows through SIPs.

SIP accounts continuing for

Direct plan

Regular Plan

Total

No. of SIP account

AUM

No. of SIPs

AUM

No. of SIPs

AUM

> 5 years

1699524

2069.05

13625929

42060.75

15325453

44129.8

> 4 years up to 5 years

176941

1070.2

1212169

11528.99

1389110

12599.2

> 3 years up to 4 years

123275

1667.95

1014929

16749.29

1138204

18417.2

> 2 years upto 3 years

212616

3267.95

2184891

31008.52

2397507

34276.5

> 1 year up to 2 years

224072

5859.47

1739036

48331.25

1963108

54190.7

Less than <1 year

340893

9610.77

2840414

66922.85

3181307

76533.6

Total

2777321

23545.39

22617368

216601.7

25394689

240147

Source: AMFI

 

 

 

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8 Comments
DHIREN SHAH · 5 days ago
It is futile for advisors who worry about Direct Mutual Funds, actually it is a blessing in disguise, equity investing is not as easy as it may seem during bull runs, guaranteed good returns are only in the long run and not all investors have the patience or the vision, they need counselling and advice of someone who has been around equity for long enough periods. All the Direct Mutual Funds have done is basically remove those investors who used to ask for pass back. So I am kind of glad this option is there for people who want to save the commission to brokers. Makes life easy and these people will eventually turn back to advisors.
V Ramaprasad · 3 days ago
If market corrects for some reason, direct investors will contribute more for the downfall and they will not only book loss but also away from their investment objective. Over a period of time they start trading in mutual funds and incur huge loss. Don't know who will be benefited from their loss.
Reply
Jaganathan Kesavan · 5 days ago
A very useful article...
MEHUL SHAH · 5 days ago
Infact AMC itself promote direct plan via media, it's dead end for mf advisor, upfront already stop, on only trail base income will not enough for us, lot's of ARN holder left this industry, who will get money to AMC? When market down we are only tackle to clients. So if there is no advisor there is no retail sector over mf industries. Direct plan should be banned
rajesh bhardwaj · 5 days ago
please send one copy to sebi and amfi
B BALAJE.M.A · 5 days ago
Direct channel should shut.It may spoil MF industry whole
sekar · 5 days ago
Will retail distributor can withstand current trend.
Thirupathi Rao · 5 days ago

I AM NOT A BIG WRITER OF ARTICLES. PEOPLE AT THE HELM MAY KINDLY EDIT, BEFORE PUBLISHING,
AS I LOVE MY NATION IN GETTING SELF SUFFICIENCY AND STRONG IN ALL RESPECTS.

Sirs, If I deviate from the issue , please delete my communication.

My opinion is abolishing entry load made many distributors jittery , who are depending on mutual funds.
Up dating and interpretation of happenings in Policy decisions,Industries requires much interest and knowledge. Those distributors with Insurance are not much bothered. The concept of Mutual fund had been brought to India basing on Foreign countries.

I know sale of a Cement bag (Rs. 360/- plus)by a business man earns Rs. 25/-.Wholesaler gets Rs.20/-, besides,cash discounts and trade discounts and so on. On the whole, a margin of 10% is there for a Cement bag. Even a smart Patanjali dealer gets 6 to 8% on their sales. Where as, what is the amount fee received by a distributor for canvassing Rs 10000/-? Particularly in Semi urban and Rural areas Commissions have been dwindled. Besides the many diktats by SEBI, Amfi and other agencies for the past 5 years.

Is 2.25% entry load is an excess charge, when you service a small investor? A distributor serves in explanation of the scheme details etc., filling application, KYCs, getting unit statement and in serving redemption and answering enquiries and so on.

For the above, many distributors may claim use of technology. Agree.What is the cost of a Computer and a laptop and their maintenance. If had an office, what will be the expenditure on the establishment? Is it correct to deal with customers from the Residence?

People at the helm of higher level can claim that misuse of the facilities.I am not elaborating here, because you all know. Loop holes have to be rectified with understanding repercussions on the Industry. The cost of the two wheeler ( besides replacement), its maintenance, petrol exp is also eating much of revenues of the individual IFAs. How many distributors are active now?

I strongly believe that Rural and urban penetration enables the distribution of Industrial wealth of our beloved India, there by improvement of all the sections of the Citizens.

Then How to propagate the concept in Semi urban and rural areas? How long to depend on FIIs mercy.
I strongly believe that we will be successful to face FIIs frequent redemption's even 5% cost of Gold and other investments conversion from the Rural and Semi urban area Citizens. BUT CONCERTED EFFORTS ARE REQUIRED.

A ray of hope.I opine we are collectively successful in preventing a drastic fall in spite of considerable Redemption's from many quarters, because of stable SIPs for the last three years.

Can we consider short term funds as stable investments? Will they be useful to match long term requirements of capital formation of growing thirsty of Indian Industry? I do not think so.
WE HAVE EXCELLENT ECONOMISTS AND ANALYSTS WITH VAST KNOWLEDGE. SIRS! MAKE THOSE
PEOPLE TO DISCUSS TO FIND SOLUTIONS.

I am not a fit person to elaborate corporate governance and other things. I LOVE TO SEE MY INDIA AS A PROSPERED NATION IN ALL ANGLES.CHANGE OF ATTITUDES WILL MAKE US GREAT.
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