Over the last three days, we have received many calls and WhatsApp messages questioning the credibility of the story published on Cafemutual titled ‘Half of the total SIP accounts discontinued last year’. You can click here to read the story.
The story which was based on CAMS MFDex report released by IDFC Mutual Fund says that individual MFDs have witnessed highest SIP discontinuation last year.
This is how it is calculated currently: Mr. Kumar has 10,000 SIP accounts as on March 31, 2020. Kumar has added another 1000 SIP accounts and seen discontinuation of 900 SIPs between April 1, 2021 and March 31, 2021. Since Kumar has witnesses addition of 1000 SIPs and discontinuation of 900 SIPs, his SIP discontinuation percentage would be 90%. (Please note that the above calculation is based on industry practice and Cafemutual has no role to play in this calculation method).
Ideally, it has to be calculated like this: Kumar has 11000 SIP accounts (10,000 SIPs existing and 1000 incrementation). Even if he has seen discontinuation of 900 SIPs, his SIP discontinuation percentage should be 8% with renewal ratio of 92%.
Other key reasons for high number of SIP discontinuation of SIP accounts are due to financial constraints faced by investors due to pandemic and lockdown, merger of banks and requirement of KYC updating (linking PAN with MF folios).
In addition, the report talks about SIP discontinuation at distribution channel level. It does not capture data at an individual level.