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UBS, after conducting a survey recently, said investors are open to put a stop on fresh investments or even redeeming SIPs (systematic investment plans or monthly committed investments) due to various catalysts.
According to a UBS Evidence Lab survey, authored by Gautam Chhaochharia and Sanjena Dadawala, retail inflow in SIPs may be vulnerable if returns turn negative.
AMFI data shows that the MF industry had added about 9.92 lakh SIP accounts each month on an average during FY2018-19, with an average size of about ₹3,250 an SIP account.
Mutual funds have about 2.33 crore SIP accounts and had invested ₹29,102 crore till July of this fiscal, the MF body said in its website.
The UBS survey study revealed SIPs may not be as sticky as widely believed by the market. “Our view of moderation in local retail flows has started to play out, but Nifty and SMID (small- and mid-caps) valuations suggest strong sustained support from local flows is being priced in. We remain underweight on SMIDs and believe the risk-reward for the market remains unattractive,” the analysts have said.
Sane course of action
The UBS Evidence Lab survey of 1,538 households on how they allocate their household income between expenses and savings and their choice of savings instruments suggests returns matter to retail investors. “Our analysis of past data also shows flows do follow returns.”
Should investors discontinue or put a stop to the SIP in case the market turns volatile or witnesses a bearish trend? If investors continue their investments when the market goes up and stop it when it plunges, defeats the very basic purpose of investing through an SIP.
On the contrary, investors should increase the contribution if the market turns weak. In fact, SIPs are precisely for taking advantage of the volatility in the stock market as timing the market is almost impossible for retail investors. SIPs help investors buying more units when the price is down and thus maximise the returns.
Besides, investors should stick to their long-term objective without bothering about the short-term volatility. If they stay the course throughout their investment cycle, returns will be humongous due to compounding effect.
However, what is heartening from the survey finding is that investment behaviour is showing growing maturity. The study indicates some resilience in mutual fund investments, even in a potentially negative returns scenario. Hope the maturity continues.
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