Nine Out Of 10 Direct Plan Investors Exit Their Sips Within Five Years

Direct Plans is the new buzz word for online mutual fund investments. Though it is not as simple as it looks but still it requires very less operational assistance compared to Regular ones. However, when we look to invest money, is our intention at having operational easiness or wealth management effectiveness. We at I-Solutions strongly believe that one should give first priority to wealth management effectiveness and then too operational easiness. And by the way, with I-Solutions, operations are never a challenge as we are an expert team assisted by in-house technology supporting our Data Management and Back Office operations.

To add more, let us look at latest AMFI data on longevity of SIP accounts which shows that most investors who started SIPs through direct plans discontinued 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.

We attribute this as lack of clarity among direct plan investors. Because having a top-rated fund is not sufficient proof as investment vehicle, the investment objective of investor as well as the fund should complement each other and then only it will succeed. Otherwise, it has to fail. And by the way, we are not even considering handling emotions during turbulent times like 2008 Financial Crisis, 2020 Corona Virus Pandemic and many others. 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.