Which SIP faces the highest redemption, and where are clients moving out?

This data analysis speaks very loudly what Financial Advisors are important and plays a pivotal role in the Indian Financial system. Clients might ignore and now that ignorance is leading to misguidance.  Mr. Naren might have been successful in instigating these clients who were under DIY which also has impacted for short term to the clients who have financial advisors. The data provides a clear insight into investment behaviour patterns and the importance of financial discipline. Investors looking for long-term wealth creation may benefit from the structured approach of regular plans, where professional advice ensures a steady investment strategy. Systematic Investment Plans (SIPs) have become a preferred mode of investing in mutual funds, offering a disciplined and long-term approach to wealth creation. An analysis of the Assets Under Management (AUM) from SIPs in the mutual fund industry reveals interesting insights into the longevity of investments across direct and regular plans. Systematic Investment Plans (SIPs) have been a cornerstone of wealth creation in the mutual fund industry. As of December 2024, the total SIP AUM stood at Rs. 13.63 lakh crore, with distinct differences in investor behaviour between direct and regular plans.

A closer look at SIP longevity reveals that regular plans have a higher number of long-term investors, whereas direct plans see a larger proportion of short-term investments. Additionally, regular plans show significant growth in the number of SIPs across all durations compared to direct plans.

 

SIP AUM Distribution: Key Trends

As of December 2024, the total SIP AUM in the mutual fund industry stood at Rs. 13.63 lakh crore. Among these investments, a significant portion has been held for more than five years, highlighting the commitment of investors towards long-term wealth accumulation.

• Long-Term Investment (Over 5 Years): Rs. 4 lakh crore, accounting for 29% of total SIP AUM.
• Short-Term Investment (Less than 1 Year): Rs. 2.95 lakh crore, making up 22% of total SIP AUM.

This data suggests that while a large portion of investors prefer staying invested for the long term, a considerable amount of SIP investments are relatively new, indicating ongoing participation and fresh inflows.

Direct Plan SIP AUM: Higher Short-Term Investments

When analyzing SIP investments through direct plans, a different trend emerges. A substantial portion of direct plan SIP AUM has a shorter investment duration.

• SIP AUM with less than 1-year duration: Rs. 85,200 crore (30% of total direct plan SIP AUM).
• SIP AUM with more than 5-year duration: 19% of the total direct plan SIP AUM.

This suggests that direct investors—often more informed and financially savvy—might be experimenting with SIPs in the short term or adjusting their portfolios frequently.

Regular Plan SIP AUM: Higher Long-Term Retention

In contrast to direct plans, regular plan SIPs show a higher tendency for long-term investments, reflecting the role of financial advisors and distributors in guiding investors.

• SIP AUM with over 5-year duration: 32% of total regular plan SIP AUM.
• SIP AUM with less than 1-year duration: 19% of total regular plan SIP AUM.

The higher longevity in regular plans indicates that investors who rely on advisors tend to stay committed to their SIPs for longer durations, potentially benefiting from the power of compounding.

 

Regular Plans Have Higher Longevity

• 32% of total SIP AUM in regular plans has been invested for more than five years, compared to only 19% in direct plans.
• Investors in regular plans tend to remain invested for longer durations, likely due to financial advisors’ guidance.

2. Direct Plans Have Higher Short-Term Investment

• 30% of direct plan SIP AUM (Rs. 85,227 crore) has been active for less than a year, indicating that many investors use direct plans for short-term investments.
• In contrast, only 19% of regular plan SIP AUM (Rs. 2,09,799 crore) falls under the less-than-one-year category, showcasing better investor retention.

Overall Growth in SIPs is Higher in Regular Plans

• The total number of SIPs in regular plans is 57% higher than in direct plans.
• Regular plans have more participation across all durations, highlighting the role of advisory services in guiding investors.

4. Mid-Term Investment (2 to 5 Years) Growth is Strong in Regular Plans

• SIPs with 2 to 3 years duration grew by 90% in regular plans compared to direct plans.
• SIPs in the 1 to 2 years category doubled (100% growth) in regular plans versus direct plans.

This indicates that more investors in regular plans are sticking around for mid-term durations, possibly transitioning toward longer-term investment habits.

Conclusion

The most crucial takeaway from this analysis is that time in the market is more important than timing the market. The strong retention in regular plans for over 5 years underscores the power of long-term compounding and disciplined investing. Regardless of whether an investor chooses a direct or regular plan, the key to SIP success lies in consistency and a long-term outlook. The significant 253% growth in SIPs held for more than 5 years in regular plans suggests that investors who seek financial advice tend to stay invested longer.

At the same time, direct plans attract more short-term investors, with 30% of AUM in direct plans being active for less than a year. While direct plans are cost-effective, many investors may be actively managing their portfolios, leading to shorter investment durations. More than 20.96 million SIPs in direct plans have been active for less than a year, compared to 25.47 million in regular plans. The relatively higher share of short-term SIPs in direct plans indicates that investors managing their own portfolios may opt out sooner, possibly due to market volatility or lack of advisory guidance. We might witness SIPs in manufacturing, defence, and innovation funds getting stopped in coming data analysis from the industry since most of them were DIY type of investments.