Mumbai: At the lowest point of trade on Thursday, the BSE Sensex was down just over 1,000 points or nearly 3%. Thursday’s 760-point correction took the BSE Sensex to 34,001—it was the third time this month that the Sensex closed more than 2% lower in a single day.

Since 1 September, the Sensex has lost nearly 11% of its value. Going by the technical definition, we are more than half way towards a bear market if this fall continues. 

The silver lining through this volatile roller coaster ride has been steady investments by mutual fund investors. According to data from the Association of Mutual Funds of India (Amfi), the total inflows via systematic investment plans or SIPs, a bulk of which are in equity funds, was up for yet another month ending 30 September 2018 at 7,727 crore. This was 40% higher than the figure clocked in the same month in the previous year. Equity schemes, including equity-linked savings schemes (ELSS), witnessed a net inflow of 11,172 crore in September 2018, showed data.

Clearly, individual investors are not yet redeeming in panic. According to Amol Joshi, founder, Plan Rupee Investment Services, “There are at the most 3-5% of my clients who have shown signs of worry. But mostly, the conversation is about why this fall is happening. Some clients are using this as an opportunity to speed up their systematic transfer into equity funds."

Most advisers and distributors we spoke to echo Joshi’s assessment that existing SIPs are continuing as it is. 

“The numbers show there is no degrowth in SIPs. These are trying times, but despite the volatility in markets there are investors who continue to give money, which is encouraging," said Swarup Mohanty, chief executive officer, Mirae Asset Management Pvt. Ltd.

However, while redemptions may not be happening, incremental SIPs are also not coming in. The pace of growth in fresh SIPs has slowed over the last three months; the SIP book increased only around 2% in this period, according to Amfi data.

The danger is that if this downtrend continues, SIP stoppages can start showing up. The one-year rolling return from the Sensex till date is now down to single digits; for many individual actively managed large-cap mutual fund schemes, this has now started to turn negative.

As the equity experience turns negative, it will surely impact incremental flows.

Deepali Sen, founder partner, Srujan Financial Advisers LLP, said, “While none of my clients are stopping SIPs, new allocation to equity is being questioned; there are one or two clients who are concerned about global stability and have chosen to wait rather than invest right now."

Moreover, so far, for many existing investors, only gains are eroding. Fear among investors typically takes over when capital erosion happens. “If the markets continue to fall, we may see SIPs getting stopped. New SIPs are not happening at the same pace," said Nithin Kamath, CEO and co-founder of zero-brokerage stock trading platform Zerodha.

The uncertainty of this market trend is exaggerated by the uncertain outcome of important events like the general elections scheduled in May 2019. This by itself might make investors cautious, but so far this month, despite the sharp single-day falls, a pull back in SIPs is yet to be seen.

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