While monthly systematic investment plan (SIP) contribution numbers have remained steady for the mutual fund industry, the SIP closure ratio—discontinued SIP accounts as a percentage of new SIP accounts—has been rising. Experts attribute this to stock market volatility.
A closer look at the data suggests do-it-yourself investors may be quitting SIPs without giving them enough time. The number of five-year-plus SIPs in direct plans—which carry lower expense ratios as they exclude distributor commissions—shrank by around 35% in FY26. The number of 4-5-year SIPs fell around 23%, while 3-4-year SIPs declined 56%. To be sure, SIPs running for less than two years grew close to 19% over the same period.
Industry experts say recency bias is influencing investor behaviour. "Investors who came in over the last 12 to 24 months would have looked at the returns of the preceding two to three years. But market conditions over the last two years have been quite different from that period," said Saugata Chatterjee, president and deputy CEO at Nippon India Mutual Fund.
The Nifty 50 is down over 6% from its peak on 26 September 2024, as of 7 August 2026. Two years of range-bound markets have left SIP returns weak—a SIP running in the Nifty 50 TRI for the past year is barely positive, while a two-year SIP has returned about 2%. That has fed into closures: in the first quarter of FY27, the SIP closure ratio averaged about 96%.
But SIPs are designed for long-term investing. Here is why investors may be better served by looking beyond short-term returns.
Rolling returns
A rolling return does not look at just one start date. It considers multiple start dates—a SIP started in January, then February, March and so on—and measures how each would have performed.
An analysis of SIP rolling returns from 1 April 2005 to 3 August 2026 across the Nifty 50 TRI, Nifty Midcap 150 TRI and Nifty Smallcap 250 TRI shows that the share of loss-making SIPs falls sharply as the holding period lengthens. TRI, or total return index, reflects share price movements and assumes dividends are reinvested.
For Nifty 50, 14.2% of two-year SIP periods ended in the negative. At three years, that fell to 5.9% and at five years to 0.5%. By seven years, none were negative. The Nifty Midcap 150 showed a similar trend: 18.5% of two-year SIPs lost money, compared with 2% at five years and none at seven.
The impact of bad market cycles also shrinks. The worst two-year SIP on the Nifty 50 returned -39.8% annualized. Over five years, the worst outcome improved to -4.4%. At seven years, even the weakest SIP was positive, at 0.4%.
Small-caps, which tend to be more volatile, show the same pattern. For Nifty Smallcap 250, nearly a quarter of two-year SIPs—24.9%—lost money, with the worst two-year period returning -54.9%. The share of loss-making periods fell to 8.6% at five years and 3.5% at seven years, while the worst outcome improved from -54.9% at two years to -17.2% at five and -6% at seven.
Over longer periods, average SIP returns also settle into a narrow band. Five-, seven- and 10-year average rolling returns were 12.65%, 12.47% and 12.55% for the Nifty 50; 17.67%, 17.25% and 17.58% for Midcap 150; and 15.46%, 14.78% and 14.96% for Smallcap 250.
Cost of quitting
Pausing a SIP delays the goal even after an investor restarts. Consider a ₹20,000 monthly SIP targeting ₹1 crore, assuming a 10% annual return. The SIP would reach the goal in its 17th year.
An investor two years into the SIP who stops for six months reaches the goal 4 months and 27 days later. A 12-month break stretches the delay to 9 months and 24 days. For someone four years in, a six-month break costs 4 months and 3 days, while a 12-month break costs 8 months and 3 days.
The delay is smaller than the break itself because money already invested continues compounding while contributions are paused.
"Young investors are often looking at last one-year returns of a fund on an app and expecting the same returns to continue. They are not linking their investments to long-term goals, which is why the investments lack purpose and when short-term returns turn weak, they are quick to stop or switch," said Ravi Kumar TV, co-founder of Gaining Ground Investment Services.
Not every stoppage is necessarily a permanent exit. "In the 25 to 30-plus age group, what we see is that investors stop a SIP in a scheme and then come back and restart with another one. Some do not come back, but a fair percentage do. So, a closure may not always be a closure of intent," said Chatterjee. "Beyond 35, the incidence of closure is lower."
According to Vivek Rege, a Sebi-registered investment advisor (RIA) and founder of VR Wealth Advisors, the convenience of apps has made it easier to buy and sell mutual funds at the click of a button, with decisions sometimes driven by emotions in the absence of an RIA or mutual fund distributor to hand-hold young or first-time investors.
"Many tech-savvy investors came in looking at recent returns and expecting those returns to continue. They have not seen a phase of negative or flat returns, and when they cannot explain why it is happening, the instinct is to stop," said Kavitha Menon, Sebi-registered investment advisor and founder of Probitus Wealth.
"Every fund goes through phases—a particular style or a manager's approach will work in one cycle and not in the next. This is normal and investing in equity requires riding out such periods by staying invested. Not having an advisor or a mutual fund distributor to hand-hold during such cycles means that investors take decisions in panic and fear.”
Top up early
Just as stopping a SIP early carries a cost, increasing contributions early can help investors reach their goals sooner. A top-up SIP raises the instalment by a fixed percentage every year.
On the same ₹20,000 SIP example, an investor with no top-up reaches ₹1 crore in the 17th year. A 5% annual top-up brings that forward to the 15th year, while a 10% annual top-up gets there in the 13th year.
The trade-off is that the investor puts in more money. The benefit comes from each additional rupee getting a longer period to compound, which is why top-ups work best when started early.
"Younger investors who are just starting out should top up their SIP every time they get an increment. It does not have to be the full increment," said Amol Joshi, founder of Plan Rupee Investment Services.
“The simpler way is to fix the SIP as a percentage of salary. Then it rises on its own every time the salary does, and you are not making a fresh decision each year. Part of the increment goes into improving your lifestyle, and part of it goes towards your investments to meet your financial goals.”
Key takeaways
Longer-tenure SIPs can also reduce the disadvantage of a bad entry point. An analysis of 10-year SIPs started at three points in each year—at the year's high, on the first trading day and at the year's low—shows that outcomes converge across all three indices. For the Nifty 50, starting at the year's high averaged 12.59%, against 12.77% for starting at the year's low.
Weak one-year or three-year SIP returns are expected during downturns. Investors in the early years of a SIP are particularly exposed because a small corpus and short holding period magnify the effect of a falling market.
If a fund has a sound long-term record, a short-term correction alone is not a reason to stop. Halting a SIP in a falling market means giving up the units that could have been accumulated at lower prices—the part of the process that does the work when markets recover.
For long-term investors, the message is simple: keep the SIP running through market cycles and, if income allows, consider topping it up.