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SIP Cancellation
Context
The number of SIP (Systematic Investment Plan) cancellations in mutual funds more than tripled in April 2025 compared to the previous month. The cancellation was mainly due to SEBI (Securities and Exchange Board of India) norms implemented to clean up invalid and inactive SIP accounts, rather than a panic reaction by investors.
SEBI Norms
- SEBI issued a circular in January 2024, to improve transparency and accuracy in reporting SIP data.
- According to the circular:
- SIPs with more than three consecutive failed payment attempts (for daily, weekly, monthly, fortnightly SIPs) are considered invalid.
- For quarterly and bimonthly SIPs, SIPs are invalid if payments are missed for two consecutive periods.
- Asset Management Companies (AMCs) must process SIP cancellations within 10 days from the investor's request.
- Before these rules, data on SIP cancellations included many inactive SIP accounts, which inflated cancellation numbers.
- The Association of Mutual Funds in India (AMFI) and AMCs were given until April 1, 2024, to comply with these norms and clean up invalid SIP accounts.
- The actual clean-up of legacy SIP accounts started around December 2024/January 2025 and continued through April 2025, causing a spike in cancellations.
What is SIP?
- Systematic Investment Plan (SIP) is a method of investing a fixed amount regularly (daily, weekly, monthly, etc.) in mutual funds.
- It helps investors build wealth gradually through disciplined investing and rupee-cost averaging.
- Investors authorize their bank to auto-debit a fixed amount periodically, which is invested in selected mutual fund schemes.
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