Misleading data - are we seeing a “manufactured” SIP bubble?

Harsh Gahlaut


FinEdge Advisory, Delhi

Every month industry data is being published stating how SIP throughput and folio count is growing. By extrapolating this data are we drawing incorrect conclusions and also undermining the strength of the equity markets?

Over the last couple of years, if we were to go by the data published by the industry, we seem to be seeing a strong, resilient retail participation in the country, mainly through SIP’s. Every data cut points to the success of the online platforms and the huge positive impact of the “Mutual Fund Sahi Hai” campaign. What if all this data is hugely incorrect? Will that change the way you perceive the growth of the industry? More so, will that also change the way you perceive the strength of the market?

Let me share some insights on why we could be seeing an artificial bubble being created. We, like many others, use an online transaction platform which is one of the largest in the country. On this platform once a SIP transaction is initiated it will never cease……..that means if we were to start a SIP on the online platform and for any reason if the SIP saw only one or more debits and post that for any number of reasons (Mandate not registered, lack of funds, bank account closure or just lack of intent etc.) the money stopped being debited, the SIP will still continue showing as “live” in the registrar data infinitely, unlike earlier times when if a SIP bounced 3 consecutive times it was shown as “ceased’. The SIP amount too will continue being shown in the monthly SIP throughput despite the fact that no money is flowing in!

We don’t know the extent of the damage this is doing to our data points, everyone in the Industry seems blind to this (is it because no one wants to see the real picture or maybe it would drastically drop the number of “live” SIP’s for the industry, platform as well as the distributor / execution platform!

If this continues without being addressed, the numbers will continue looking great in the short run, but the damage this will cause in the long run is literally impossible to imagine.

Unfortunately, no one wants to bell the cat and the risk of extrapolating this data on the markets, marketing campaigns, performance of Fund Houses and distribution business will be judged on false and incorrect information!

How deep is the rut? Is it just a scratch on the surface or is it deep enough to shake the foundations?

Are the number of “live” SIP folios less by thousands or lakhs? Is the monthly SIP throughput data less by hundreds or thousands of crores?

There is no way of knowing unless the transaction platforms start showing SIP’s which have not been debited for 3 times consecutively as ceased and then there is communication between the platforms and the registrar to capture this data correctly. Until then, I would suggest that this data should be consumed with a (large) pinch of salt!

Harsh Gahlaut is the CEO of FinEdge Advisory - one of India’s largest online advisory platforms, serving clients across 600+ cities with over 60,000 financial plans drawn up for these clients.

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