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.
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.
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.