Widely read:
Is your SIP really an SIP? Sounds like an odd question to ask, one where even the meaning of the question is not clear. However, to a small fraction of my readers, this will make perfect sense, all because of a rather nasty surprise they have had recently. They thought they were investing through an SIP. All the outward appearances of SIP investing through an SIP were there - money was going out of their bank accounts every month, fund units were getting credited, the apps they were investing through were all saying SIP, and then it all stopped, much to their shock.
Here's the story, and the reasons why I think you should ask some careful questions from the distributor/service which you are using to invest in funds. In the last couple of years, we have had a number of new online services that have started selling mutual funds. This includes app-based services run by startups as well the 'MF Utility' run by the mutual fund industry itself. These services generally claim to offer a far higher convenience than traditional distributors while being free to the investor. Not only are they free in the sense of not charging anything, they are also free because they deal only in direct plans of mutual funds, which do not yield them any commission.
As seasoned investors would know, mutual funds have fixed days on which SIP transactions are done. For example, for monthly SIPs, it may only be possible to do an SIP on the 7th or 21st of each month. For a weekly SIP, it may be only on Tuesdays and so on. One of the conveniences that these services offer is that you can do an SIP on any date, without regard to what the mutual fund allows.
How do they manage to do that? By not doing SIPs at all! Instead, they take a mandate from you to conduct transactions, and tell you that an SIP has started. Then on whichever day needed, they just do a normal, non-SIP transaction of that amount for you. To be fair, this does not make any difference to you. At least, not in most cases. However, once in a while, your transactions can stop. Recently, one popular fund, Motilal Oswal S&P 500 Index Fund, had to stop fresh investments because it invests in foreign stocks. The overall industry limit for foreign investments was getting close so for regulatory reasons, the AMC stopped fresh investments. However, it stopped this only for lump sum investments. It allowed its existing SIP investors to continue without interruption. This is a normal pattern and whenever any AMC has to close investments in any fund for any reason, SIP investments can generally continue.
Now you can see the problem. All those people who were doing fake SIPs with the new style online services saw their investments stop. Depending on how the markets are moving, this problem could lead to an opportunity loss to the investors too.
In any case, the issue is not about what the investment impact of anything like this is but rather, the underlying misrepresentation. No financial business should misrepresent its actions to customers. These services said they were doing SIP but actually they were not - they made false statements to their customers. For this, they should be questioned by their customers as well as taken to task by the regulator.
A separate issue is why can't SIPs be done on any given day. These limited days on which SIPs are allowed are a legacy of the age of physical cheques. Today, in the age of UPI and digital fund transfers, they are an anachronism. The fund industry should move to the current day quickly instead of carrying on old practices indefinitely.
Interestingly, the misrepresentation of lump sum investments as SIPs also means that the industry aggregate level data that AMFI puts out is erroneous and SIPs (as intended by the investor) are actually even higher in volume. I hope we get to know the true picture at some point.
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