Investment in equity mutual funds through systematic investment plans (SIPs), once a steady route of sticky money inflows to the fund industry, is now being hit.

Volatile market conditions and poor visibility of expected returns are making investors wary of putting money in SIPs.

Industry officials say consistent negative returns have made SIP an unattractive means for investing. This, especially when fixed-income products are offering guaranteed gains.

“There are SIPs which have been there for five years and they are still giving negative returns. Unless bank deposit interest rates come below eight per cent, I do not think investors would come back to equities," says Saurabh Nanavati, CEO of Religare Mutual Fund.

Fund managers have always recommended SIP route, as it seems to be the best way of investment to reap benefits from volatile markets. The idea had worked, too. During the previous calendar year there was a visible increase in SIP numbers which helped the industry apply brakes on the pace of losing equity folios. Even top officials at the Securities and Exchange Board of India (Sebi) had earlier told Business Standard the amount of monthly inflows through SIPs increased to Rs 1,200-1,300 crore last year, from Rs 800-900 crore in the previous year.

However, that has changed due to poor performance of schemes. For instance, the current value of monthly investment of Rs 3,000 in a top fund houses’ diversified equity fund since January 2010 is 12 per cent lower than the cost. This means an overall investment of Rs 75,000 has a current value of Rs 66,000.

“Investment through SIPs has taken a hit, mainly due to market sentiments. Either, they are not being renewed or they are cancelled. But, I believe the SIP route is a great concept of investing and investors should not discontinue it," says A Balasubramanian, chief executive officer at Birla Sun Life Mutual Fund. A quick glance at the overall declining equity folios explains the situation. According to the statistics available from Sebi, so far in the current financial year industry has lost close to 800,000 equity folios. Further, since the end of 2009-10, fund houses have lost 2.6 million equity folios which are generally retail in nature.

According to Sanjay Sachdev, CEO at Tata Mutual Fund, “Industry-wise there is a fall of 20 per cent in SIP numbers, month-on-month." Agrees the head of marketing at medium-sized fund house. Systematic investment, at least, had assured us of certain inflows. “But in last few months, even this concept is not working which is a serious challenge," he adds.

Fund managers say retail investors have lost confidence in equities. Investors understand there is no predictability of returns in equities which can surprise either side of the graph, they say. According to Amar Ranu, senior manager (third party products research) at Motilal Oswal Securities, guaranteed returns from non-convertible debentures and tax free bonds have also taken a toll on investment through SIP.

In 2011, the stock markets’ benchmark indices had lost almost one-fourth of their values. Despite, quick bounce back over the last fortnight, fund managers are doubtful about the sustainability of the rally.