India is showing a negative SIP trend in 2025, with SIP stoppage ratio rising to 123% in February from 109.15% in January, indicating higher discontinuation of SIPs. An SIP stoppage ratio is a measure of the number of SIPs discontinued as compared to the new SIPs started in a period.
A Systematic Investment Plan (SIP) provides a disciplined method of investment. It involves investing a fixed or stepped-up amount of money at regular intervals, say, monthly or quarterly, in mutual funds. But, everything comes at its own cost, and likewise, SIPs come with a certain degree of risks and disadvantages.
Read this blog further to know in detail about the disadvantages of SIP investment and real-time negative trends in SIPs, which will help in understanding your investment needs and set objectives accordingly.
Key Disadvantages of SIP Investments
While SIPs may provide many benefits, they do bring additional disadvantages. Investors should be aware of these risks and disadvantages before making SIP investments. Let’s check them out.
Market Risk & Volatility
SIPs reduce the impact of market volatility through rupee cost averaging, by purchasing more units when prices are low and fewer when prices are high. However, they can not entirely eliminate the market risks.
The overall value of an investment directly depends on the performance of the underlying securities that it invests in, which is subject to market fluctuations, and during market downturns or financial crises, investors’ portfolios may still lose their value, causing material losses.
No Fixed Returns & Impact of Inflation
Unlike traditional deposits, SIPs do not provide any guaranteed or fixed rate of returns. The returns are dependent on the market performance of the mutual fund.
If a fund consistently underperforms, it will impact the returns, and in a few cases, returns are actually negative, especially in the short term. Also, if the SIP returns fail to outpace the rate of inflation over time, inflation will erode the real value of the invested money.
For example, an individual was investing ₹5,000 monthly in an equity SIP for three years, expecting 10% returns, but the fund delivered only 5% while inflation was around 6%. So, the real gains turn negative. Even though the returns are positive, its purchasing power in the Indian economy declines.
Long-Term Commitment & Discipline Required
SIPs’ benefits, such as compounding and rupee cost averaging, are actually recognised over the long-term, say, 5 years or more.
This requires investors to be patient and disciplined, especially during market downturns. So, missing instalments or discontinuing payments disrupts the investment plan and affects wealth creation over the long term.
Exit Loads, Lock-in & Liquidity Limits
Funds like Equity-linked Savings Schemes (ELSS) have a mandatory lock-in period, which restricts them from early withdrawal. Most funds without such lock-ins charge an exit load fee while redeeming SIPs before the mentioned period.
Besides, the exit load applies to each individual installment. Which means, if an investor wants to redeem all units at once, they still have to pay an exit load fee on the new units that have not completed their holding period.
High Fees & Expense Ratios
SIP mutual funds charge an annual fee called the expense ratio for administration, management, and marketing costs. A higher expense ratio may eat into returns over the long term, especially when the fund’s performance is not so exceptional.
Dependency on Fund Selection & Performance
A successful SIP depends on choosing the right mutual fund. Before picking and investing in any fund, an investor should religiously analyse the long-term performance of a fund, the fund manager’s record, and the investment strategy adopted by the fund. Careless selection would lead to subpar returns, even with discipline.
Opportunity Cost & Missed Market Timing
SIPs remove the need for market timing, but they are not an optimal strategy. In a bullish market, one-time lump-sum investments might outperform SIPs because the capital is invested immediately.
SIPs do not allow taking advantage of a deep market crash. Investing in a one-time investment during a market downturn may offer a lower-than-average buying price than a fixed SIP.
Set up Charges & Transaction Costs
Most online platforms have minimal setup charges, but transaction costs are still applied. Meanwhile, if auto-payment is on for debiting the SIP instalment and an investor has an insufficient bank balance, the bank may charge a penalty fee for the failed transaction.
Stoppage Trends & Psychological Disruption
For new investors, staying disciplined for a long time could be challenging and emotionally taxing. For them, a market downturn can cause more panic, compared to experienced investors, and lead to stopping their SIPs or redeeming their investments even at a loss. That could be detrimental to long-term wealth creation.
Also, individuals with unstable or irregular income might find it difficult to maintain a consistent SIP, often leading to missed payments or disruption of the investment plan.
For example, during early 2025, India’s SIP stoppage ratio spiked to around 123% as market volatility rose. Many new investors paused or discontinued their SIPs after observing short-term losses.
In such a situation, an individual investing ₹4,000 monthly might stop after a year of negative returns, while missing out on lower-cost units and long-term compounding once the market recovers.
Real-World Insights & Trends
- According to an analysis by ET Mutual Funds, 51 equity mutual fund SIPs, out of 277, delivered negative returns over the past year, with a 10% loss. This indicates SIPs are not immune to short-term market downturns and could underperform during volatile periods.
The Samco Flexi Cap Fund suffered the most SIP loss, with around 9.91%, followed by the Quant Multi Cap Fund and the Quant Mid Cap Fund, which gave a negative XIRR of 8.70% and 7.28% respectively.
- In 2025, the mutual funds space saw a fall, with 112 lakh SIP accounts closed so far this year. While this negative SIP trend seems worrying, experts suggest it reflects cautious investor sentiment amid global market uncertainty, rather than a loss of faith in SIPs.
In the first 6 months of the calendar year 2025, only two months witnessed new SIP accounts, while the other 4 months witnessed account closure. Moreover, new SIP accounts in January 2025 showed a negative balance of ₹5 lakh, which indicates the closure of more SIP accounts.
Who Might Avoid SIPs?
- Individuals with unstable or no regular income: SIPs require consistent payment of instalments. Individuals with irregular income may find it stressful to maintain regular SIP instalments, and missing payments would disrupt their plan for building wealth.
- Individuals with high outstanding debts: Investors should prioritise paying off any debt, for example, credit card debt, which is a wiser decision than investing. As the interest on debts will offset any returns from investments.
- Investors with short-term expectations: Mutual fund SIPs are designed for long-term growth, say, 3-5 years or more. Investors who have short-term objectives and expect returns within a year could suffer from market downturns.
- Investors with low risk appetite: Even though SIPs are a systematic approach, they carry market risk and do not offer guaranteed returns. A risk-sensitive investor may choose between zero to low-risk options, such as government-backed funds or Fixed Deposits (FDs).
Strategies to Mitigate SIP Drawbacks
- Address market fluctuations: Pausing or discontinuing SIPs during downside market trends is a common mistake investors make. Investors should stay patiently invested for a long period and make the most of rupee cost averaging and compounding.
- Overcome poor fund performance: The golden rule for managing risk is diversifying. To overcome the poor performance of a fund, investors should strategically allocate their money into different funds.
- Manage liquidity risks: Investors should maintain a certain level of liquidity to avoid premature redemption of SIPs. It is also significant to understand the impacts of the exit load fee and maintaining sufficient bank balances for automated payments.
Please note that, disadvantages of SIPs are related to where the mutual fund invests in, market conditions, and investor behaviour, and not the SIP method itself.
Therefore, investors should assess their risk appetite, income stability, and financial objectives before committing to it. A balanced approach, long-term orientation, and proper diversification could help to offset most of these drawbacks and make SIPs work effectively.
FAQs
The disadvantages of mutual fund SIPs include market risk, unguaranteed returns, a requirement of long-term commitment, liquidity limits, and dependency on fund performance.
Yes, SIPs deliver negative returns during market downturns. For instance, several equity SIPs recorded losses of up to 10% in 2025. However, staying invested for the long term may help in recovering these short-term losses.
Around 112 lakh SIP accounts were closed in 2025, which could be due to cautious investor sentiment amid global market uncertainty. This could mean a temporary pullback rather than a permanent loss of confidence in SIPs.
Individuals with irregular income, high outstanding debts, low risk appetite, and short-term return expectations should avoid SIPs, as they may suffer due to consistent payments or market fluctuations.
Investors can reduce SIP risks by diversifying across different mutual funds, maintaining liquidity for emergencies, and avoiding psychological reactions during market downturns. And, regularly review and stay invested for the long term to maximise SIP benefits despite volatility.
