In uncertain market conditions, systematic investment plans (SIPs) are seen as a safe route to invest in equity mutual funds. However, as of now, the concept is finding few takers. The inability of mutual funds to meet investors’ expectations, in terms of returns, is acting as a deterrent to starting fresh SIPs and renewing those that expire.
Through SIPs, investors put in a fixed amount into schemes every month, for a particular period. This allows the investor to buy units at various rates and periods, helping him/her average out purchases.
“Investors are sitting on the sidelines and waiting for a turn in the markets, to start investing again. Their confidence in equities needs to be restored before we see more investments from their side,” said Debasish Mallick, managing director and chief executive, IDBI Asset Management.
Mutual fund officials said investors were redeeming investments at every rise in the market; this had led to a large number of SIP folios being discontinued.
According to CAMS data, as of March-end, the total number of folios in the industry stood at 12,98,000. While the number of fresh investments from the top-15, or T-15, cities saw a decline, fresh investments from investors from other cities (B-15) an increase.
In a circular in September 2012, the Securities and Exchange Board of India had asked fund houses to move beyond the top 15 cities and increase presence in smaller cities and towns. For this, it had introduced an incentive in the form of an addition of 30 basis points in the expense charge, in case inflows from B-15 cities accounted for 30 per cent of the fund’s total flows. Industry officials said despite these incentives, the number of new SIP folios being opened had been declining.
However, the silver lining is fewer investors are discontinuing SIP investments before their closure. Industry officials said now, investors continuing their SIPs were staying longer and investing more. According to the CAMS data, the average SIP ticket size for retail investors stood at Rs 3,948 per investor, against the industry average of about Rs 3,000 earlier. A little more than half the SIP investments are for tenures exceeding five years.
Fund houses, meanwhile, are looking at encouraging more SIP investments. This would ensure fund houses see a steady stream of investments into the scheme; this would also ensure a large investor base, as ticket-sizes for SIPs are small.