 
Prashant
Jain ANOOP
BHASKER RITESH
JAIN |
A sip at a time Atul Sathe & Rupa Dattani With
aggressive promotions and innovations, the merits of systematic
investment plans have attracted investors. Asset management companies have grown up in the past decade for sure. While a decade ago, there was a handful of fund houses offering a few funds each, today the number of mutual fund companies and schemes have mushroomed. The stock market too has gone up during the period but investing directly in stocks has become a difficult proposition for retail participants. Mutual funds thus have a good chance of becoming the preferred vehicle for small investors to participate in the stock market boom. Fund houses, on their part, have been introducing new products and concepts in order to tackle the volatility and to attract more investors. The systematic investment plan (SIP) is one such creation, which is touching a chord with retail investors. For the uninitiated, a SIP is nothing but investing a fixed amount of money every month in the same scheme. As AP Kurien, chairman of Association of Mutual Funds in India (AMFI) puts it, “SIP is an excellent and innovative way of promoting a regular investment habit and to derive benefit from the same. The concept has in-built advantages as it does away with the need to time the market for the investors, due to the rupee-cost averaging that happens.” SELLING THE RIGHT WAY... The underlying idea behind SIP is that markets are unpredictable and by spreading out over a period of time, an investor will not put in money only when the markets are too high. Kanwar Vivek, head-private banking & joint general manager, ICICI Bank, says, “SIP is generally a distributor endorsed proposition and not a customer induced one. Basically, it helps to remove the need to time the market.” Mutual fund companies have been aggressively promoting SIPs either through advertising or through their distribution channels. Banks too have taken the lead in promoting SIPs to their investors, as it provides them regular brokerage income. Thus, awareness about SIPs has been growing, particularly among the investment-savvy young people. For the AMC, increasing assets is a key goal, and the SIP provides a regular push in the funds it manages. Since the investor does not time the market, the AMC will not have to face tough questions and exit if the markets go down. Even though it takes a minimum eighteen months for a fund company to break-even on an SIP account, fund houses are incentivising SIP sales, says a fund CEO. The normal brokerage for distributing mutual fund products is 2.5 per cent for equity funds. But fund houses pay 0.25-0.5 per cent higher to push SIP sales. Moreover, incentives are given to individual salesmen if they sell more than a particular number of SIPs. For the investor too, the SIP offers several advantages. It basically plays on the rupee-cost averaging aspect over the long-term, which takes care of inflation. Since one invests at every stage of the market, there is no worry about the ups and downs of the markets. The importance of SIP is vividly seen in fluctuating markets. Moreover, a working person need not bother about spending time on studying the markets after investing in SIPs. It has been proved that equities deliver better returns than any other asset class. And though equities can be volatile, the regular investing in SIP mitigates this risk. “Since most of us earn on a monthly basis, we should also save and invest on a monthly basis,” feels Vidur Varma, country investments director-global consumer group at Citibank. ..IS THE WAY TO GROW SIPs really started picking up in India after the auto-debit facility was started by banks about a year ago. The earlier method of post-dated cheques was cumbersome. Kurien adds, “Most fund houses have strongly promoted SIPs in the past two years and now the number of SIP accounts has crossed the 10 lakh plus mark and is growing even faster.” This number is half of what most industry sources suggest. According to an official with UCO Bank, which is a fund distributor, SIP accounts have increased by 200 to 300 per cent over the last year. However, SIPs are still a small component for the fund industry in terms of assets under management (just about 5 per cent of the total funds), due to the small amounts that they bring. Citibank’s Varma says, when the bank started its investment business in 1997 in India, the demand for SIP was really low. “Five years ago, less that one per cent of Citibank’s monthly mutual fund sales were by way of SIP. Today, the same stands at about 8-9 per cent of the total,” he adds. In terms of transaction volumes, about 30 per cent of the bank’s clients have SIP in their portfolio. Till two years ago, only a few fund houses were active in SIP, but the concept has caught on. Last year, Fidelity’s new fund offering was the first ever NFO to offer an SIP option in India. At present, it is estimated that across 20-odd fund houses, there are about 20 lakh SIP accounts, of which about 3 lakh each are with HDFC Mutual Fund and Templeton. Reliance and Sundaram are the other major players. While monthly SIP accounts are the most popular, even weekly and fortnightly ones are becoming popular slowly. Analysts say that the more the frequency, the more one can make volatility work in one’s favour. SIPs have been particularly doing better for some fund houses like Templeton, Fidelity and Prudential ICICI, which have invested significantly in its promotion, as compared to others. SOME SPEED BREAKERS According to ICICI Bank’s Vivek, “One of the possible reasons why many investors have not yet turned to SIPs could be sheer lethargy. Only when they realise that it is difficult to time the markets, do they switch over to SIP.” For distributors and fund houses, the response to SIPs has been decent, but has not been consistent every month. One of the reasons why many investors still don’t opt for SIP is their confidence that they can time the market. Moreover, many investors fear that with too many schemes, they would not be able to track their investments, though distributors and fund houses do send communication to SIP investors. But
as more investors understand the merits of SIPs, the fund industry
should see large additions in the funds they manage. The numbers
speak for themselves.• HOME Business Standard • FUND MANAGER • October 2006 |