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Small investors logging out from SIPs

Market slump and availability of alternate investment avenues see investors flee

Chandan Kishore Kant  |  Mumbai 

Young Chinmay Pise never forgot to check the net asset value of his investments in equity mutual funds before going to bed. His tracking of investments only intensified this year, amid a swift rally in equity as the Pune-based software engineer had been investing through systematic investment plan (SIP) since September, 2010. And, last week when the fund value overtook his costs he chose to exit.

“Barring the first two months, my fund value remained below the incurred costs,” says Pise, 25. “At one point of time, it dipped more than 13 per cent. Had I put this amount even in a recurring deposit, I would have made close to nine per cent gains.”

He started when the equity was to its last high only to see a value erosion of 25 per cent in 2011. Pise is not alone. Over one lakh retail investors, who took the SIP route, considering it a safer way to invest in equities, decided to stop investments in January. And the current month, appears to be the same or worse, say fund managers.

“Reduction in SIP is not new. It’s happening over the last six months,” says Sanjay Sachdev, chief executive officer at Tata Mutual Fund. In February too, the scenario has not changed, he adds. “Even those SIP investors who had started investing three years back have not made gains.”

Last month, nearly one lakh equity folios (including non-SIPs) were closed. On top of it, 1.2 lakh equity SIPs failed to see transactions. “Either the cheques bounced back or transactions through ECS (electronic clearing service) were not honoured,” says the chief marketing officer of a large fund house.

...but fund managers are optimistic
Domestic fund managers are more confident about investing in stock market now than three months ago, says a survey conducted by ICICIdirect, the online broking arm of ICICI Securities.

According to the survey, conducted among 17 domestic mutual fund managers this month, the outlook for the Indian equity has improved significantly. The previous survey was conducted in November 2011. After losing nearly a quarter of its value, the Bombay Stock Exchange benchmark, Sensex, has gained over 19 per cent so far this year. Most fund managers do not see any major downside in the equity market, the survey says. Seventy-six per cent of the respondents expect the Sensex to rise 5-10 per cent or more from the current levels by 2012-end.

Most fund managers have increased their earnings growth expectations for FY13. Eighty-two per cent, as against 50 per cent in the previous survey, believe the earnings growth for FY13 will be around 10-15 per cent. Though most believe the markets to be fairly valued, the majority advises investors to increase allocation to equity markets.

Compared to November, a higher number of fund managers expects equities to outperform, even as almost everybody expects gold to underperform for the rest of 2012. Most respondents see higher crude oil prices and the European debt crisis as the major concerns for the Indian market.

The previous year had started on a big bang note for SIPs. That time, H N Sinor, CEO of Association of Mutual Funds in India (Amfi), had told Business Standard that there was a remarkable increase in number of SIPs. One of the top officials at Securities and Exchange Board of India had said that transactions through the SIP had improved from Rs 800 crore per month to Rs 1,300 crore per month.

Sinor, though, was quick to add that it had to be seen whether this trend continues. Possibly, he could foresee the trend reversal in the second half of 2011.

“Clearly, there is a trend of outflow from equity funds,” explains Akshay Gupta, CEO of Peerless Mutual Fund. “There is no upbeat attitude among investors to propel their equity investments. As the markets have rallied too steep and too fast, retail investors are cautious.”

Tata Mutual Fund’s Sachdev says investors are cautious. “They should stay invested,” he notes. “This is more of a liquidity-driven rally and not a fundamental-driven one.”

Investors are only recovering their costs and moving out, they say. According to Waqar Naqvi, CEO at Taurus Mutual Fund, the situation continues to remain same as what the industry witnessed in January. “Old investors continue to exit and new investors taking time to enter,” he adds.

Most fund managers, Business Standard spoke to, were of the opinion that it is the current state of markets that is making investors quit equities. Moreover, availability of alternate investment avenues, including the recent tax-free bonds issued by several companies offering assured returns, have dented inflows in the equities, they say. For the last couple of months, net inflows in the equity segment has been touching three year lows of close to Rs 2,500 crore against as high as Rs 5,000 to Rs 6,000 crore witnessed in early part of last year.

Industry officials also admit that there was an over-marketing of SIPs. This led to mis-selling as well. “Distributors are getting a high up-front fees of 0.5 per cent,” says a chief marketing officer. “They tend to churn the portfolio in as little as one month of starting the SIP. For this, both industry and distributors are to be blamed.”

According to Hemant Rustagi, CEO of Wiseinvest Advisors, the bigger question now is how investors perceive equities. “I do not think that Indian mindset is yet prepared for equity investments,” he adds.

First Published: Wed, February 22 2012. 00:23 IST