In a silver lining to the dark clouds hovering above the domestic mutual fund industry, there has been a steady increase in the number of fresh equity SIP (systematic investment plan) accounts opened over the past few months. Ironically, the rise in SIP accounts is happening at a time when there is significant redemption in equity schemes.
Data provided by CAMS, the registrar to around 57% of overall mutual fund portfolios, reveal that SIP accounts have grown over 45% over the past one year. Fresh SIP accounts have gone up from 1.59 lakh in July 2009 to 2.31 lakh (in July) this year. Equity fund investors redeemed close to `4,000 crore in June and July and about `2,900 crore in August this year. Number of equity folios have fallen 2% since this April.
"It is ironic that we are seeing the opening of new accounts at one end and redemption at the other. SIPs are steadily gaining in number over the past few months. We expect August numbers to be significantly higher than previous months," said NK Prasad, president & CEO, CAMS.
According to Mr Prasad, fund houses are aggressively promoting SIPs, since investors have been reluctant to invest lumpsum into equity schemes in a rising market. Fund houses with smaller ticket sizes — often lower than `500 and marked as micro SIPs — see more account openings. Weighted average investment in one SIP account is about `2,200 per month. The duration of investment (on an average) has gone up from 12-15 months to about 36 months now, he added.
SIPs have been steadily gaining popularity among retail investors over the years. The number of live SIPs have gone up from 7 lakh accounts in 2003 to 22.5 lakh in 2010. The first quarter of 2010 witnessed SIP subscriptions accounting for 19% of the total inflows in equity mutual funds as compared with 2% in calendar year 2005, according to the recently-released BCG-CAMS report on equity mutual funds.
According to distributors, fund houses are trying to widen their reach by tying up with more banks and financial advisors who are willing to sell equity mutual funds.
"Declining upfront commissions are forcing distributors to look at trail-based income now. On the part of advisors, it is easy to sell SIPs as no further follow-ups are required," said Rajesh Krishnamoorthy, managing director, ifast Financial, adding, "with about 93% of SIP transactions happening over ECS, the advisor need not worry about monthly investments as well. These factor make SIPs easy to sell."
According to Mr Krishnamoorthy, some fund houses are also offering upfront trail commission to distributors on assumptions that the investor will stay invested more than the 'stipulated investment period' (reached upon by the fund house and distributor). In case, the investor redeems his investment prior to stipulated investment period, the fund house will claw back a portion of the upfront trail paid to distributor.
Most fund marketers are placing their hopes on rising SIP numbers to counter redemption in equity portfolios. They are expecting the profit booking in equity portfolios to continue for some more time.
"People who had invested in 2008 are booking profits at current levels," said the marketing head of a bank-promoted fund house.
"The only way to counter it is by adding more SIP accounts. We're trying to reach out to more people; the idea is to widen our reach to newer places. We are also planning to launch a few 'flavour-of-the-season' NFOs to bring in more investors," the marketing head added.
Source: http://economictimes.indiatimes.com/Analysis/articleshow/6556091.cms
Data provided by CAMS, the registrar to around 57% of overall mutual fund portfolios, reveal that SIP accounts have grown over 45% over the past one year. Fresh SIP accounts have gone up from 1.59 lakh in July 2009 to 2.31 lakh (in July) this year. Equity fund investors redeemed close to `4,000 crore in June and July and about `2,900 crore in August this year. Number of equity folios have fallen 2% since this April.
"It is ironic that we are seeing the opening of new accounts at one end and redemption at the other. SIPs are steadily gaining in number over the past few months. We expect August numbers to be significantly higher than previous months," said NK Prasad, president & CEO, CAMS.
According to Mr Prasad, fund houses are aggressively promoting SIPs, since investors have been reluctant to invest lumpsum into equity schemes in a rising market. Fund houses with smaller ticket sizes — often lower than `500 and marked as micro SIPs — see more account openings. Weighted average investment in one SIP account is about `2,200 per month. The duration of investment (on an average) has gone up from 12-15 months to about 36 months now, he added.
SIPs have been steadily gaining popularity among retail investors over the years. The number of live SIPs have gone up from 7 lakh accounts in 2003 to 22.5 lakh in 2010. The first quarter of 2010 witnessed SIP subscriptions accounting for 19% of the total inflows in equity mutual funds as compared with 2% in calendar year 2005, according to the recently-released BCG-CAMS report on equity mutual funds.
According to distributors, fund houses are trying to widen their reach by tying up with more banks and financial advisors who are willing to sell equity mutual funds.
"Declining upfront commissions are forcing distributors to look at trail-based income now. On the part of advisors, it is easy to sell SIPs as no further follow-ups are required," said Rajesh Krishnamoorthy, managing director, ifast Financial, adding, "with about 93% of SIP transactions happening over ECS, the advisor need not worry about monthly investments as well. These factor make SIPs easy to sell."
According to Mr Krishnamoorthy, some fund houses are also offering upfront trail commission to distributors on assumptions that the investor will stay invested more than the 'stipulated investment period' (reached upon by the fund house and distributor). In case, the investor redeems his investment prior to stipulated investment period, the fund house will claw back a portion of the upfront trail paid to distributor.
Most fund marketers are placing their hopes on rising SIP numbers to counter redemption in equity portfolios. They are expecting the profit booking in equity portfolios to continue for some more time.
"People who had invested in 2008 are booking profits at current levels," said the marketing head of a bank-promoted fund house.
"The only way to counter it is by adding more SIP accounts. We're trying to reach out to more people; the idea is to widen our reach to newer places. We are also planning to launch a few 'flavour-of-the-season' NFOs to bring in more investors," the marketing head added.
Source: http://economictimes.indiatimes.com/Analysis/articleshow/6556091.cms
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