At a time when mutual funds have been hit by outflows, betting on the investors’ steadfastness has paid off for the industry. Among key instruments the industry has been promoting to expand its base is Systematic investment plans (SIPs), which accounted for 19 per cent or roughly 50 per cent of the mutual fund inflows in the first quarter of CY2010.
According to a mutual fund industry report by CAMs and Boston Consulting Group (BCG), there are an estimated four million active SIPs. The average ticket size of these subscriptions, too, is getting smaller with 58 per cent of them allowing minimum investment of less than Rs 1,000.
Rajesh Krishnamoorthy, MD, fundsupermart.com, a mutual funds portal says, “Slowly but surely, using the basic postal Recurring Deposit design, investors have been pushed to using SIPs to save for longer periods”. As a product, SIPs involve spreading out the investments over a period of time (Fixed frequency) instead of making a lump sum investment. The investor buys units each month/week thereby averaging his costs irrespective of the market direction.
| MICRO SIPs |
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| DAILY & WEEKLY SIPs |
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Promoting SIPs has been a key agenda for asset management companies (AMC) who have held close to 1,000 such camps in the last quarter besides expanding their reach to newer markets in tier II and tier III cites. This has resulted in the share of new SIP registrations for 25 non-metro cities rising from 33 per cent to 36.5 per cent in the last one year (September ’09 to August ’10).
Aligning SIPs to meet investor requirements has been a serious strategy for fund houses. A number of product innovations like the weekly, daily and even micro SIP have been made to the SIP portfolio. “The industry has been reaching out to investors who have been shy of investing in mutual funds so far through the SIPs and its variants”, says R S Srinivas Jain, chief marketing officer of SBI Mutual Fund. The fund house has added over 100,000 new SIP accounts in the last couple of months.
SIP variants:
Micro SIPs are the latest SIP variants. The minimum monthly investment limits could be as low as Rs 100 (both SBI and Reliance Mutual Funds). Micro SIPs allowing investments below Rs 1,000 have seen their share rise from 13 per cent to 16 per cent in the last one year.
The flip side is that the maintenance costs (statements, call centre, etc) for the micro options are high. However, fund houses say that they are looking at the segment as a long-term strategy even if it means some cross subsidisation for now. “We want investors to sample the benefits of Micro SIPs for now. We expect them to allocate a larger sum at a later date”, says Jain.
Weekly and Daily SIPs Now apart from investing a fixed sum every month, fortnight or quarter, you could choose to invest a particular sum even weekly or everyday through the SIP route. Most of the current mutual funds have this option for their investors. The minimum required sum may vary from Rs 300 daily (Bharti Axa Equity fund) to even Rs 1,000 (Daily SIP for the IDFC Small and Mid Cap Equity fund). DSP Blackrock’s weekly fund requires a minimum of Rs 500.
