Monday, October 25, 2010

S I P (Systematic Investment Plan) - TREND AMONG THE FIRST TIME INVESTORS, making a strong case for Mutual Fund Industry


In the recent past, especially post August 2009 (banning of entry load in Mutual Fund) media has bashed the MF industry many a times predominantly on net negative flow on equity funds despite remarkable market rallies. But if we closely analyze market data, there is a strong SIP movement fuelling up underneath this vulnerability. The new investors are taking SIP (systematic Investment Plan) way to create long term wealth.


Data from industry sources show that there has been consistent upward movement in the SIP folios in last one year in all Metro investors, Non metro cities (next top 25cities) and the smaller cities. The ticket size of average SIP has moved up from Rs. 2100 to Rs. 2200.

Micro SIP category (below Rs.1000, which is dominantly from semi urban and rural India) has seen a surge of 16% from the earlier 13% market share. Though the industry suffered a negative flow in equity funds, the financial year has seen a healthy growth trend with 3.24 Lakh new registrations.

Mutual Fund SIP – Beginners’ route to create a long term wealth
Systematic Investment Plan is a disciplined way of investing into mutual funds. Where in investors have option of investing a fixed amount of money in weekly, monthly or quarterly interval into a specific fund. It can be done by submitting dated cheques or ECS from a specified bank account (Electronic Clearing Systems - Used by banks for transferring fund from one account to another)

For eg. An investor investing as small as Rs. 1000/- per month making a total investment of Rs. 12, 000. Instead of investing Rs. 12,000 at one go, investors now have option of putting the amount in 12 equal installments.

And during volatile market movements, the cost of investment will be average and can see a consistent appreciation of the investment over long period of time.

Beginners’ first step of investment can start with Mutual Fund SIP. Here is why -
1. Small Installments - The new investors who do not have big money ready to invest and allocate in different things, can build their portfolio with a weekly/ monthly/ quarterly SIP over a long period of time. Eg . a ECS deduction of – 1000 per month make a investment of 12,000 in a year.
2. Disciplined Investing – The investors are seeing this an opportunity for a long-term investment as the amount needed for every installment is low and has the benefit of investing through a long span.
3. Beating the volatility of equity market– Investing equal amount every month (similar to saving in a recurring deposit) gives the investor a chance of averaging the risk of losing money through beating the short-term volatility by committing to a long-term disciplined investment.

But, we must look at few reasons why there is net negative outflow in last 1 year –
Reason 1. Advisors are less motivated to sell MF schemes as, as the easy brokerage has stopped coming in
Reason 2. Post market correction of 2008, the 2009-10 rally has made extra ordinary profits in many schemes, so the old investors are booking profits, which had grown multi folds over many years.

But yes, before investing, one should definitely choose the fund carefully.

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