Don’t want to SIP any more PDF Print E-mail
Tuesday, 07 February 2012 00:00
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Given how the Sensex fell 25% in 2011, it’s not surprising that 1.7 million individual investor accounts were closed during the year—the number rose from 60,000 in January 2011 to 1.15 lakh by December 2011. Everyone may know that the best time to buy is when the markets are down and the best time to sell is when markets are up, but retail investors tend to do the exact opposite—buy when the market is at a high and sell when it is at a low! But a large part of the blame for this also lies with mutual funds who simply haven’t invested as much time and effort as they should have to convince investors that this is the wrong strategy, that the best strategy is not to try and time investments, but to invest steadily. There are enough studies to show that buying at regular intervals, like say the 4th of every month, through Systematic Investment Plans (SIP) yield as good results over the long run as buying at the market’s highs and selling at its lows—and the SIP strategy is nowhere as risky! The fact that, since September 2009, Sebi stopped the practice of allowing mutual funds to charge a 2.25% entry load may have something to do with this as it leaves little to incentivise distributors to spend on educating customers.

The problem, though, runs deeper. For one, mutual funds still remain focused on investing funds got from corporates—80% of funds with mutual funds have been got from corporates and retail investors are largely concentrated in the four metros of Delhi, Mumbai, Chennai and Bangalore. The fact that mutual funds are concentrated in equity products (75%) is another factor that works against them—in the current context of rising interest rates, this means mutual funds won’t be able to give clients the large capital appreciation that will accrue when the rates start rising. The industry is all set to consolidate, and the sale of Fidelity’s India operations is another step in that direction, but if it wants to do well, it needs to act on these issues. A more effective distribution strategy involving a partnership with post offices is also something that needs to be tried on a more aggressive scale.


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