Cancellations, ceased accounts outstrip new SIP registrations in March

According to latest data obtained by Moneylife, new SIP registrations have been overshadowed by cancellations and ceased accounts in March, which is supposed to be a boom month for investments

While stock markets are charting an upward course for several weeks now, mutual fund investments have exhibited a contrarian trend. The latest exhibit in this grim scenario is the rapidly declining investor interest in systematic investment plans (SIPs) of mutual fund schemes.

Here are the bare facts. Since December 2009, new SIP registrations have witnessed a steady downhill trend. New registrations in SIPs have gone down from about 280,000 in December 2009 to around 225,000 in March 2010.
Meanwhile, the number of SIP cancellations has increased from around 67,000 in January this year to around 83,000 for March. Between February and March, the number of ceased SIP transactions has gone up to around 108,000. Most alarmingly, cancellations and ceased transactions are more than the new SIP registrations for the month of March, a month when people make a lot of investments.

A SIP allows an investor to invest in a mutual fund by making smaller periodic investments (either monthly or quarterly) instead of a large one-time investment. This makes a SIP the preferred route for investing in funds for most investors.
All this while, the Sensex has been rising steadily and even touched 18,000, a 25-month high. Moneylife has previously written about how recent mutual fund outflows have defied stock market trends. (see here).

Recently, we also revealed how redemptions from mutual funds have consistently outpaced subscriptions from August last year, when the Securities and Exchange Board of India (SEBI) introduced the no-entry load ban. (see here).

Market players suspect that most of the current woes being experienced by this industry stem from the whirlwind initiatives taken up by SEBI to ‘fine-tune’ the industry practices. However, industry leaders have defended the new system by arguing that the industry would adjust to paying commissions, sooner than later. Their contention is that investors are pulling out money from MF schemes to book profits.

But, as pointed out by Moneylife, this is nothing but a veiled attempt to hide the fact that SEBI’s new rules regarding entry load and trail commissions do not help anybody, least of all investors because of the uneven playing field of the investment landscape. With commissions vaporising into thin air, distributors have lost incentive to sell mutual funds and are instead pushing heavy commission-earning products like unit-linked insurance plans (ULIPs) and corporate fixed deposits which are against investors’ interests in some cases.

An independent financial advisor (IFA) pointed out that apart from the lack of incentive to sell, distributors also face other hurdles in promoting SIPs. “Even banks and national distributors are not interested in selling SIPs as it is a very slow-earning option. Also, even if a distributor promotes a SIP, he is not assured of regular income anymore as some national distributor may poach his running SIP any time. Uncertainty of future trail (commission) and transfer of assets under management (AUM) is the main hurdle for brokers to promote SIPs.”

The IFA also pointed out that filling the SIP application form is very cumbersome and technical. There is no standard format across asset management companies (AMCs). Every AMC asks for data in different formats.

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COMMENTS

seetharaman.k

7 years ago

we have to laugh out loud at sebi&its line of thinking that ppl will work to amc`s for free&fill the coffers of government

MK

7 years ago

In India it is a reality that mutual funds are sold and not bought. SEBI is still miserably failing to work out means and ways to educate the masses for investing in mutual funds. From the recent spate of regulations it will only make the investors and the distributors move away from a wonderful product called mutual fund. I think it will be too late before anyone from Sebi listens. God save Sebi.

ROOPSINGH SOLANKI

7 years ago

THANKS MONEYLIFE TEAM FOR PROVIDING DATA FOR THIS ONE OF BEST INVESTMENT METHODS IN MF-BUT THE GROUND REALITY IS THAT WHO IFA WILL GO TO ASK MONTHLY SIP COMMISSION CHEQUE FROM INVESTOR-OR WHICH CLIENT WILL WILLINGLY PAY FOR 3 YEAR/5 YEAR SIP IN LUMPSUM-WHEN INVESTORS REALLY DONT PAY FOR LARGE AMOUNT LUMPSUM SINGLE PURCHASES-I JUST ATTENDED CFP REGISTARTION WORKSHOP BY FPSB-WHO CLAIMED THAT CLIENTS WILL PAY FEES AFTER ONE HAS COMPLETED CFP-BUT WHEN WE INQUIRED EXISTING CFP IFA'S-THEY TOLD OPENELY THAT CLIENT IS NOT BOTHERD TO PAY ANY FEES EVEN TO A CFP-THE REALITY IS THAT WHEN WE ARE HAVING HEADACHE OR COLD-WE DONT GO TO A M.D. DOCTOR-BUT OFTEN WE PREFER TO TAKE MEDICINE FROM CHEMIST OR ANY MBBS DOCTOR-SO WHY SOME ONE WILL PAY HEFTY FEES TO CFP WHEN HE WANTS TO BUY ELSS OR WANT TO INVEST IN POST OFFICE OR BANK FD-THIS ALL RUBBISH BRAINWASHING OF IFA'S IS GOING TO DO MORE HARM THEN ANY GOOD FOR CLIENTS AND INDUSTRY-

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Exclude land value from service tax: ICAI

The entity has argued that a tax on transfer of land should be a State subject

The Institute of Chartered Accountants of India (ICAI) has called for excluding land value from the proposed service tax on the realty sector, saying land is a State subject, reports PTI.

“When a prospective buyer makes an advance payment to the builder against booking of a specified unit in a building, that part also includes a price towards the land on which the building is being constructed and treating the entire amount being paid by the prospective buyer to the builder would amount to imposing a tax on transfer of land which is a State subject,” ICAI said.

The Budget proposes to bring the realty sector, including new residential properties under the service tax net.

In its post-Budget recommendation on indirect tax, the ICAI suggested that the value of land based on municipal valuation be excluded from the payments made by the buyer as the “intention cannot be to tax the value of the land or the appreciation in the value of the land.”

Finance minister Pranab Mukherjee has brought construction of real-estate complexes under the ambit of service tax unless the entire consideration for the property is paid after completion of construction.

“In the construction of complex services, it is being provided that unless the entire consideration for the property is paid after the completion of construction (i.e. after receipt of completion certificate from the competent authority), the activity of construction would be deemed to be a taxable service,” said the Budget proposal.

A complex has been defined as buildings consisting of more than 12 residential units.

Finance ministry officials later clarified that service tax of 10.3% would be imposed on 33% of the selling price of the property, which effectively means about 3.5% of the total cost of the property.

Last week, CREDAI—an apex body for realtors—said that it will consider taking the government to court if its demand for excluding land cost from the proposed service tax on real estate complexes under construction is not met.

Not only developers, even the urban development ministry said it would soon approach the finance ministry seeking a review of the proposed service tax on the real estate sector as it feels the levy will hurt the sector, which is yet to recover from the global economic recession.
 

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