Mutual fund SIPs decline further. Who is to blame?

A large portion of SIPs were withdrawn before the completion of their tenure. This just shows no efforts have been taken to retain SIP investors

The number of systematic investment plans (SIPs) ceased before the tenure and those expired, outnumbered the new SIP registrations resulting in a decline in total SIP accounts. The number of new SIPs registered was just 6.69 lakh whereas the number of SIPs that were stopped before the stipulated tenure and those that expired totalled as much as 9.78 lakh, according to Computer Age Management Services (CAMS) data which accounts for 60% of the industry. However, what is more striking is that as many as 5.10 lakh SIPs were ceased before the completion of the stipulated tenure. The high number of SIPs being ceased shows that the investor has not clearly understood the concept of a systematic investment. To attain the true benefits of rupee cost averaging, one needs to keep investing at regular intervals and not try to time the market. But has the fund house or distributors taken any steps to educate the investor about the facts about investing though a SIP?

According to the CAMS data the SIPs were ceased during a period when the Sensex was around 16,500-17,000. The Sensex is now around 18,800. This just shows that there is no form of handholding for the investor. Investors would have withdrawn their SIP seeing a decline in their portfolio value, but this is part and parcel of a SIP. We had shown in our cover story a few months back (Read: SIP smartly) that over shorter periods SIPs can deliver negative returns, but if you continue for a longer period the chances of negative returns is reduced. Most investors are not made aware of this fact by either the fund houses or their distributors, and some are only shown a hypothetical chart when the concept of rupee cost averaging works best. As for the regulator, they would say that they have done their part by asking fund houses to set aside a portion of the expense ratio for investor education.

Over the first half of the financial year 2012-13, equity mutual funds have witnessed a net outflow of Rs7,275 crore. It is but obvious that investors are not are not putting their money into mutual funds. Every month we analyse the data provided by AMFI and point out the declining trend in net inflows. Therefore a decline in SIPs is not a surprise to regular Moneylife readers. Net SIP registrations have been a negative figure each month from April 2012 to September 2012. The SIPs ceased or expired has been a greater number than new SIP registrations leading to a decline of nearly  3.09 lakh SIP accounts despite the fact that the number of new SIP registrations was showing a rising trend from June 2012 to September 2012.

The decline in the number of SIPs is not a recent trend. In April 2012, CAMS had come out with a similar study for an 11-month period from April 2011 and February 2012 (Read: SIPs are not selling. A wake up call for Sebi?). The number of new SIP accounts peaked at around 200,000 in August 2011 month and this has since steadily declined by more than 60% to 75,000 new accounts. The top 15 cities contribute nearly 90% of the total assets of the mutual fund industry. However, nearly half the new SIP registrations came from the beyond the top 15 cities according to the CAMS report.  Though the ticket size may not be as much as compared to the top 15 cities, it is still encouraging. The average ticket size of retail investors from the top 15 cities was Rs3,790 and that from beyond 15 cities was Rs2,760.

mam chand aggarwal
1 decade ago
Most of the investors are waiting for the uptrend of share market .
If crosses 19500 they will with draw their hard money . Investors are in great loss with MFs.You will yourself see the future .
Ramesh Poapt
1 decade ago
A matter of concern indeed!SIP with Insurance,SIP with feature to invest more in decline of index,SIP with holidays without break,SIP with auto Top up introduced by many MFs.But result-decline in folios!
1.A daring suggestion- 5 yrs SIP in equity/hybrid/debt schemes to be given tax break! Closure to attract clubbing to income.
2.Scheme change in SIP is not allowed. The same should be considered say after 12 months if SIP us for 3 yrs or more.
Suiketu Shah
1 decade ago
Most agents of MF esp wealth managements companies are only int in their commission,not guiding investores periodically rightly which is the main cause of this.The way agents of MF work,I think MF industry will shrink more and more.A real waste of time MF is withotu trustworthy relaible agents offering value-added service to customer.
dilip golani
Replied to Suiketu Shah comment 1 decade ago
yes sir it is mf agent who doesn't guide the investor to continue the SIP and just asking you and the author of this article why would he guide you are the investors paying him service charge for his advise??? are the regulators paying him enough renumeration to meet his cost. Guiding/educating an investor requires not only petrol but also lot of effort/time and none of this is free. Seriously just answer me if I am to come to you and educate you about SIP how long will it take 10 minutes 15 minutes no sir it will take around atleast 30 minutes or perhaps more and will you start the sip the same day itself or will you ask for another meeting? and in any case will you pay me for the time I have spent with you for educating you about mutual funds????? Ask yourself this question first and then blame the agent..
Replied to Suiketu Shah comment 1 decade ago
1) Protecting investor’s interest: A strong deterrent needs to be in place. Any abuse of client’s trust or any case of mis-selling must be most severely dealt with. Wonder if this can be done retrospectively; to identify and punish miscreants, whosoever they may be.

2) Sir, about mf agents being interested only in commissions. The commissions for selling traditional life insurance policies are in the region of 25% - 30% for the first year. Now compare this with the 2.25% which the mf agents used to get in the best of the times. – Those interested only in commissions will never sell mutual funds; especially when there other products offering more than 10 times the compensation and they may be doing just that.

3) Mutual funds industry is shrinking not because of the way agents work. But, because there are not enough agents working for the MF industry anymore – The number of mf agents has shrunk by about 50%.

4) In the past two decades, mutual funds have been gaining in popularity and growing across the world. In the USA; there are more mutual funds than listed companies. There is nothing wrong with mutual funds.
1 decade ago
The fault lies with the abolition of the entry load (of 2.25% ) and the ripple effect it has had on weakening the distribution network of mutual funds in India. But, who will admit and rectify?

disclosure: Ours is a mutual funds distribution company
jaideep shirali
1 decade ago
Decline in SIPs can blamed on the distributor, investor and the regulator.Many distributors still don the insurance cap, losses scare them. They prefer to offer insurance products, given the market volatility.Now that traditional insurance plans are back, investors will earn sub-optimal returns of 3-6% p.a.Investors have seen their MF portfolios recover to cost price in some cases from 2008. They would rather earn less on insurance products rather than in double digits if they hold on through volatile markets. SEBI has made villains out of the whole mutual fund industry and the distributors. Investment in securities is being compared to FDs by so-called experts. On one hand SEBI worries about inadequate penetration of equities in India, while it is busy criticizing fund managers for the scheme performance. SEBI has also ensured that selling mutual funds and SIPs is not so profitable (around Rs 5 upfront less Service Tax for a monthly Rs 1000 SIP). I wonder which business is so rewarding !
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