Stock Market

Why mutual fund distributors are betting big on SIPs

Himadri Buch
Chillicious NewsMutual fund distributors and independent financial advisors (IFAs) are betting big on systematic investment plans (SIPs) and promoting the tool to build a sustainable business model.
“We have been advocating SIPs and it will help us sustain our business too,” said Padma Kamble, an IFA from Kolhapur. 

SIPs are an investment vehicle offered by mutual funds to investors, allowing them to invest small amounts periodically instead of lump sums. The frequency of investment is usually weekly, monthly or quarterly.

A slew of advisors have realised that SIPs are a good way to grow business.

Harish Mehta of Mehta Investments has 8,000 SIP accounts and believes that every IFA must persuade their clients to invest through SIP.

“SIP have played a very pivotal role in building my AUA [assets under advisory],” Mehta said.

Most of his clients are in the middle income group and are hesitant to invest a large amount in the equity market in one go. For such individuals, Mehta advises investments via SIPs. Eighteen out of his 20 clients are SIP investors.

The monthly investments through SIP route in equity mutual funds rose by about 35 percent in value terms so far in this financial year. The monthly SIP value has doubled in the last two years and stood at Rs 3,663 crore for January. 

Subsequently, the overall SIP count has crossed the 1 crore mark in August last year. It touched 1.23 crore in December, revealed data from the Association of Mutual Funds of India.

Mutual fund houses too are betting big on SIPs to garner AUM. They have set a target of Rs 20 trillion for the industry by the end of 2017.

The AUM of the 43-player industry stood at Rs 17.4 lakh crore at the end of January, a rise of 36.4 percent from Rs 12.7 trillion sequentially, according to data from the Association of Mutual Funds in India. 

At a recent mutual fund event, Suresh Soni, Chief Executive Officer of DHFL Pramerica Mutual Fund said: “After demonetisation, the overall addressable pool of money has gone up substantially and now we can access the money stashed in banks. Some of it could come to the mutual fund industry.”

He was quick to add that the money flow to the mutual fund industry was mature and hence boosting the industry.

Concurring with Soni, Radhika Gupta, the recently appointed CEO of Edelweiss Mutual Fund, said: “We are betting high on our SIP, prepaid SIP in particular, to drive the growth.”

The fund house has an AUM of Rs 7,000 crore and is planning to launch a few innovative products around the SIP model.

“We are looking to do some innovation around SIP. We have prepaid SIPs so we will focus on SIP more,” Gupta said.

Under Edelweiss Mutual Fund’s prepaid SIPs, investors have the option of transferring a fixed amount either from a liquid fund or their bank accounts to an equity fund. The market dynamics will act as a trigger to make the switch. If the Nifty falls by 1 percent or 2 percent, an investor can opt to shift a predetermined amount into an equity fund.