The Hindu Business Line : Investors shying away from SIP funds

If you want to invest through an SIP, funds require you to issue post-dated cheques covering the monthly instalment for at least six months in advance. Investors and distributors are not keen to take on this chore.

INVESTMENT gurus insist that putting away small sums in the stock market on a regular basis is the best way to build wealth. When you plonk large sums in stocks at one go, one badly timed move can reduce your savings to rubble! But Indian investors seem to be turning a deaf ear to the gurus.

Inflows into equity funds have picked up sharply over the past six months. But few investors are routing their investments through the Systematic Investment Plans (SIPs) offered by fund houses. SIPs allow you to spread your investment in a fund over regular monthly instalments, instead of investing a lumpsum. Many fund houses exempt SIP investments from the usual entry load of 2 per cent charged to other investors.

"SIPs are a very small fraction of sales," notes Mr V. Shankar, who heads CAMS, a transaction-processing company which services 60 per cent of the fund industry. This view is endorsed by some of the leading fund houses.

"SIPs have not really taken off in a big way," concurs Mr Sandeep Dasgupta, CEO of Deutsche Mutual Fund. In his view, inflows into equity funds are usually of the return-chasing variety. Few investors invest regularly, with the objective of building wealth over the long term. He points out that time and again, inflows into funds have spiked after a period of high returns.

But Mr Pankaj Razdan, CEO of Pru ICICI Mutual Fund, attributes the lukewarm response to SIPs to its procedural hassles. If you want to invest through an SIP, funds require you to issue post-dated cheques covering the monthly instalment for at least six months in advance. Investors and distributors, he says, are not keen to take on this chore.

Distributor apathy, in fact, appears to be at the root of the problem. "I think SIPs are not pushed aggressively by distributors because of a lack of interest in tiny tickets," comments an industry watcher.

He points out that the ticket size for the typical SIP is at Rs 1,000 or Rs 5,000. With the brokerage on equity funds pegged at 1.5-2 per cent of the investment, this level of "retail" is not remunerative enough to interest the broker. Distributors expect a higher brokerage to push SIPs.

But since distributor fees usually come out of the entry load, which is often waived for an SIP, fund houses are not keen to oblige.

Fund CEOs feel that that tying up with large corporate houses for a direct debit from the salary accounts of their employees would be a neat solution to the problem. But so far, such initiatives have not made much headway. Some companies have expressed their reluctance to tie up with individual fund houses, for the fear of employees holding them accountable, if the funds in question fail to deliver.

Mr S.V. Prasad, CEO of Birla Sun Life Mutual Fund, agrees that companies are not wholly comfortable with such arrangements at present.

But he feels that the comfort level with private fund managers would improve, once the new pension system takes off.

"Once pension plans such as the 401ks (of the US) take off here, companies may get used to the idea of routing part of the salaries of their employees, into mutual fund investments," he says.

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