The Hindu Business Line : `SIPs back in favour among retail investors'

Kolkata April 16 Severe volatility in the market and pedestrian returns posted by equity funds in recent months have prompted retail investors to look at `systematic investment plans' or quite simply SIPs, say fund managers.

Mr Rajan Krishnan, who heads Principal's asset management business, notes that the emerging scenario will severely test stock selection abilities.

"This will be no effortless year for funds", he said while pointing to concerns for fiscal 2007-08. "SIPs will appeal to an investor who is not keen to learn the hard way whether a stock picker will actually perform," he added.

Mr Raghvendra Nath, head of strategy at Birla Sunlife Mutual, concurs. "The thinking individual knows that costs are quickly getting compounded. That is not helping him take decisions. In fact, his appetite for risk is getting impacted. SIPs are helping him cope with all the uncertainty that goes around," he maintained.

The fact that select fund houses are scaling down minimum investment requirement hasn't also hurt the cause of new-found popularity for such schemes among retail investors. Reliance Mutual Fund and ICICI Prudential Mutual Fund, the top players in the Rs 3 lakh crore-plus industry, have re-set the minimum to Rs 100 and Rs 50 per month, respectively.

Systematic investments, which may take the shape of uniform monthly (or quarterly) payments, are often considered appropriate in a market that is not advancing at a fast clip.

However, a rapidly-growing market would rather warrant a lump-sum investment, set off at an early stage of its growth, for securing optimum returns, it is argued. SIPs rely on the principle of `Rupee cost averaging' - successive (read, systematic) investments has the effect of reducing the average cost during periods of down trend.

Clubbing a subsequent investment made at lower prices softens the loss implicit in the initial investment made at higher prices.

While it is not easy to ascertain how many new SIPs have been enrolled lately, distribution outfits point to the interest generated by the concept of uniform, regular allocations.

Banks, which are now playing a larger role on the distribution front are finding their clients responding more positively to the idea of systematic investment, says Mr Neeraj Swaroop, CEO, Standard Chartered Bank. "What appeals to them is the convenience. It is easy for them to enrol, even for relatively longer periods", he said, adding that SCB, which has decided to move out of the asset management business, will focus on distributing products offered by select fund houses.

Pretty performance

Fund houses are strongly underlining the kind of returns that SIPs have spawned in the past. Returns recorded over the bullish phase are particularly spoken of.

For older funds like UTI MF's MasterGrowth, which was launched in 1993, a Rs 1,000 per month SIP has given 37 per cent in the last five years (end-February), assuming investments on the first working day of each month. For Sundaram Growth, which has done about 10 years, Rs 10,000 invested at inception has become nearly Rs 86,300 in March. Diversified funds have given roughly 33 per cent and 38 per cent respectively over three- and five-year periods (as on April 13), according to Value Research. Their one-year average score is 7.66 per cent.

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