SIPs turn 'safe' bet for retail investors

Nearly 80% of all redemption made by retail investors — even during adverse market conditions — are profitable. Systematic investment plans, or SIPs, are gaining popularity with about 22.5 lakh live SIPs in 2010 against 7 lakh in 2003. The first quarter of 2010 witnessed SIP subscriptions accounting for 19% of total inflows into equity mutual funds, compared with 2% in 2005, said a Boston Consulting Group (BCG) and Computer Age Management Systems (CAMS) report on equity mutual funds.

According to the BCG-CAMS report, equity MFs are increasingly gaining acceptance as a financial savings instrument by retail investors. MF investments as a percentage of gross household savings have increased from 1.1% in 1994 to a significant 7.9% in 2008. The growth in equity AUM has not, however, been backed by truly differentiated products from fund houses. Sectoral and mid-cap funds have lost significant market share and now represent only around 13% of total AUM. Large-cap and multi-cap funds have grown rapidly and now account for 87% of total AUM, the report said.

Retail customers continue to dominate equity MFs with over 90% of the investment volume coming from ticket sizes of less than Rs 1 lakh; nearly 99% of investment volume is in ticket sizes of less than Rs 5 lakh. Currently, there are nearly 40 lakh active SIPs with an average ticket size of Rs 2,300 every month and 97% of all retail SIP transactions are electronic, the report adds.

The BCG-CAMS report states that average tenure of equity money staying invested in one scheme is about 30 months; nearly 50% of the AUM has an investment tenure greater than two years. And nearly 70% of equity money has investment tenure exceeding 12 months. Only 30% of the equity asset base has a tenure of less than 12 months. “Going forward, retail consumers will continue to play an essential role in the equity fund space. The focus of fund houses should be to develope a plan that will bring in more retail money,” said Alpesh Shah, Partner & Director, BCG. “The focus of fund houses should be to support small distributors and strengthen the PSU bank network for widening distribution reach,” Mr Shah added.

The concentration of equity AUM in top cities is fast diminishing, the BCG-CAMS report says. The share of AUM beyond top-10 cities has shot up from about 10% in March 2003 to around 26% in March 2010. Mumbai and Delhi together account for nearly 45% of total equity AUM, and the top-30 cities account for around 90% of total equity AUM. “There has to be a focus on defining a geographic footprint strategy. Fund houses will have to move out of top-10 cities to cater to more investors,” said NK Prasad, president & CEO, CAMS.

The share of bank ranges from 19% to 38%; the share of IFAs has gone up to 34% from 20% and distributors’ share has gone up to 42% from 29% earlier.

While large-sized distributors, including large and well-networked IFAs, are gaining in market share, small IFAs are losing out the battle to larger players; the trend is more relevant post-entry load ban, notes the study,

The total share of small IFAs has fallen to less than 1% in 2010 from about 6% in 2004. Further analysis indicates that small IFAs are largely inactive, with no sales recorded. On an average, nearly 80% of all small IFAs are inactive every month, the BCG-CAMS report added.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/SIPs-turn-safe-bet-for-retail-investors/articleshow/6076871.cms