MFs hardsell SIPs to investors

With equity investors increasingly booking profits, mutual fund distributors are pushing SIPs or systematic investment plans to them. A sales head of leading fund house said, “After we saw markets touching the 20,000-levels, several investors booked profits. Some of that money is coming back in the form of SIPs.

He added that distributors are once again being given good commissions from the pocket of fund house to lure such investors back.

R. S Srinivas Jain, CMO of SBI Mutual Fund, said, “We are witnessing sudden rise in SIP and in the last one month we have added 1.5 lakh new SIP accounts.”

SIP is a mode of investing into equity funds, in which instead of lumpsum investments, an investor buys units each month, thereby averaging his cost of units. This is either done by regular transfer from a liquid fund or from the bank account.

However, the mutual funds houses are not giving upfront commission this time, instead they have increased trail commissions to push SIPs. B Sarath Sarma, ED of IDBI Mutual Fund said, “When equity markets go up, interest of investors as well as of distributors increases (for equity funds). We are witnessing distributors selling equity funds once again with some upfront commission. Also the trail commission has been increasing as it gives portfolio advisors an incentive to encourage investors to hold for a longer period.”

Trail commission, as opposed to upfront commissions, are paid either yearly or semi-annually to the distributor as long as the investor stay invested in the scheme.

Now fund houses pay anywhere between 25-50 basis points as upfront commission, while trail has been increased to 50-75 basis points. Before the market regulator bought ban on entry load from August last year, distributors were paid a upfront commission of over 1%.

According to IDBI MF, new SIPs account are coming not only from top metro cities but also from the Tier-II and Tier-III cities like Indore, Vijayawada and Nagpur, where there is renewed interest in equity market. According to a report published by the Boston Consulting Group (BCG), SIP inflows have been the saving grace for mutual fund houses especially during tough times. Also, SIP inflows as a percentage of overall inflows have increased over the years. The report stated that, SIPs accounted for about 19 % of inflows in the first quarter of 2010 while it was 15% in 2009 and 11% in 2008.

Source: http://www.financialexpress.com/news/mfs-hardsell-sips-to-investors/690204/0