Every Wednesday, industrial units in Nagpur—the third largest city by population in Maharashtra—remain shut on account of load shedding; in other words, no power supply. For Nagpur-based Aniket Deshpande, 48, who works in one of the leading furniture manufacturing companies, which also remain shut on Wednesdays (they work on Sundays though), this comes as an opportunity to revisit his portfolio that consists of shares, provident fund, fixed deposits and mutual funds (MFs), the latter comprising 71% of his portfolio, excluding real estate.
He invests Rs 35,000 per month through systematic investment plans (SIP). A foreign holiday once in two years and retirement are his two biggest goals. Bangalore-based V. Kannan, 54, an IT professional and a regular SIP investor, has similar goals.
Steady runner: V. Kannan with his wife and son at their home in Bangalore. Photo Aniruddha Chowdhury/Mint
Though Kannan believes that direct investment in equity shares—if done with care—can yield better returns when compared with that from MFs, he has steadily increased his investments in SIPs to about Rs 1.2 lakh a month, up from about Rs 40,000 seven years back when he started investing in SIPs.
Deshpande and Kannan represent the new and growing breed of investors—let’s call them Sippers. As per Karvy Computershare, one of the two largest registrar & transfer (R&T) agents in the Indian MF industry, the assets under management of SIP folios stand at 11.44% of the overall equity AUM (of schemes managed by Karvy) as on March 2011, up from 7.26% as on March 2010 and 5.44% as on March 2009. Traditionally, they come from either of the two largest cities, Mumbai and Delhi, but of late they are also coming from smaller towns, such as Nagpur, Patna, Chandigarh and so on.
According to data provided by Karvy Computershare nearly 33% of SIPs come from cities outside the top 30 cities. Says Sandesh Kirkire, CEO, Kotak Mahindra Asset Management Co. Ltd, “The response from cities beyond the top 20% towards SIPs is increasing significantly. For FY11, we actually found over 40% of fresh SIPs coming from cities beyond the top 16 cities.”
Sippers invest between Rs 2,000 and Rs 2,500 every month, though a majority of them still invest less than Rs 1,500 a month. So why are SIPs becoming popular among investors?
With experience comes wisdom...
Most investors burnt their fingers badly in 2008 when markets across the world crashed. While BSE 100 index lost 55%, CNX Midcap index 60%. MFs fared as bad or even worse in some cases. Large-cap funds lost 50% and multi-cap funds 55% that year. Up until 2007, these two categories sported a 43% and 51% on a three-year time frame; those went down to 0.47% and 0.26%, respectively.
Also See | Robust Numbers (PDF)
That is when investors started warming up to SIPs. “Though the markets started to recover in 2009, memories of the 2008 crash were fresh. That’s when people thought it best to put in small amounts instead of putting away a lump sum,” says Arindam Ghosh, head (retail sales), JP Morgan Asset Management Co. (AMC) Ltd. This is also perhaps why a majority of investors still invest only up to about Rs 3,000 per month in SIPs.
According to Computer Age Management Services Ltd (Cams), the other of the two largest R&Ts mentioned above, the ticket size of nearly 70% of the SIPs are in the range of Rs 1,000-2,500. But it’s getting better with every passing day. Cams claims that the average ticket size has gone up in the last six months to Rs 2,574, from Rs 2,140.
Good going: Aniket Deshpande (extreme left) interacting with his family members at his home in Nagpur. Photo Sunny Shende/Mint
Some believe that the abolition of entry loads in August 2009 brought in a change. Says Debasish Mallick, managing director, IDBI AMC, “Banks (in the past three years) have focused towards distribution of third-party products such as MFs and the thrust is on SIPs. Smaller agents have historically focused on getting lump sum investment on account of lucrative commissions prevalent before August 2009. Along with serious agents, banks shifted focus on consistent flows.” This, adds Mallick, resulted in an increase in SIPs flows in the past three years.
With a net worth of at least Rs 85 crore, Nagpur-based investor and businessman Narendrakumar Garg invests Rs 1-2 lakh per month of his own money, apart from Rs 5-7 lakh of his company. Though he withdrew in January 2008 before market fell later that year, Garg was patient enough to stay invested through the turbulent period of 2008 and 2009 for the remaining part of his MF investments.
“Today, I am glad I did not panic like many others and withdrew at the wrong time. If you have patience and invest for the long run, you can make money in MFs,” he adds, while crediting his financial planner, Ranjit Dani, for persuading him to stay invested throughout.
Garg’s strategy proved right. SIPs work in a way that enables you to accumulate more units when markets fall and less units when markets rise. If you had started an SIP in January 2008 when Sensex was around 17,648 and stayed invested till date, all equity funds would have yielded more if you had taken the SIP route compared with lump sum investing (see graph).
Also See | Graph (PDF)
“In volatile markets, specifically in emerging markets like India, the concept of cost-averaging through SIPs is the best way to get value out of one’s investment. This fact has been tried and tested over many market movements and ample statistics are available,” says Akshay Gupta, managing director and CEO, Peerless Funds Management Co. Ltd.
Driven by distributors
Most Sippers invest in MFs through distributors or financial planners. Kannan got acquainted to his financial planner, Anil Rego, in 2003 as both of them lived in the same locality and he heard through common friends that the latter was going to start his own wealth management firm, Right Horizons, in Bangalore. Rego then introduced Kannan to MFs and SIPs. Being in the IT industry and having an earning life partner, Kannan had additional disposable income that he felt needed proper investing.
His SIPs in schemes, including Birla Sun Life Equity, Fidelity Equity and DSP BlackRock Top 100, earned him handsome returns in the past six years. But what he, like Deshpande and Garg, credits most to his financial planner is the role he played in ensuring that he stays invested through the 2008 crisis. Deshpande is also with Dani.
“A big challenge is to advise investors to continue SIPs during distress times. Discontinuing SIP during market downturns defeats the very purpose of an SIP,” says Bharat Sakhuja, national channel head, independent financial advisor/regional distributors, Principal Pnb AMC.
According to Cams, about 52% of SIP registrations happen through banks and national distributors and 40% through independent financial advisors compared with just 8% through direct investments.
But no matter which channel you start your SIP with, you win in the long run. In the past five years, while bank fixed deposits have returned about 7.5% after taxes, your SIPs would have earned you about 17%. So what are you waiting for, join the Sippers.