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 R35,000 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.Kannan has steadily increased his investments in SIPs to about R1.2 lakh a month, up from about R40,000 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 11.4% of the overall equity AUM (of schemes managed by Karvy) as on March 2011, up from 7.3% as on March 2010 and 5.4% 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 33.0% of SIPs come from cities outside the top 30.
Sippers invest between R2,000 and R2,500 every month, though a majority of them still invest less than R1,500 a month. So why are SIPs becoming popular among investors?
WISDOM WITH EXPERIENCE...
Most investors burnt their fingers in 2008 when markets crashed worldwide. While the BSE 100 lost 55.0%, CNX Midcap shed 60.0%. MFs fared bad or even worse in some cases. Large-cap funds lost 50.0% and multi-cap funds 55.0% that year. Up until 2007, these two categories sported a 43.0% and 51.0% on a three-year timeframe.
“Though the markets started to recover in 2009, memories of the 2008 crash were fresh,” says Arindam Ghosh, head, retail sales, JP Morgan Asset Management Co. (AMC) Ltd. “People thought it best to put in small amounts instead of putting away a lump sum.”
According to Computer Age Management Services Ltd (Cams), the other of the two largest R&Ts mentioned above, the ticket size of nearly 70.0% of the SIPs are in the range of R1,000-2,500.
Some believe that the abolition of entry-loads in August 2009 brought in a change. “Along with serious agents, banks shifted focus on consistent flows,” says Debasish Mallick, managing director, IDBI AMC.
With a networth of at least R85 crore, Nagpur-based investor and businessman Narendrakumar Garg invests R1-2 lakh per month of his own money, apart from R5-7 lakh of his company. Though he withdrew in January 2008 before the 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. He credits his financial planner, Ranjit Dani, for persuading him to stay invested throughout.
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 table).
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. Rego introduced Kannan to MFs and SIPs. His SIPs have 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.
In the last five years, while FDs have returned about 7.5% after taxes, your SIPs would have earned you about 17.0%. So what are you waiting for, join the Sippers.