Is the abolition of commissions and the tightening of new fund issues leading to a shift to long-term, more stable type of investing? In other words, are the mutual funds reforms that SEBI unleashed last year actually having the desired effect? There probably isn't enough hard data yet, but if one looks at the way funds are being sold and the changed approach of many fund distributors and fund companies, then that may well be the case.
The biggest indicator that such a shift may be afoot is the renewed emphasis on systematic investment plans (SIPs). Several fund companies have observed that investors are starting SIPs in larger numbers, and for greater amounts.
The rate at which SIPs lapse is also now lower than it has historically been in similar phases of the stock markets. SIPs are a critical indicator of how investors will invest for the long term, of whether they will continue investings when the markets are weak and most importantly, whether they will get converted to long-term believers by making money through good times and bad.
The shift in emphasis to SIPs can be seen clearly in the advertising and marketing campaigns that many fund companies are running. Most people in the fund industry can see that in terms of bang for their marketing buck (that is, AUM for effort), SIPs are the best options.
Unlike earlier, when fund sales were focused only on new funds, many fund companies are running ad campaigns that are solely meant to convince investors about the idea of SIPs.
The other big factor that is aiding this shift is the changed attitude of fund distributors. The high commissions of the old are gone, but it is clear that convincing an investor to start a SIP is much better than convincing him to invest a lump sum. The SIP eventually adds up to a much larger investment than the investor would have made at one go. Obviously, this translates into higher trail commissions for the seller in the long run. More importantly, it also leads to higher returns and thus a happier investor who's likely to invest more.
All in all, after a period of turmoil when fund companies and distributors were reconfiguring their businesses, mutual fund investing is emerging into a post-reforms phase, and the long-hoped shift to stable, long-term investing may actually be working out.