Fund houses take stock exchange route to woo back investors to SIPs

MUMBAI: Leading mutual fund houses — Reliance MF, UTI, Birla Sunlife, Tata, DSP Blackrock, AIG, Fidelity and Religare — have signed up to sell systematic investment plans ( SIP) through the National Stock Exchange (NSE), as they attempt to overcome distributors’ reluctance to sell them.

This would help clients in smaller cities such as Indore and Cuttack subscribe to these funds that are touted as the best vehicle for long-term savings. It brings down costs too.

“Exchange platform will be one more route for investors to invest in mutual funds. SIPs were sorely missed when mutual funds were initially allowed to trade on the exchange,” said Rajesh Krishnamoorthy, managing director, iFast
Financial, an online platform provider.

Mutual funds have been facing tough times, with distributors not willing to sell their products after the regulator banned entry loads last year. The industry lost 5%, or 18 lakh equity folios, in the first half of this fiscal. This selling through brokers would lower costs to 30-40 basis points, from as high as 1.5% when sold through distributors.

Systematic Investment Plans, or SIPs, are popular among retail investors with SIP accounts going up to 22.5 lakh, from seven lakh in 2003. The first quarter of 2010 witnessed SIP subscriptions for 19% of total inflows in equity mutual funds compared with 2% in 2005, according to a BCG-CAMS report.

“Exchanges will give us more scalability; it will also lower transaction cost,” said Sundeep Sikka, CEO, Reliance Mutual Fund. It may be a long time before investors use this platform, he said.

Although it brings down the cost for asset management companies, individuals who are just mutual fund investors may find it an expensive option. It would benefit those who also trade in shares.

“Though exchanges are good selling points, it will not be really viable for investors who are only using their demat accounts to buy funds or SIPs, says Mr Krishnamoorthy. “Investors will have to pay depository fees and maintenance charges on demat accounts,” adds.

Vicky Mehta, sr research analyst, Morningstar India, feels that investing through the SIP mode should be the preferred way for mutual fund investors. “However, the facility need not necessarily mean that investors will take to it in a big way immediately.”