SIP rally of sorts at fag end of 2012

Written by Ashley Coutinho | Ashley Coutinho | Mumbai | Updated: Jan 23 2013, 07:58am hrs
In what should bring some cheer to the mutual fund industry, fresh monthly SIP registrations saw a modest increase in the last three months of 2012 as the rally in Indian equities during the period attracted new retail investors. This was at a time when equity schemes witnessed substantial redemption pressure as investors waiting on the sidelines decided to exit.

SIP registrations of 2.45 lakh in the last quarter of CY12 was the highest in the year. Live SIP folios regained the 26-lakh-mark in December after slipping below 26 lakh in June 2012, while the average SIP amounts touched a two-year high after crossing the R1,800-mark in October. The benchmark BSE Sensex rose 3.5% between October and December.

Despite the rally, a lot of people are still apprehensive and unsure as to which way the market will move. So, they are preferring to invest through SIPs rather than lump sum, said Jaideep Bhattacharya, managing director, Baroda Pioneer MF. Added Deepak Chatterjee, CEO of SBI MF: It is true that some investors have used the rise in the market to cash out, but a new set of investors have come in.

Industry observers had expected SIP numbers to deteriorate in December fearing some exodus of mutual fund money to tax-free bonds of firms such as PFC. However, the issuances came a cropper as retail and high networth investors shunned the offerings because of unattractive yields.

It must be noted that fresh SIP registrations had been falling since the beginning of 2012 and had stood at about 28,000 in July, a 16-month low.

The industry also grappled with redemption pressure for most of 2012. Equity schemes saw outflows of R14,148 crore in CY12, with the period between October and December seeing outflows of R4,475 crore as several investors chose to exit when the markets rallied. The CY12 also saw an erosion of 45 lakh equity folios.

The improved SIP numbers, though, have not enthused everyone. SIP numbers do improve when markets go up significantly, but I wouldn't read too much into these numbers. What we have seen is that retail investors are market directional rather than valuation directional. They buy when valuations are expensive and book profits when valuations are still cheap. That is unfortunate, said Naval Bir Kumar, vice-chairman, IDFC MF.

Also, while fresh SIP registrations have improved, SIP cancellations remained steady for much of 2012, with 2.13 lakh cancellations in the last quarter of 2012.

Market participants believe that SIP numbers can genuinely improve only if the market rally continues for a few more months. I expect retail participation to improve in 2013, said Chatterjee. Experts also believe that the AMCs push towards tier-II and tier-III cities after Sebi introduced norms to improve penetration of the MF industry will prove beneficial in improving the SIP numbers in the long run as inflows from these regions are likely to be more sticky.