With cash volumes on the exchanges dipping to a historic low and retail participants staying away, domestic brokers are hawking equity Systematic Investment Plans or SIPs to woo retail investors.
?Equity SIPs is the only way to bring back retail investors. We will continue to push SIPs aggressively till the market stabilises,? said Prasanth Prabhakaran, president, retail broking, IIFL. ?In their quest to time the market, retail customers often miss market rallies. Timing the market is nothing but speculation. SIPs take away this element of speculation and instill discipline needed to invest in equities,? said Vishal Gulechha, head of equity products, ICICIdirect.com.
SIPs work on rupee cost averaging, which helps reduce the average cost per share over time. IIFL, Motilal Oswal and ICICI Securities are among brokerages to have introduced equity SIP products in the past six months. Equity SIPs differ from mutual fund SIPs in that the investment is directly in stocks.
IIFL sells SIPs under the balanced, conservative and aggressive portfolios, each of which has three to five stocks. The SIP amount varies from R1,000 to R5,000 per month. The portfolio mix could also include mutual funds and gold exchange traded funds (ETFs).ICICI Securities, on the other hand, offers two kinds of SIPs with a choice to define either the quantity of stocks or ETF units to be purchased or the amount to be invested.
SIPs can be triggered daily, weekly, fortnightly or monthly for a period ranging from a month to two years. According to Gulechha, SIP investments in ETFs, especially gold ETFs, has become popular with investors as the investment mode is perceived to be less risky.
The contribution of the cash segment to the total average daily turnover on the exchanges touched a historic low of 10% for the quarter ended March 2011. Retail participation has also remained subdued for some time now.
?Investors are still fearful. They will come back only if the level of volatility subsides considerably,? adds Prabhakaran. Retail participants can add significantly to the profit margins of brokers as they trade more often and give higher yields compared with high net worth investors.