Equity systematic investment plans (SIPs), a product introduced by top brokerages last year, have failed to attract investors as volatile equities and product limitations have deterred investment through this route.
?The volatile equity market is keeping retail investors and high networth individuals away. Those willing to ?SIP? are only?SIP?ping through mutual fund schemes,? said Amar Ranu, senior manager (third party products research & advisory), Private Wealth Management, Motilal Oswal Securities.
?Many brokers launched the product as it seemed to be a good way of piggybacking on the SIP bandwagon and ensure captive business every month,? added an industry observer, on condition of anonymity.
Over the past year, top brokerages, such as IIFL, ICICI Securities, Motilal Oswal Financial Services and Reliance Securities, introduced equity SIP products to woo back retail investors.
However, the see-sawing equities have played spoilsport, with the benchmark BSE Sensex slipping a little over 11% in the past one year.
SIPs work on rupee cost averaging, which helps reduce the average cost per share over time. Equity SIPs differ from mutual fund SIPs in that the investment is directly in stocks. The basic idea of an equity SIP is to bring in a certain amount of discipline into equity investments, and mitigate the risk of market volatility as well as the risk that comes with timing the market.
However, market participants believe that equity SIPs come with a concentration risk.
?An equity SIP product typically allows an investor to invest in a basket of 4-8 stocks unlike mutual fund equity schemes that spread their investment across 3-40 scrips. This leads to increased concentration risk,” said Jayant Pai, vice-president, Parag Parikh Financial Advisory Services, an investment advisory firm. Put simply, equity SIPs cannot offer the same level of diversification that a mutual fund scheme can. Pai added that the element of risk rises significantly if the stocks picked have a high correlation, which could make them move in the same direction.
Another hitch, points out Ranu, is that most brokerages currently offer a select number of baskets (of stocks), which limits the number of scrips that investors can choose from.
Investors have to pay a transaction fee while buying and selling scrips in addition to the ECS charges for investing through equity SIPs. ?This pushes up the cost of investing through an equity SIP,? said Ranu. What?s more, unlike in a mutual fund, there is no past performance data that investors can fall back on, said market participants.