‘Systematic Investment Plans’ (SIP)


Mutual fund companies and their promoters have become aggressive in selling ‘Systematic Investment Plans’ (SIP), identifying it as a big potential market.

The Asset Management Companies (AMC) and mutual fund distributors seem suddenly too aggressive in reaching out to the small investors placing the Systematic investment Plans (SIPs) as the long-term strategy.

SIPs give better incentives to distributors

Promoting SIP means lucrative incentives for the distributors and long-term promising investment for the AMC. There is no industry data available on the volume of investments in SIP but the AMC say that SIP has a large untapped market. “It is the most efficient investment product for the small investors as it offers good returns, easy installment options beginning from Rs 500 a month, tax concession under Section 80 and a fruitful long-term saving to any earning individual irrespective of the investor’s economic strata.

Another official from a reputed AMC admitted that the SIP were being underestimated by AMC so far because they were able to generate bigger volumes from corporate companies and High Net worth individuals (HNI). “But now the competition is increasing and not a single piece of the potential pie can be missed out by any AMC. The investors are gaining confidence in Mutual Funds and hence, the retail sector opening up in a big way.

A distributor says besides being a better product, SIP also gives better incentives. In a one-time investment, what a distributor can earn is brokerage but SIP can earn him brokerage, incentives based on the number of applications and trail from the increasing investment every month.

Another distributor said that the distributors are not restricting themselves to the urban mass but also going to the smaller towns where investors have not many options.

Return from SIP Impressive

However, the distributors and AMC agree on the issue of returns being generated by SIP for the small investors. For an example, HDFC Top 200 (Growth) fund generate about 42% returns for the period from November 2005 to October 2006.

Similarly, Reliance Equity Opportunities (Growth) fund gave up to 446% and Tata Infrastructure (Growth) Fund’s returns were about 49%.

At the same time, per application incentive to the distributor begins from Rs 50 per application for an investment amount of Rs 1,000 to Rs. 2,000 and goes up to Rs. 6,000 per application for an investment of Rs 1 lakh and above besides brokerage of about 0.5%.