Partha Sinha | TNN
Mumbai: Mutual fund (MF) houses have been witnessing steady inflows through the systematic investment plan ( SIP ) route despite a volatile stock market over the last few months. And a large part of these fund infusions has come from retail investors, also from outside the bigger cities, providing the market with a much-needed cushion to tide over selling by foreign funds.
Top industry officials said investors from outside of the metros, called B-30 places, are more “sticky” — showing patience in holding on to their investments despite a volatile market. Consider this: Since July, net outflow by foreign portfolio investors (FPIs) has been about Rs 35,500 crore. Against this selling, net inflows through the SIP route during July and August have been about Rs 16,500 crore, of which around 94% came into equity funds.
Market players feel had it not been for the SIP inflows, the sensex and Nifty would have been at least 20% lower from current levels. So, that’s a level of about 29,500 for the sensex and 8,800 for the Nifty. On Wednesday, the sensex closed at 37,271 and the Nifty at 11,036.
Earlier, whenever markets saw weakness or volatility, retail investors opted to exit and redeemed large chunks of their MF units. This time, it’s remarkably different, said top fund managers. “At a time when, along with FPIs, retail and high net worth investors were selling, SIP inflows were the saving grace for the market,” said Kotak MF MD Nilesh Shah.
There are two factors which are going in favour of MF inflows, industry players said. First, “Investors from B-30 places have both persistency and longevity when it comes to investing through the SIP route,” said A Balasubramanian, MD at Aditya Birla MF , which is one of the leading fund houses tapping investors in the hinterlands. “They invest for the longer duration, about seven years on an average, and also do not stop their SIPs suddenly,” he said.
Second, financial advisers have been evangelising to invest with defined goals in mind, and select schemes accordingly. “There are people who have been investing with a particular goal in mind. They do not stop their SIPs even though the market is not favourable now,” said AMFI CEO N S Venkatesh. Investors from B-30 places depend more on advisers and distributors, while direct investors are relatively more from T-30 (the top 30 cities). AMFI data also shows that over the last 11 months, net inflows into MF schemes through the SIP route have been around Rs 8,000 crore, up from Rs 7,500 crore in August 2018 and Rs 5,200 crore in August 2017.
“In the B-30s, we have not seen anything which could be termed as disruptive or panicky. SIP inflows are coming in from B-30 areas,” said Ashutosh Bishnoi , MD & CEO of Mahindra MF , a fund house that, unlike its larger peers, focuses mainly on investors in smaller cities and towns.
Given the fragmented nature of the B-30 market, the total amount for assets under management ( AUM ) coming from these places is under 50% of the corresponding number for T-30 cities for almost every duration, indicating a smaller average SIP ticket size from the former.
“Investors from smaller towns are not really ‘the jumpy’ kind. They don’t look for quick gains. Even if their value of the investment is slightly less than their original cost, they show patience and hold on to those investments to turn them into profit in the next few months. They prefer to invest for the long term,” Bishnoi said.
AMFI data validates the same. According to latest figures, there were 79.2 lakh SIP accounts from B-30 places, of more than five-year duration, compared to almost 90 lakh accounts from T-30 cities, which include metros. In contrast, the number of SIP accounts of less than one-year duration from B-30 places is 14.9 lakh compared to 19.9 lakh from T-30 cities, indicating a much wider difference between the two. Also, the growth rate of AUMs from B-30 in FY20 has been higher than from T-30.
A recent joint study by Crisil and AMFI showed that the probability of loss in an SIP account falls to zero if it’s continued for five years. In comparison, the corresponding number is as high as 25% for an SIP of one-year duration and falls to 8% for a three-year duration. Venkatesh pointed out that the current average duration for SIPs in India is five years and that’s rising. This indicates that investors, without their knowledge of the zero probability of loss for this duration of investment, have turned risk-averse.