Why SIP are getting Discontinued?
As
economic analyst and financial advisor as well as client I find that now day’s
products are not miss-sold but the underline concept of investment pitch is not
very clearly understood by the financial advisors or IFA. There is thin line of
difference between lumsum and SIP and diversification of risk. Selling of financial products is gone now. It’s
the time of selling or rather designing the strategy of investment in some
place.
In the
month of December 2018, the industry has added just 1.87 lakh net new SIP
accounts, shows a recent AMFI report. Compared to April 2018, the net SIPs
declined by 61% to fall to 1.87 lakh in December 2018 from 4.81 lakh in April
2018. Even if we compare to November, the net SIP registrations fell by 39% in
December.
The
point is we need to know why these situations come up and where the advice of
SIP or STP went wrong?
One
should know that SIP/STP and lumsum has different objective for investments and
they both cannot be replaced. Well advisors have done this replacement in 2015-2017
and hence we are now we are burning the finger through SIP cancellation.
Now
the biggest task for IFA is that he has to now convince the client where the
investment strategy did went wrong. The run up of the market in 2017 was not
taken properly for advising doing lumsum investments. SIP is not meant for
every market and Rebalancing is an art which cannot be ignore. Diversification of assets and risk does not
mean every time every investments have to be SIP or STP.
Analyzing
the financial requirement and objective of investments is the key for financial
advisory. Even for a distributor or IFA one needs to know the thin line of
difference between the timing of ASIP/STP and Lumsum investments.
When
markets fall one should do lumsum based on the objective of investments. SIP or
STP is for long term game where a specified goal which needs to be achieved in
the next 10 or 15 years, SIP plays its game. But where the investment is just
for making quick gain and in those markets where we get rally like 2017 one
should explain clearly the investor about the risk. Before one jumps into rough
SIP one should be clear that only risk diversification of lumsum investment into
SIP may not be the sole objective of investment by the client.
We
hardly ask the question to the client about the objective of investments. We pitch the clients that markets are strong
and it has huge growth hence start your investments. The client looks through
the market numbers and takes the decision of investing in Equity MF by
redeeming his FD investments under the objective of getting 12% return (which
is higher than FD rate of interest of (8% to 9%).
This simple math’s behind the
clients mind instigates him to do investments and the distributors just simply
adds a value proposition tip of diversification and gets the investments in STP
or SIP format. This is the place where the mistake of investments happens and
after 2 or 3 years the client simply
stops the investments.
Re balancing,
well it’s not redemption but a different concept of protecting the gains form
one investment and creating wealth for the client. This has not been done in
the last couple of years. Ignorance is the mother of all evil. One needs to
check in that when a desired objective is achieved one should re-balance the
investments.
But the mistake while starting the investment was that we were not
clear from the client side as well as from our side about the objective of
investments. Understanding the purpose of investment saves us from loss of
client and his money.