Author: admin

The mutual fund and the bank through which the funds for the periodic investment are being provided, have to be intimated about the decision to discontinue the SIP.

A systematic investment plan (SIP) is a commitment to invest for a defined period in a selected mutual fund scheme. This decision may require a review based on additional information that becomes available regarding the performance or operation of the scheme, or a change in the investor�s personal requirement, leading to a need to discontinue the SIP.

Appointment form

The10 mistakes your financial life se forms are available with AMCs or registrar and transfer agents. One needs to fill in the folio number, bank account details, scheme name, SIP amount and the date from which the plan has to be stopped.

Procedure

The form needs to be submitted to the AMC branch or office of the R&T agent. It takes about 21 working days for the AMC to process the request cancelling the standing instruction to the bank and that for the SIP.

Post-dated cheques

If post-dated cheques have been provided to the AMC, along with the SIP instruction, the AMC returns the unused post-dated cheques to the unit holder.

Temporary stop If the SIP has to be discontinued temporarily, the investor can give a stop payment instruction to the bank or keep a low balance in the account, which will lead to the cheque or instruction being dishonoured. The SIP can be continued after this period.

Points to note –

If the account is under-funded or stop payment instructions are given for more than two months, the AMC will discontinue the SIP. – As SIP is a voluntary investment, the AMC cannot levy any charges or penalty for discontinuing the SIP midway. – If the SIP was started through an online platform, the cancellation can also be done through the same platform. 

In comparison, a lump-sum investment of the same amount five years ago in these products has fetched 4% to 6% annually. Over 122 of the 160 multi-cap diversified equity funds with over five years of track record have delivered abetter internal rate of return (IRR) � a method of calculating daily SIP returns � than benchmark indices, as per data sourced from Value Research. The 30-share Sensex has generated a three- and five-year IRR of 4.4% and 7.5%, respectively. The index has fetched 11% and 13.2% compounded returns for three and fiveyears, respectively.

�SIPs eliminate the human bias. It encourages investments at all times, irrespective of the market levels. Investors will pocket good gains if they invest in SIP of funds with a good track record,� said Sundeep Sikka, chief executive of Reliance Mutual Fund. For instance, if an investor puts . 1,000 every month in SBI Magnum Emerging Business Fund � the best performer among all equity funds in the past five years � for five years (. 1,000 x 60 months = . 60,000), he would have been sitting on approximately . 1 lakh today, which amounts to 21% returns. �SIP investments average out market volatility by a good measure. Also, it prevents investors from trying to time the market.

We�re promoting SIPs in a big way as it enables small investments at regular intervals,� said Srinivas Jain, chief marketing officer of SBI Mutual Fund. Similarly, an investment of . 1,000 every month (between September 24, 2007 and September 21, 2012) in ICICI Prudential Discovery Fund, Reliance Equity Opportunities Fund and HDFC Mid-cap Opportunities would have earned 20%, 19.2% and 18%, respectively. The . 60,000 invested in the three funds over a fiveyear period would now be . 96,744, . 96,135 and . 93,530 respectively. SIPs tend to do well even in times of market underperformance as the (fund) pool is deployed at most market levels, thereby averaging out unit purchases at all price points. �SIP portfolios must have gone through the dips � buying more stocks as prices declined. Volatility also helps SIP portfolios in a big way.

Funds that have managed to withstand the market fall have delivered better SIP returns,� said Dhruva Raj Chatterji, senior research analyst, Morningstar India. Investors get more units for the same amount of money in falling markets. The units bought at lower price levels will appreciate when the market turns around, adding to the overall portfolio value. The variance in the performance of SIP and lump-sum (or onetime) investments is mainly due to the fact that SIP investors would have picked up additional units during the downturn.

Based on your financial requirements, you have Flexi, Trigger and Pause; there are others that fit into daily and weekly slot as well

After a lot of coaxing from a friend, Medha Sharma, a software professional, finally decided to get cracking and start investing in mutual funds via the systematic investment plan (SIP) route. However, when she went to the distributor, she realised that she was spoilt for choice with a string of SIPs jostling for shelf space. She was prompt to conclude that this may not always be a good thing for a first-time investor.

Utterly confused, she made a quick exit. And for now, she has put the plan on the backburner, once again. Regardless of the course of action Medha finally chose, let�s find out what options we have. Flexi SIP, for its part, allows the investor to reshuffle the investment amount according to the market situation. This offer is available for a few fund houses such as HDFC, Reliance and ICICI Prudential MF. Financial planners point out that the instrument works best for those investors who may be unsure of the amount they can save every month.

Even then, this option should ideally be used only for beginners for a few months to figure out the amount. That done, the investor can ideally look at switching to a monthly SIP. The disadvantage here can be that the financial discipline of investing a fixed sum every month will be lost, which can affect your total corpus, going ahead. With Trigger SIP, as the name suggests, you can set certain triggers on your investment.

This means you can fix a target of certain sum to be invested if the market hits a certain point. You can also customise the trigger and choose it based on returns, market levels, date and the NAV earned. However, experts are worried that this may defeat the whole idea of an SIP.

�If you are looking at a goal-based investing for a long term, going for an option like this does not make sense for an investor,� says Renu Pothen of fundsupermart.com. Even with a daily and weekly SIP, you may end up timing the market, again something that doesn�t augur well for your investments. Take a daily SIP, for instance,where an investor keeps poring over the details of investments and calculating the profit/loss on a daily basis.

Advisors say this may lead to a panic situation and investors may rush to book profits with a short term in view. Suresh Sadagopan, who runs Ladder 7 Financial Advisory Services, said a monthly SIP packs a punch. �This is because with other SIPs, the amount invested every month and the time at which it is invested will differ and this can be a big hassle for an investor,� added Sadagopan. However, in certain cases, some features like a Pause SIP may just come in handy.

This allows you to pause your SIP for a couple of months in the case of a short liquidity tightness. Medha�s case may be a blip, but otherwise, the verdict is clear � if you want to go with an SIP, a monthly one can ensure a soft landing.

The much-awaited regulations from the Securities and Exchange Board of India (Sebi) specifying various requirements for a person or corporate body to act as investment advisor are finally out. According to the Gazette of India notification released on Monday, the Sebi Investment Advisors 2013 brings into play requirements related to qualification, certification, capital adequacy, period of validity of certificate and other general obligations. The �investment advice� includes clauses relating to investing, purchasing, selling or otherwise dealing in securities or investment products.

This covers written, oral orany other means of communication for the benefit of the client and shall include financial planning. An individual registered as an investment advisor, partner or representative of an investment advisor registered under these regulations offering investment advice should at all times possess a professional qualification or post-graduate degree/ diploma in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science from a foreign or government recognised university or an institution. Alternatively, a graduate in any discipline with an experience of at least five years relating to advice in financial products/securities/fund/asset or portfolio management would also qualify.

Additionally, investment advisors are required to have a certification on financial planning/fund/asset or portfolio management or investment advisory services either from NISM or from any other organisation or institution, including Financial Planning Standards Board India or any recognised stock exchange in India, provided such certification is accredited by National Institute of Securities Markets (NISM). Existing investment advisors seeking registration under these regulations should ensure their partners and representatives obtain such certification within two years from the date of commencement of these regulations and the same is renewed before the expiry.

The Sebi regulation also talks of a minimum net worth requirement of `25 lakh for investment advisors that are corporate bodies, and those who are individuals or partnership firms should have net tangible assets worth not less than `1 lakh. The certificate of registration granted under the regulations shall be valid for five years from the date of its issuance. Investment advisors as part of their responsibility would have to do risk profiling of customers, determine suitability, maintain records and disclose specific details to clients on a regular basis. They need to ensure the risk profiling of the investor is based on his age, current assets and income, investment objectives and time horizon. The process for assessing the risk that a client is willing to and able to take would include tools like questionnaires that are clear, simple, detailed and forward leading.

It will be mandatory for investment advisors to maintain all records like know your customer (KYC), risk profiling, suitability sheets, agreement copies, investment advice, whether oral or written, data on fees and time of providing advice for at least 5 years either in electronic or physical form. Experts believe though they haven�t gone through the details, the broad guidelines seem to be more or less in line with the draft guidelines the regulator had come out last year.

Interview with MD and head of asset management in India, Deutsche Asset and Wealth Management

As markets grapple with uncertainty and slowly come to terms with the possible winding down of quantitative easing by the US Federal Reserve, Suresh Soni, managing director and head of asset management in India at Deutsche Asset and Wealth Management tells Ujjval Jauhari that he is not worried about FII withdrawals from the Indian bond markets. He suggests that investors should consider short-and medium-term bond funds for investment. Edited excerpts:

What is your take on US Federal Reserve�s (US Fed) statement and its impact in the long term?

Ben Bernanke�s statement clarified that QE (quantitative easing) withdrawal is likely � sooner and faster and earlier than expected. Post the statements, we have seen a surge in bond yields globally and widespread anxiety about the fate of emerging markets. From India�s perspective, given our large CAD (current account deficit) and dependence on capital flows, this poses some near-term headwind for equity and currency markets. However, moving beyond immediate term, a stronger growth in the world�s largest economy is good for world economic growth. This will certainly bode well for Indian exports and can be conducive for stronger growth in India as well.

What is your view the rupee and its likely impact on the fortunes of India Inc?

Post the US Fed statement, there has been pressure on emerging market currencies including the INR. While there may be near-term volatility in INR, we note the improvement in the current account deficit (CAD) data for January – March 2013 quarter to 3.6 per cent of GDP from a record 6.5 per cent of GDP in the September-December 2012 quarter. There are recent reports that gold imports have begun to moderate. This, coupled with expected improvement in external demand, can help in keeping CAD in check. All this can have a beneficial impact on rupee in the medium-term.

In your opinion, how good or bad is the new FII registration process and will it help encourage them invest more in India?

We welcome the move by Sebi in terms of easing FII registration norms. It will certainly help increase FII participation in Indian markets.

What is your view on impact on bond markets and bond funds?

Over last few weeks, we have seen some withdrawal by FIIs (foreign institutional investors) from Indian bond markets. I would, however, not be too worried about such withdrawals as domestic institutions play a much bigger role compared to the relatively small holdings by FIIs. Over past several quarters the Reserve Bank of India (RBI) has been cutting rates in order to boost the local economic growth. The recent depreciation in the rupee and its consequent impact on inflation weakens the case for rate cuts in the immediate-term. We, however, see a possibility of a 25 – 50 bps (basis point) rate cut over the year or so.

So you see more traction in terms of inflows continuing in the bond funds?

Yes, mutual funds offer a range of products in fixed income. Over the last few years, even as equity markets have remained volatile bond funds have generated good returns for investors. I expect continued investor interest into bond funds and would recommend investors to consider short-and medium-term bond funds for investments.

How much importance do you see for equity investments holding and how should the investors allocate to the funds?

Equity funds play an important role in long-term wealth creation and as such should find a place in investors� portfolio. Investors should consider investment in equity in a staggered manner and with a long term horizon. Fixed Income funds should form a part of the core portfolio of investors. For most of the immediate needs as well as well as for investors who are not willing to take volatility of equity markets, debt mutual funds are a good option. Here again, investors can consider liquid funds for their near-term liquidity needs and short and medium term debt funds for their medium-term investment needs.

How much importance at current juncture does Systematic investment plans (SIPs) play?

Do you see traction continuing? SIP plays a key role is making savings a habit and ensures investments in a disciplined way. SIPs also help taking care of volatility and have generated good returns over the long term. Apart from considering SIPs in equity funds, investors can consider SIP�s for investing in debt funds as well.

What should be investors approach towards investment in gold or related funds?

Over the last decade, gold has generated impressive returns for investors. The recent drop in prices is a crude reminder for investors that like any other commodity Gold can be volatile too. In India, investors have used the yellow metal as a hedge against inflation. In the current environment, I would urge investors to consider fixed income funds and Inflation Index bonds. Do you recommend any other type of funds for investors? Investors can consider Hybrid funds in the current uncertain environment. These funds make predominant allocation to fixed income with a smaller portion, usually less than 20% getting invested in equity. Of late, we have seen some funds which use equity options instead of direct equity. These funds can help investors achieve a good participation in equity market with relatively low risk to capital due to pre-dominant allocation to fixed income.

What are the challenges that you as a fund manager managing Mutual funds faces?

The challenges are to make people aware about mutual funds. Also, investors need to have the right time horizon and a clear understanding of risk-reward of each product. Mutual funds offer a comprehensive range of options serving conservative investors as well as investor willing to take equity risk. Investors need to invest in line with their risk appetite as well as time horizon. Mutual fund penetration needs to increase. Investors have to understand that it is a well regulated way of making investments rather than going and investing into unregulated schemes in a bid to make quick money. Recent steps by regulators towards market expansion are welcome and we see the increasing awareness to lead to better understanding of mutual funds.