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Old SIPs Wilt

Investors are increasingly shunning dated investments

No one can say that retail investors today, while going for an investment, buy it, shelf it and forget all about it -- at least not the high networth (HNI) investors.

After the Securities and Exchange Board of India (SEBI) passed the no-loads rule that prohibited agents and the mutual fund industry from charging investors money for investing in schemes, wealthy investors have been quick to move to lock-in gains from it, according to an Economic Times report.

With the SEBI rule coming into effect from August 1, it ensured that all new schemes created after that date would, as a rule not carry any loads. But those people who were already paying for their old equity schemes via the systematic investment plans (SIPs), would have to continue doing the same, since the new rule did not have a retrospective effect.

The only option they had to save paying money on their old investments was to discontinue their present SIPs and then re-applying, thereby by-passing the erstwhile directive.

In this manner, they could avoid paying the hefty amounts that were charged under the old fee structure that amounted to as much as 2.25 per cent, which was deducted from the investment amount. This sum was paid every year. As such an investment of Rs 10,000 had Rs 225 deducted from it and this amount was paid to financial advisors as commissions.

However, the common retail investor has not been as quick as his wealthy peer in effecting this change. The result may well lie in the fact that most agents and distributors have not encouraged the trend and investors themselves have not educated themselves on it adequately. Mutual fund insiders say that, "Distributors are partly to blame for not facilitating this for their clients."

They are unlikely to do so either, as they derive monetary benefits from these SIPs and in the wake of the SEBI no-load rule, they want their clients to keep these old SIPs running for as long as possible.