Over the last 12 months, advisors have been often fighting a losing battle to keep their clients committed to their SIPs, to renew SIPs and to enhance their monthly commitments to SIPs. One firm that has however successfully bucked this trend is DNS Wealth, Orissa's largest independent financial advisory firm. Vikash Agarwal shared with Wealth Forum the strategies that DNS employs to convince clients to not only continue their SIPs but also top up their SIPs. Vikash's SIP strategy clearly demonstrates a very good understanding of the investor's mind and how one can adapt the philosophy behind long term investing, to craft effective ways in which clients indeed stay invested for the long haul. Given below is a summarised version of what Vikash shared with us, which he has willingly agreed to share with fellow advisors across the country. We are grateful to Vikash for this kind gesture.

All of us are very keen to grow our SIP books by getting clients to commit large amounts of money for longer periods of time into their SIPs. Unfortunately, market volatility has unnerved many of our clients and they hesitate to renew their SIPs, they sometimes cancel ongoing SIPs and are very reluctant to increase SIP amounts, when they see market volatility. This is what we have been doing in the last couple of years, which has given us considerable success.

There are two parts to our SIP advisory strategy :

1. Start up on the right note

2. Differentiate between the savings and investment aspects of a SIP

Start up on the right note

As we all know, the first experience of any new product is very important for a customer to gain confidence. Very often, we find that after convincing a client to start a SIP after much effort, he agrees and unfortunately, markets turn down in the first month or two of his SIP itself. When the first statement he sees shows a negative, that puts him in a negative frame of mind straight away.

To ensure that the first experience is a good one, we always start a SIP in a liquid fund - not directly in an equity fund. From the liquid fund, we do daily / weekly STPs into the equity scheme agreed with the investor. This does two things : in the very first month, we are able to demonstrate that the liquid fund returns are twice what he was earning in his savings account - which is where the money would have accumulated until he made a lumpsum investment in any investment avenue. Showcasing this in the initial months is very important to give clients the confidence that they are on the right track. Secondly, even if markets turn down, we are able to provide a cushion from the liquid fund earnings to some extent, and the weekly STP also helps more than a monthly SIP in controlling the negative impact of a falling market. When we show how the investor has at least relatively been less impacted due to the twin strategy of liquid SIP and weekly STP versus a lumpsum investment in equity or even a regular equity SIP, clients get a little more confidence that we are doing our best in their interest.

Differentiate between the savings and investment aspects of a SIP

It is very important for us as advisors to understand that a SIP actually comprises two parts - a regular savings habit and an investment decision. We try to segregate both these aspects very clearly. Why do we do this ? Because we have seen so many times that clients see a waxing and waning of their SIP values. When SIP values go up in a market upmove, they feel nice. Unfortunately, when it comes to a SIP renewal time, if markets have turned down, they feel very frustrated that the profits turned out to be only paper profits and vanished in a correction. Then, they decide not only not to renew the SIP, but also redeem the accumulated amount. The savings plan thus gets abruptly terminated.

We therefore decided to break up a SIP plan into two parts - the savings part and the investment decision. Each year, we review the SIP portfolio with our clients. If the equity SIP has shown a reasonable profit during the year, we redeem the accumulated amount, but continue with the same SIP plan. Once clients see profits actually booked, they feel a lot better. Then we discuss the investment plan for this redeemed amount. If we all agree that markets are still inexpensive and have scope to appreciate, we start another round of liquid fund SIPs which then go into weekly equity STPs. The client will now have two sets of liquid fund SIPs and equity STPs running in parallel. When market volatility hits during the year, as it does so often, we are better off with two sets of STPs running rather than seeing a steep erosion in the value of the equity portfolio which simply stayed invested.

If however at the time of making the re-investment decision, debt appears more attractive than a falling equity market, we will do the STPs into a debt fund instead of the equity fund. While we don't try to time the market, we apply the principles you would normally use in tactical asset allocation, to the accumulated amounts in the SIP program of our clients.

This strategy has helped in several ways. For starters, profit booked is always a welcome outcome for a client. Reinvestment of that booked profit is now a separate decision and the client has a choice of avenues to consider, based on our recommendations. When he sees profit being booked and a choice of reinvestment options, he feels a lot more confident. Very often, we see clients increasing their monthly SIP commitments when they see profits booked and redeployed after a discussion with them. Most importantly, we ensure that the liquid SIP always continues - the savings plan never gets disrupted due to volatility in stock markets. Whenever we book profits, we never stop the SIP - we only take a fresh look at what is the appropriate thing to do with the accumulated savings.

This strategy works very well in a range bound and volatile market like we have seen in the last few years. It has a shortcoming in a runaway bull market - as the weekly STP into equity funds of redeemed amounts will probably underperform a portfolio that stayed invested fully in equity. But, at least until we get to a stage when we are in a big bull market, this strategy works very well as it enables investors to stay committed to their savings plans and not abandon them because of market volatility. Our clients are happy with this strategy - they have seen much better portfolio returns than a normal equity SIP. They feel confident to commit to longer term SIPs for larger amounts and this has helped us increase our SIP book.