Use these talking points to hand-hold anxious clients

Kailash Kulkarni



  • More than 80 lakh new SIPs have been started in the last 14 months; around 40 lakh new investors have come in during this period of market volatility.
  • Engaging with these new investors is one of the biggest responsibilities for the industry and its distributors
  • Investors who are disappointed with early results from their new SIPs should be taken through key data points from history to reinforce their conviction of staying the course. Don’t just send them data – engage with them.
  • Here is a set of data points that you can use to meaningfully engage with your clients at this critical juncture

WF: In recent months, we have seen a rather steep correction in mid and small caps. Large number of investors who came into that segment and started SIPs in equity funds are worried as their expectation on returns have not been met. What can we do to address some of these concerns in engaging with investors who have come in the last 12-18 months?

Kailash Kulkarni: When we look at some data, it becomes clear on why such questions are emerging now. If we look at the SIP numbers, as of end of March 2017, the total outstanding SIP accounts were 1.35 crores. Now, corresponding, if we look at the May 2018 figure, it is Rs 2.2 Crs plus. So you are seeing a huge increase in SIP in the last one year alone. We have added the number of SIPs we have had as history in one year.

We have also seen a change in folios as well. On a month on month basis, we have seen a record number of folios being added to the industry. The broad number is about 1.5 crores folios have been added to the industry. So there are 30-40 lakh investors who are new to this industry during the last year.

These new investors obviously haven't seen or experienced a similar kind of return as what they saw when they made their investment. Therefore, the question that is being asked is a valid one. The good news is that the question can be answered in an easy manner. That is going to be one of the most important tasks for this industry both for mutual fund houses as well as the distributor fraternity as to how best we can hand hold the customers so that they can eventually have a good experience. What is going to be important is hand holding the customers who have come in through the last year.

“You can't just email data and expect the customer to read it.”

WF: In what manner should we be doing this hand holding so that they stay invested rather than exiting with disappointment?

Kailash Kulkarni: The best thing about the industry is that there is enough data validation there. You can't just email some data and expect the customer to read it. You have to take the additional time out to explain 1 to 1 or call a group of 10 customers and explain what has happened in the past.

Let’s look at some past examples, the two big corrections - 1999-2000 and 2007-2008. Now, we have done some number crunching on the Sensex. If you started a SIP on the Sensex one year before the 1999, your Sensex return between Feb 99 and Feb 2000 which was a market top, would have been 65.3% returns. So something very similar to what happened when people came in small and mid-cap in 2017.

In 2000 February, the market corrected and within 3 months, the 65.3% return was down to 1.1%. When the market bottomed in October 2001, that return further went down to -25.4%. If this investor had not panicked and continued the SIP, after 5 years, the SIP return on the entire book was 17.1%. So it is a very similar situation today.


The market grew very fast. In this case, small and mid-caps grew around 40-50% on the index while the large caps went up by around 20% - and then we had the mid and small caps correction. The same thing happened in 2007-2008 which is a more recent memory for many. An investor who started his SIP in Jan 2007 got an 80% plus return in the first one year, only to see the return collapse to 10% just 3 months later and then sink to -39% at the market bottom. From that level, 3 years later, his SIP return recovered to a healthy 17% CAGR.


So in a more volatile market, SIP actually works the best. That is the message we need to keep driving home. Even if an investor had done a lump sum investment, he would have gone through a similar cycle. 3 years later after the market bottomed, the investor's 1 lakh investment would have been closer to 1.5 lakhs. So advisors need to use data to bring home the point and assuage the concerns of the newer investors who have not seen these events.


Sometimes being in the industry, we end up becoming victims of our own generalizations. We make many presentations on long term market movements and then conveniently bucket certain phases. So we say that from 2004 to 2007, we had a secular bull market, which was then followed by the crash of 2008 and then a swift recovery in 2009, after which the market went sideways for some years, until this new bull market started in 2014. We therefore drive perceptions that during these bull phases, everybody makes a lot of money.

Fact is that while between Jan 2003 and Jan 2008, NIFTY actually delivered a return of 35%+, there are 4 occasions where the NIFTY corrected sharply – it fell by more than 20% twice, by 14.5% once and by 12% once. However, we have forgotten that. Between May 2006 and June 2006, which is just a matter of 5 weeks, the index corrected 29.8% percent. However, if you ask anyone today, they would have forgotten about that. Despite it, we have had a return of 39.5% from 2003-2008. These are the stories we should remember. For advisors, the focus should not be on the 39.5% but on the 4 big drops you had during this secular up.


WF: Lot of IFAs keep worrying about direct and online distribution eating into market share. Times like these when investors are anxious should be a great opportunity for them to showcase their worth, by handholding their clients at a time they need support the most.

Kailash Kulkarni: Yes, this is a golden opportunity to showcase their value add and handhold customers. The good news about these platforms coming in is that they create more awareness. More number of customers will become KYC compliant. Even when I talk to distributors big and small, a major concern is KYC. So if somebody else is doing the KYC, just ride on it and sell the product to the investor.

Value add can be divided into two parts - one is a product value add and handholding value add. The second value add can be just the ease of transaction. Today, thanks to the various platforms, most IFAs are able to provide online service. While the advisor is doing the hand holding value add personally, the transaction value adds is actually done through these platforms. So if you take MFU, the industry body's own platform, today you can log in from your system and get your client to approve it and transaction takes place. IFAs should focus on adding value where they are needed most and delegate value add on transactions to platforms which can do that job very effectively.

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