As the Securities and Exchange Board of India (Sebi) discusses small SIPs (systematic investment plans) with mutual funds, industry players believe smaller SIPs can attract a large number of new investors, but questions remain about their viability in terms of fund house costs.
Sebi Chairperson Madhabi Puri Buch said last week at the Business Today Most Powerful Women in Business Awards that the regulator is discussing with fund houses and evaluating ways to make SIPs of just Rs 250 a month viable, as it believes that lowering the SIP amount could lead to a similar jump that was seen when FMCG companies introduced shampoo sachets.
"Now we are working with them (mutual funds) to see where is that cost, what can Sebi do to facilitate making it possible to bring that viability down to Rs 250 a month," she said. Interestingly, many fund institutions now offer SIPs in various plans for as little as Rs 100 per month, albeit this is not yet an industry norm.
Meanwhile, industry participants feel that the smaller SIP could serve as a useful starting point for many new investors, and that if they are acquainted with the notion of mutual fund investing, they can transition to larger SIPs. Smaller SIPs, they argue, are not financially viable for a fund institution.
"A SIP of Rs 250 is not financially viable for the AMC, but it may have a far-fetched effect on retail investors," says Ajaykumar Gupta, Chief Business Officer, TRUST Mutual Fund.
"With the regulator's attempts to enhance MF penetration by disseminating financial awareness among individuals, a Rs 250 SIP could be a suitable instrument for giving them exposure with MF investments... It would serve as a suitable starting point for investors at the bottom of the income pyramid, allowing them to take advantage of the benefits that SIP provides," Gupta adds.
Gupta also believes that smaller SIPs could attract delivery boys, rickshaw drivers, and street hawkers to the mutual fund arena, and if the experience is positive, they may switch to larger SIPs and become profitable customers as well, potentially increasing the investor base from the current four crore unique investors to 40 crore or more.
Meanwhile, many in the industry believe that, while smaller SIPs may increase the investor base, the capital markets regulator should consider some kind of incentive or dispensation for fund houses to promote such small SIPs, as costs associated with KYC and on-boarding, among other things, must be borne by each investor.
"Fund houses have to incur costs ranging from Rs 30 to Rs 50 for onboarding an investor as KYC and all other requirements need to be fulfilled," said the CEO of a leading mutual fund house, adding that if a way to incentivize such small SIPs can be devised, it would be a win-win situation for all stakeholders.
Surprisingly, several renowned fintech platforms that provide mutual fund investment services provide SIP choices starting as Rs 100. Many platforms have been able to reduce KYC and other onboarding costs while offering small-sized SIP choices by leveraging the power of technology.
