Following SEBI’s initiative on sachetisation of investment in mutual fund schemes, SBI Mutual Fund has launched the first micro-SIP scheme. Such products will help low-income people invest small amounts regularly and thus participate in equity markets, explains Saikat Neogi
Rationale behind micro-SIP
Micro Systematic Investment plan (SIP) is a small-ticket mutual fund product of Rs 250 for lower-income individuals. It will make mutual fund investments accessible to first-time investors, especially those from rural and semi-urban areas, inculcate in them the financial discipline to achieve their financial goals, and help them take advantage of rupee-cost averaging. Micro-SIPs can help increase the reach of mutual funds, expand the investor base and spread the equity cult in the country just as Pradhan Mantri Jan Dhan Yojana, launched in 2014, helped drive the country’s financial inclusion.
Investing small amounts regularly over a long time is the first step towards wealth creation. For example, by investing Rs 250 every month for 25 years, the total value will be around Rs 4.25 lakh, assuming 12% compounded returns. To be sure, SIPs have gained popularity among retail investors as they do not have to worry about market volatility and timing the market. SIP contributions have touched an all-time high of Rs 2.37 lakh crore in FY25 till January. The total SIP assets under management (AUM) is Rs 13.2 lakh crore as on January-end.
How can one invest in such schemes?
An individual can invest in only three micro-SIP schemes of Rs 250 each (one each in three asset management companies) at subsidised rates. Though an investor can invest in more than three schemes, the discounted rates offered by the intermediaries will be restricted to only the first three. According to the Securities and Exchange Board of India’s (SEBI) consultation paper, the micro-SIPs will be offered in any schemes except for debt, sectoral and thematic, small and mid-cap categories. Last week, SBI Mutual Fund, in collaboration with State Bank of India, launched JanNivesh SIP, which offers flexible SIP options starting at Rs 250, with daily, weekly, and monthly investment plans. The scheme will be under SBI Balanced Advantage Fund, an open-ended fund that balances investments between equity and debt. Investors can access the scheme through SBI YONO or other fintech platforms like Paytm, Groww and Zerodha.
Leveraging technology to cut costs
The mode of payment for micro-SIPs will be only through National Automated Clearing House and Unified Payment Interface auto pay mode, which will help to reduce transaction costs. Leveraging digital platforms like payment or investment apps will be crucial to encouraging systematic savings across diverse demographics and ease of investing. For instance, JanNivesh SIP is accessible through fintech platforms facilitating easy access for investors. This will ensure that investors can access and manage their investments through familiar digital interfaces. Simplifying the KYC process by accepting Aadhaar-based verification and use of the Central Know Your Customer (KYC) ledger can reduce onboarding costs and encourage first-time investors. The unified system is a single access point for financial institutions to verify customer details, eliminating the need for repetitive documentation and verification.
Earlier attempts at small-ticket SIPs
While Mutual Fund companies offer SIPs for as low as Rs 100, these schemes are not pushed much as they are not remunerative. Fund houses incur fixed costs to maintain an SIP, irrespective of the investment size. These include payment gateway fees such as one-time registration charge and recurring fees each time a payment is made. Fund houses have to pay registrar and transfer agent charges and even KYC charges of up to Rs 35 per investor. Then there’s distribution and marketing expenses.
However, an attempt is now being made to make small-ticket SIPs sustainable. For the Rs 250-SIPs, the market regulator’s consultation paper has underlined that the industry participants will offer discounted rates on the costs incurred towards these investments so that the product turns profitable and breaks even in two to three years. Moreover, a part of the cost of investment will be compensated from the Investor Education and Awareness Fund to encourage penetration of financial products.
How to make it sustainable
To ensure long term sustainability, fund houses should focus on increasing participation and ensure the longevity of such SIPs. A larger investor base will bring in economies of scale. SEBI’s proposal for a Rs 500 incentive per investor to distributors on completion of 24 instalments will encourage them to convince investors to continue the SIP. This will be over and the distribution commission payable by fund houses. In fact, the market regulator had allowed an additional incentive for selling mutual fund products in smaller towns. Though it has been discontinued, it helped fund houses sell their products beyond big cities. Data from Association of Mutual Funds in India show that 27% of individual assets are from B30 locations (Beyond the top 30) as on January this year. About 86% of the assets from these locations are in equity schemes as compared with 54% in Top 30 locations. Perhaps, the regulator can look at an additional incentive for micro-SIPs to make them sustainable for fund houses.