Industry experts believe that while smaller SIPs could be a great entry point for new investors and could enhance penetration of MFs, but they will be viable only if investors move to bigger SIPs over time
As the capital markets regulator 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 lot of new investors, but questions remain on its viability in terms of costs to the fund house.
Last week, while speaking at the Business Today Most Powerful Women in Busioness Awards, Sebi Chairperson Madhabi Puri Buch said 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 witnessed 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 had said.
Interestingly, quite a few fund houses currently offer SIP facility of as low as Rs 100 a month in various schemes though it is not an industry standard as of now.
Industry players, meanwhile, believe that the smaller SIP could act as a good entry point for many new investors and once they become comfortable with the concept of mutual fund investing, they could switch to bigger SIPs. Smaller SIPs are not really viable for a fund house from a cost perspective, they say.
“A SIP of Rs 250 is not viable to the AMC, in terms of costing, but could have a farfetched effect on retail investors,” says Ajaykumar Gupta, Chief Business Officer, TRUST Mutual Fund.
“With efforts from the regulator to increase MF penetration by spreading financial literacy amongst individuals, a Rs 250 SIP could act as a good tool for giving them an experience about MF investments… It would act as a good entry point for investors at the bottom end of the income pyramid enabling them to take advantages that SIP offers,” adds Gupta.
Gupta further believes that smaller SIPs could attract the likes of a delivery boy, rickshaw driver or street hawkers etc to the mutual fund arena and if the experience is good then they could switch to bigger SIPs and become profitable customers as well, which, in turn, could potentially increase the investor base from the current four crore unique investors to 40 crore plus investors.
Meanwhile, many in the industry believe that while smaller SIPs could indeed enhance the investor base, the capital markets regulator should look at some kind of incentive or dispensation for the fund houses to promote such small SIPs as costs related to KYC and on-boarding etc has to be done for every 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 can be worked out that incentivises such small SIPs then it would be a win-win for all stakeholders.
Interestingly, many of the popular fintech platforms offering mutual fund investment facilities do offer SIP options from as low as Rs 100. Using the power of technology, many of the platforms have been able to lower the KYC and other onboarding costs while offering small-sized SIP options.
.jpg)