Sachet SIPs: Can ₹250 a month create an investment boom in India?
Source: Live Mint
This move aims to encourage first-time investors, particularly from low-income segments and underserved regions, to participate in mutual fund investments. Despite the mutual fund industry’s robust growth, a significant market remains untapped, offering immense potential for expansion.
Untapped potential
The country’s mutual fund industry has witnessed exponential growth in recent years. Total assets under management (AUM) surged from ₹10 trillion in 2014 to ₹68.08 trillion as of 30 November 2024. The number of unique investors rose from 17 million in 2018 to 51.8 million in 2024. However, penetration in rural and semi-urban areas remains low, indicating an untapped market with significant potential.
Sebi chairperson Madhabi Puri Buch emphasized the significance of this initiative, stating, “For us, financial inclusion is as important as capital formation for economic growth. The ₹250 SIP is crucial to ensure that financial opportunities reach every individual, including young girls and their families, empowering them to participate in the nation’s wealth creation.”
The initiative aligns with Sebi’s broader vision of fostering investor participation through its core philosophy of “Sambad”, which emphasizes consultation and collaboration with industry stakeholders. The chairperson highlighted how this philosophy ensures that regulatory frameworks are co-created with industry participation, fostering growth while ensuring compliance.
Sebi’s ₹250 SIP: Features and Implementation
The sachetization of mutual funds will allow investors to start SIPs with a minimum investment of ₹250 in up to three different asset management companies (AMCs), benefiting from discounted intermediary fees. To further facilitate accessibility, Sebi has proposed subsidizing know-your-customer (KYC) costs and offering financial incentives to distributors from the Investor Education and Awareness Fund.
Key features of the proposal include:
Restricted to three SIPs: Investors can subscribe to one ₹250 SIP each in up to three different AMCs.
While additional SIPs can be availed beyond the limit of three, the incentives and cost reductions will be restricted to only the first three SIPs.
Growth option: The plan will be available under the growth option only.
Digital payment modes: To lower operational costs, investments will be restricted to the national automated clearing house (NACH) and unified payments interface (UPI) autopay.
Compensated KYC costs: Expenses related to onboarding will be offset through a 1 basis point (bps) charge to mutual fund schemes.
Distributor incentives: An incentive of ₹500 for distributors and execution platforms upon successfully onboarding new investors and sustaining investments for two years.
Commitment for five years: Investors are encouraged to stay committed for 60 months, although withdrawals are permitted without penalties.
Global inspiration
Globally, several developing economies have implemented micro-investment schemes to boost financial participation.
For instance, in China, the mutual fund industry offers micro-investment options through mobile payment platforms such as Alipay and WeChat Pay, enabling investments as low as 1 yuan (approximately ₹12). These platforms have effectively utilized digital ecosystems to drive participation among low-income individuals.
Similarly, Indonesia’s “Reksa Dana” mutual fund products allow micro-SIPs with investments starting at 10,000 Indonesian rupiah (approximately ₹55). Government initiatives, combined with digital platforms, have fuelled greater adoption of these investment schemes.
In Brazil, the mutual fund market has developed inclusive products with small entry thresholds, offering tax incentives to attract low-income investors into formal financial systems.
India’s proposed ₹250 SIP provides a balanced approach by leveraging digital payment systems and offering financial incentives to both investors and distributors, ensuring long-term sustainability. However, to match global success, further enhancements in awareness and simplified onboarding processes are essential.
Potential challenges
The ₹250 SIP initiative presents a significant opportunity to penetrate rural and semi-urban markets, where financial literacy and investment penetration remain low. However, several challenges need to be addressed for successful implementation
Investor awareness: Educating first-time investors about mutual funds remains a challenge, necessitating robust financial literacy campaigns.
Operational costs: Despite cost-sharing mechanisms, ensuring cost-effectiveness for AMCs in remote areas will require further innovations.
Digital penetration: While UPI and NACH are widely used, digital infrastructure limitations in rural areas could hinder participation.
Conclusion
The sachetisation of mutual funds through the ₹250 SIP initiative is a commendable step by Sebi towards financial inclusion.
By targeting new investors and leveraging digital payment ecosystems, the proposal has the potential to democratise wealth creation.
Lessons from other developing economies underscore the importance of digital integration and financial literacy in ensuring the success of such initiatives.
Dr. Simarjeet Singh is assistant professor of Accounting and Finance at Great Lakes, Gurgaon; Dr. Chandni Rani is assistant professor at Chandigarh University.
