EXPLAINER: Why SEBI proposed small-ticket investment in mutual funds?
Market regulator Securities and Exchange Board of India (SEBI) has proposed a small-ticket systematic investment plan (SIP) of just Rs 250.While some mutual fund asset management companies (AMCs) currently offer small-ticket SIPs, SEBI’s idea is to formalise and standardise this product.
What does it mean?
The move will enable small-ticket investment in mutual funds on a periodic basis, thus bringing more investors in its fold. This will help in empowering the under-served section of the economy financially. It will also push the fund houses to expand their footprints to even remote locations in the country.
Mutual fund industry in India
Assets Under Management (AUM) of the mutual fund industry have grown from Rs 10 lakh crore in 2014 to Rs 68.08 lakh crore as on November 30, 2024. The total number of unique investors of mutual funds has grown from 1.7 crore as on March 31, 2018 to 5.18 crore as on November 30, 2024.
Why the need?
While the number of investors participating in mutual funds have grown steadily over the years, there is a considerable opportunity for increasing the reach to all sections of the society, so that every individual has access to this financial product.
So, in order to increase the reach of the mutual funds across the country, to facilitate participation from low income group sections and to achieve the larger objective of financial inclusion, SEBI has floated a consultation paper on sachetisation of mutual funds. SEBI in collaboration with the mutual funds industry has envisaged a sachetised mutual fund product i.e. small-ticket SIP of Rs 250. Sachetisation refers to the process of offering financial products and services in smaller, more affordable packages, making them easier to access and manage.
According to SEBI, sachetisation of mutual funds will enable small-ticket investment in mutual funds gradually on periodic basis. This can assist in financial empowerment of the underserved section of the economy and nudge fund houses to expand their footprints.
Presently, while some mutual fund companies do offer SIP with small-ticket size under some of their schemes, the product proposed to be offered under the sachetised mutual fund product i.e. small-ticket SIP of Rs 250, provides an opportunity to the entire industry to participate in this cause of financial inclusion.
Mode of payment
Considering the higher cost of investment through alternate modes, the mode of payment/investment for small-ticket SIP may be restricted to National Automated Clearing House (NACH) and Unified Payment Interface (UPI) autopay mode.
Incentive to distributors
As the commissions of mutual fund distributors are linked to investment size, with small-ticket size of investment under the proposed scheme, the commission for distributors will be marginal. Therefore, to encourage distributors to participate, an incentive of Rs 500 may be extended to them for educating an investor new to mutual funds industry and facilitating sustainable long-term investment.
