The Indian mutual fund (MF) industry, valued at ₹65 trillion, is on the verge of a significant transformation. With around 5 crore unique mutual fund investors, the industry aims to make investing more accessible through the introduction of micro systematic investment plans (micro SIPs).
This initiative, driven by the Securities and Exchange Board of India (SEBI), allows investors to buy mutual funds online with smaller contributions, starting as low as ₹100, at regular intervals.
Making micro SIPs feasible
Currently, mutual fund houses need help managing micro SIPs due to the costs involved. While these investment plans can attract more investors, the fees associated with maintaining them often outweigh the benefits. The primary costs include payment gateway fees, which encompass a one-time registration charge and recurring charges each time an investor makes a payment.
Additionally, Registrar and Transfer Agent (RTA) fees vary between fund houses, impacting the overall cost structure. KYC (Know Your Customer) compliance also incurs charges, typically between ₹15 and ₹35 per investor. These costs remain relatively fixed, meaning whether an investor contributes ₹500 or ₹5,000, the associated fees do not change significantly.
KYC requirements for micro SIPs
Investors can participate in a micro SIP without needing a Permanent Account Number (PAN) if they invest up to ₹50,000 annually across all mutual fund investments. This rule is currently limited to SIPs, not normal purchase transactions. SEBI’s sachet investments aim to broaden the appeal of micro SIPs to a larger audience.
Industry experts suggest that SEBI should raise the ₹50,000 limit to ₹2 lakh to attract more investors and justify acquisition costs.
Wealth creation potential of micro SIPs
Despite the accessibility of micro SIPs, some analysts argue they may not significantly contribute to wealth creation. For example, a monthly investment of ₹500 in an equity scheme over five years results in a total of ₹40,552—a modest return on investment. Experts suggest that a starting SIP of around ₹1,000 would be more beneficial for new investors.
However, industry officials believe micro SIPs can play a crucial role in engaging first-time investors, particularly from low-income backgrounds. By encouraging regular savings, even in small amounts, micro SIPs can foster a saving habit. Once these investors see their money grow, they may increase their investments.
The future of micro SIPs
To maximise their potential, micro SIPs should be focused on basic funds rather than sector-specific or thematic options. This strategy could mitigate risks for new investors. Additionally, there is a strong belief that micro SIPs can significantly enhance mutual fund penetration in smaller towns, where currently only 25% of individual investor assets are sourced.
Hence, micro SIPs could be a key driver in attracting new investors, and many expect SEBI to clarify soon how these plans will be implemented. As the industry evolves, the opportunity to buy mutual funds online may become more attractive than ever.
Key takeaways
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