Ordinary Indians have been denied a shot at wealth creation, as capital market and wealth management ecosystems tend to focus exclusively on the affluent. This is why the Securities Exchange Board of India’s (SEBI) work on ‘sachetising’ mutual funds, which has borne fruit with the launch of Jan Nivesh SIPs this week, is a laudable initiative.
Under this scheme, State Bank of India and Paytm through their platforms will actively enrol first-time investors, without charging any fees, into ₹250 Systematic Investment Plans (SIPs) in SBI Mutual Fund. Hopefully, more funds will follow suit. SEBI had mooted a comprehensive framework to operationalise ₹250 SIPs in a consultation paper earlier this month. While mutual fund SIPs already start at ₹500 or ₹1,000, a key constraint to lowering the bar further was the charges paid by Asset Management Companies (AMCs) on ancillary services such as distribution, registrar and transfer agencies (RTAs), depositories and record-keeping. SEBI has negotiated a way around this, by getting the servicing agencies to waive their fee for small-ticket SIPs. To ensure that the subsidy is manageable, the number of small-ticket SIPs per new investor will be restricted to three. To compensate distributors, an incentive of ₹500 will be paid over and above the usual commission once the SIP completes 24 instalments. SEBI has allowed AMCs to charge an extra one basis point on existing schemes to fund KYC and other costs.
It is unclear why an industry which has scaled up to ₹67 lakh crore in size, cannot foot the bill for customer acquisition. To reduce costs, communications such as accounts statements and disclosures will be sent only through email or SMS. Here, it will be good if mailers to investors in small-ticket SIPs are in regional languages. Small-ticket SIPs are to be allowed only in select fund categories. While the logic for excluding riskier types of equity funds such as thematic, small-cap or mid-cap funds is clear, there was perhaps no need to bar debt funds, which could offer a low-risk gateway for small investors to explore markets.
It now needs to be seen whether AMCs and the distribution ecosystem truly take up the challenge of transforming mutual funds into a mass-market product. Mutual fund investors, unlike buyers of sachetised consumer products, will also need the services of AMCs and distributors on an ongoing basis to monitor, add to and redeem their investments when needed. They may also need hand-holding through choppy market phases, to stay the course with SIPs and reap the benefits of long-term equity compounding. Today, even mainstream SIP investors have short holding periods of two or three years. For AMCs, signing up new investors when costs are being subsidised and past returns look great, may be easy. The real challenge will lie in ensuring that investors participating in Jan Nivesh SIPs today scale up their savings in mutual funds for their long-term financial goals, sans any external nudges.
