What the aam admi-obsessed political class could not deliver to small investors, the mutual fund industry is beginning to. Collecting the small but steady flow of savings on a regular basis and putting them to one of the best available investment options— equity mutual funds. Beginning May, it is possible to invest just Rs 50 a month through the systematic investment plan (SIP) of Prudential ICICI Mutual Fund.
The first move toward “inclusive investment” was made by Reliance Mutual Fund in April this year when it cut the minimum monthly SIP threshold to Rs 100. Just a year ago UTI Mutual Fund CEO U. K. Sinha had initiated a bold retirement security plan. Sewa Bank and UTI partnered to access Rs 50 a month contributions to UTI (Retirement Benefit Pension Fund). Now ICICI Bank has announced that it will accept SIPs of Rs 50 through its microfinance partners on behalf of Prudential ICICI MF. Right now the entry and exit levels are high but as more fund houses get into small SIPs, these charges will reduce.COME ONE, COME ALL |
| In 1995 Kothari Pioneer offered an investment plan (SIP) for Rs 250 |
| Reliance Mutual lowered SIP limit to Rs 100 in April, 2007 |
| In May 2007 Prudential ICICI offers SIP at Rs 50 |
| Sundaram BNP Paribas considering doing the same |
| Expect minimum limit to fall even lower in future |
Mutual fund industry is reaching out to the fortune at—what management guru C.K. Prahalad calls—the bottom of the pyramid (BoP). The business logic, if found sustainable, is compelling. While individuals from lower income groups don’t generate large savings, there are a lot of lower-income people generating small savings.
Collectively they generate large savings. Consumer product companies have made fortunes by tapping the BoP market. After trying hard to sell a Rs 150 shampoo bottle to people with weekly savings of Rs 100 for years, the FMCG companies repackaged that bottle into 55 sachets of Rs 2. And they found buyers in millions. Telecom companies did something similar with recharge coupons of Rs 10. Now it’s the mutual fund industry’s turn to discover the treasure at the bottom of the pyramid. But it won’t be all hunky dory. The Rs 500 SIP schemes are finding it difficult to continue with 15-20% investors dropping out.
There is no doubt though that access to the stock market and other financial assets will help people near the poverty line earn better. Of course, know your customer (KYC) norms will need to be reworked and relaxed. The BoP segment lacks ID (passports and PAN). There are logistical hurdles too: higher distribution, collection and transaction costs. The RBI will need to ease expansion norms allowing banks and co-operatives to open branches and let MFIs act as collection agents. There is also the issue of investor education. Competition and commercial needs can make all this happen.
