Rs 250 SIP viable? MF intermediaries say decision good for financial inclusion but cautions against operational costs

Sebi’s proposal for SIP of Rs 250 has met with a pinch of salt from the mutual fund industry stakeholders. Though most mutual funds intermediaries have welcomed the decision saying it’s a step forward for financial inclusion, others have flagged that operational costs is something that needs to be taken care of.

Sebi’s proposed introduction of micro-SIP of Rs 250 in mutual funds is aimed to increase the penetration of mutual funds to the lower income groups. While there are some fund houses which already offer small ticket size SIPs of Rs 250 and even Rs 100, as per Sebi, this Rs 250 SIP will standardise the industry.

Akta Sehgal, founder of Manas Wealth welcomes the decision, calling it a good step by the regulator to increase the base of mutual funds, which will further push the product at a grassroots level and reach masses.

She says, “It will act as an encouragement for a lot of economically weaker sections and even homemakers who will learn the discipline of investment and Rs 250 wouldn’t pinch their pocket too.”

On the contrary, Amit Bivalkar, MD and CEO of Sapient Wealth Advisors & Brokers, says that operational costs like Registrars and transfer payments (RTAs) fees, payment gateways, KYC, etc, just won’t add up for a Rs 250 SIP.

Kolkata MFD Mukesh Dokania also adds that for an MFD (mutual fund distributor), both the cost and the services will be time consuming. He says, “There are other risks like paper work, making sure there is a continuation of SIPs even during volatility, which will be difficult to explain to first-time investors especially, coming from lower strata. Even though it’s a good step but there are many challenges.”

Mukund Seshadri, Mumbai-based MFD, calls it a great way for the initiation of weaker sections and younger generation where they can build a habit of saving and investing.

Per the proposal document, the  industry  participants  involved  in  the  mutual  fund  space  have  agreed  to offer discounted rates to enable faster break-even for AMCs on cost incurred towards  these investments.

“With subsidised charges offered by intermediaries and reimbursement of certain costs from the Investor Education and Awareness Fund, it is expected that cost of small ticket SIP of an investor new to mutual fund industry would break-even for the AMCs within 2 years.”, said Sebi.

In addition, Sebi has also proposed introduction of an incentive of Rs 500 for MFDs and execution only platforms EOPs for bringing in SIP of Rs 250 for each investor. However, MFDs/EOPs are allowed to get such compensation only after completion of 24 installments of SIPs.

Investors can use NACH and UPI auto-pay for micro-SIP and no transaction charges will be payable to distributors for small ticket SIPs.

MF industry players, meanwhile, believe that the smaller SIP could act as a good entry point for many new investors and once they become comfortable with the concept of mutual fund investing, they could switch to bigger SIPs.

Sandeep Bagla, CEO, Trust MF calls it a great step for financial inclusion but for it to be economically viable, other charges like—transaction costs, RTAs, bank charges, payment gateways charges etc—have to come down. Only if the volume is good enough, costs can be covered, he says.

R. K. Jha, MD & CEO, LIC MF says that this step will help investors from lower income groups, even encourage children and new wagers into developing a habit of savings and this sachetisation is a great way for wealth creation and a lot of AMC have already been working on it and others will start adopting it soon and this can increase mutual fund investors from 50 million to up to 200-300 million in the coming time.