Context:
The Securities and Exchange Board of India (SEBI) has launched a new initiative to promote financial inclusion and expand access to mutual funds, particularly among low-income and underserved communities.
· The plan involves offering Systematic Investment Plans (SIPs) starting as low as Rs 250 per month, a move designed to break down the barriers to entry for smaller investors.
· This initiative is referred to as “sachetisation,” aiming to make mutual fund investments more accessible to a wider population.
About Sachetisation:
Sachetisation is a concept borrowed from the fast-moving consumer goods (FMCG) sector, where small, affordable product sizes cater to price-sensitive consumers.
· This strategy has successfully reached rural and low-income populations who could not afford larger quantities.
· SEBI plans to apply this model to the mutual fund industry, offering small ticket SIPs as a means to provide investment opportunities to those at the economic bottom of the pyramid.
Why Rs 250 SIPs?
Currently, most mutual funds require a minimum SIP of Rs 500, which is beyond the financial reach of many individuals. SEBI’s proposal to reduce this threshold to Rs 250 aims to lower the entry barrier, enabling people from lower-income groups to start investing.
This move intends to empower these individuals financially and encourage mutual fund companies to expand their services into underserved regions, thus bridging the gap in investment participation.
How Will It Work?
SEBI’s consultation paper outlines that the Rs 250 SIPs will primarily target new investors from low-income backgrounds. Existing investors will not be eligible.
· The plan allows up to three Rs 250 SIPs, each with a different Asset Management Company (AMC). These SIPs will be offered at discounted rates, with any additional SIPs beyond the first three being excluded from the discount.
· These small ticket SIPs will be limited to equity schemes only, excluding high-risk options like debt funds, thematic funds, and mid-cap or small-cap equity funds, ensuring that first-time investors are not exposed to excessive risk.
· Additionally, the growth option will be selected, meaning that profits will be reinvested to increase the value of the investment.
Impact on India’s Financial Inclusion
SEBI’s sachetisation plan could bring millions of new investors into the mutual fund market, particularly in underserved sectors. This expansion could lead to more domestic investment in India’s equity markets, providing greater stability against the volatility caused by foreign investors.
By offering smaller, affordable SIPs, SEBI aims to make the financial benefits of India’s capital markets more equitable, helping new investors build wealth over time. As mutual funds continue to grow, these small ticket SIPs could serve as the first step for many on their investment journey.
