Markets
₹250 per month: The idea behind a brand new SIP
Summary
- Micro-SIPs are designed for investors with small corpuses, including rural residents, daily wage earners and students.
Sebi is working with mutual funds to develop a new ₹250-per-month micro-SIP, chairperson Madhabi Puri Buch said. It would add another rung in India’s financial inclusion ladder. Mint explains what micro-SIPs are and what the industry thinks of them.
What are micro-SIPs and who are they for?
Micro-SIPs are an affordable alternative to a traditional systematic investment plan. They require a monthly contribution of only ₹50 to ₹100, while a traditional SIP requires a minimum of ₹500. Micro-SIPs are designed for investors with small corpuses, including rural residents, daily wage earners and students. Aditya Birla Sun Life Mutual Fund is reportedly developing the country’s first-ever ₹250-per-month SIP. According to the Association of Mutual Funds in India (Amfi), there were a total of 93 million SIP accounts in July with a total SIP corpus of ₹23,332 crore.
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Why does Sebi want to change the ticket size?
The idea is to democratize the nation’s wealth creation process—just like selling shampoo in small sachets. Market participants think it’s a good starting point for financial inclusion as today’s small investors may be tomorrow’s big ticket investors. With digitization touching almost every corner of the country, the market regulator wants to leverage India’s existing digital public infrastructure to provide accessible investment opportunities to the smallest of investors. The Sebi chief emphasized better use of technology to make the process of onboarding and servicing investors more efficient.
Are micro-SIPs a new concept?
Micro-SIPs are not a new concept. Several mutual funds offer SIPs which require a minimum contribution of ₹50 to ₹100 per month. But none of them offer a ₹250-per-month SIP. Navi AMC even offers mutual funds with SIP options of ₹10 per month. With the introduction of this new tier of corpus, Sebi wants to provide an investment plan that caters to all.
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What could be the benefits of this move?
Micro-SIPs allow the smallest of investors to take part in financial markets without pinching their pockets. A large and diversified base of investors is also good for asset management companies. During times of financial stress, these companies are less likely to reel under redemption pressure from this investor class due to their lower investment corpuses. The industry thinks that the real value of micro-SIPs will be unlocked only if fresh regulatory changes lead to a significant increase in the investor base in this category.
What do mutual funds think of micro-SIPs?
Mutual fund houses and distributors view micro-SIPs as ‘charity work’ as they offer little to no profit-making opportunities. They have cited several challenges too. Managing a large volume of small-ticket transactions increases operational complexity for asset managers, including processing payments, maintaining records and ensuring compliance with regulations. Transaction costs can be higher than the investment amount. The distribution network for micro-SIPs requires significant outreach, often to remote areas.
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