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Sachetisation of mutual funds, a small step in right direction

The sachet — till now identical with shampoos, pickles, kumkum and a host of other consumable products — will soon see a new product packed into it. Yes, small-amount mutual funds will hit the market soon, if the wishes of SEBI chief Madhabi Puri Buch fructify.

The Securities and Exchange Board of India is considering bringing down the minimum investment for systematic investment plans (SIPs) to as low as ₹250, according to the SEBI Chief.

SEBI is working with the mutual fund industry to see what the regulator can do to bring the viable SIP level down to ₹250 a month, “because then it is the equivalent of what Hindustan Lever did with shampoo sachets. You just explode the market,” Buch had said.

Financial inclusion

“This will allow greater participation in MFs from the bottom of the pyramid, and is in keeping with the market regulator’s objective of greater financial inclusion,” she has been emphasising in the last few months. Currently, SIPs as low as ₹100 are offered by a few fund houses but ₹500 is the minimum SIP size offered by most.

Even in the US, some MFs allow investment as low as $5, $10, or $100 (called no minimum funds) but majority funds require a minimum initial investment of between $500 and $5,000.

Buch highlighted that the Indian market had become resilient because of the retail money flowing in through the MF and direct route. ”When money became expensive, foreign money left our shores. But our market was resilient because of the retail money that came in. Our share in the global indices went up, and the foreign investors who had left India had to come back.”

Reducing FPI influence

A Systematic Investment Plan (SIP) allows individuals to invest a fixed amount in mutual funds gradually, either monthly or quarterly, over a specified period. This approach helps in averaging out the cost of investing, leveraging the power of compounding. Optimal results from compounding are realized with long-term investments. SIP facilitates cost reduction in purchasing and enables investors to benefit from market volatility.

Implementing this strategy will be advantageous, given India’s ongoing growth trajectory. Besides promoting financial inclusion, it will further diminish reliance on foreign portfolio investments. Notably, the influence of Foreign Portfolio Investors (FPIs) on Indian markets has significantly decreased since the Employee Provident Fund Organisation started investing in the domestic markets since 2015-16.

Clear framework needed

The EPFO started with an investment of 5 per cent in equity through ETFs based on the BSE Sensex or NSE Nifty 50 Index in August 2015. Subsequently, from 2017, the investment in ETFs was increased to 15 per cent of the fresh accretion. The latest available figures indicate that investments by EPFO crossed ₹2-lakh crore.

However, mutual funds and the regulator should structure the scheme with clear focus on target audience, i.e. poor and daily wage earners. The scheme should be accommodative and provide an easy entry and exit to them, in case they want money. A constant monthly income after a fixed period of investments, say, 10 or 15 years through dividend or partial withdrawal of capital, would make the schemes attractive.

But for the scheme to succeed, the penetration of financial literacy is a must, which is a herculean task. Also, SEBI should ensure that no mis-selling happens.

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