Micro-SIP: Will investors come in by the droves?

Micro SIP

With less than around 5 crore unique mutual fund (MF) investors in India, the Rs-65-trillion MF industry is gearing up to lower the jaw bridge further. The capital markets regulator, Securities and Exchange Board of India (SEBI), and the MF industry has been working together to introduce micro-SIP (systematic investment plan), which allows investors to invest smaller amounts, sometimes as low as Rs 100, at regular intervals The SEBI is looking at bringing down the costs for MF houses.

Making it feasible

Mutual fund houses incur a cost to maintain your SIP. Here’s where the industry feels running micro SIPs is unfeasible, given the AMC fees that they make, dwarfs the costs they end up paying. A bulk of these charges are paid to the payment gateway, which includes a one-time cost mandate registration charge at the time of registering your SIP and a recurring cost (presentment gateway charges) every time your SIP hits their bank account.

Then, there are Registrar and Transfer Agent (RTA) costs to be paid, which differs from fund houses to fund house, depending on the commercials agreed upon. Aside from that, there are KYC charges to be paid; around Rs 15 to 17 per investor if you are not KYC-compliant and maximum Rs 35 per investor if you are KYC-compliant, for fund house to download your KYC data. Last, but not least, the updation of your KYC to the Central Registry for Securitization Asset Reconstruction and Security Interest of India (CERSAI) also incurs a nominal cost.

Besides, these are fixed costs and don’t vary on the amount. In simple words, irrespective of whether the SIP is, say Rs 5,000, or say Rs. 500, the SIP mandate costs- which the fund houses incur- largely remain the same in most cases.

The KYC hurdle

You can enrol in a micro SIP, if you invest up to Rs 50,000 a year across all your MF investments, without the requirement of PAN (Permanent Account Number). This is currently available only to SIPs and not to normal purchase transactions. SEBI’s definition of what it calls sachetised investments is aimed at widening the ambit and appeal of micro SIP.

DP Singh, Deputy Managing Director & Joint Chief Executive Officer (CEO), SBI Funds Management Co Ltd, which is India’s largest mutual fund house, said that SEBI should ideally increase Rs 50,000 (KYC without PAN) to Rs 2 lakh. “This will ensure many more new investors come in and the cost of acquisition will also gets justified,” he said.

Can micro SIP lead to wealth creation?

Some experts feel that micro SIPs — particularly those with smaller investment amounts such as Rs 250–Rs 500 — do not lead to wealth creation. For instance, Rs 500 invested in an equity scheme every month over five years (a cumulative investment of Rs 30,000) would become Rs 40,552, as per Value Research. “That doesn’t move the needle much; the growth of your corpus in hand is not much to talk about, especially given the equity risk that investors would take,” said G. Pradeepkumar, former CEO of Union Mutual Fund, who retired in April 2024. He said that a SIP of around Rs 1,000 is a good enough entry point for new and even smaller MF investors.

A MF industry official said on condition of anonymity that micro SIPs are not about wealth creation. “It is about tapping first-time investors who belong to the low-income strata such as the vegetable vendors, the cobblers, and to inculcate a habit in them to regularly save, however, small the sum may be. Once they start to see their money grow, they are likely to increase their commitment,” he said.

Ganesh Ram, MD and CEO, Mutual Fund Utilities (MFU) says that micro-SIPs can benefit individual investors and that is the first step towards wealth creation. But more so, he says, it'll help increase mutual fund's penetration in smaller towns. "AMFI data clearly shows that only 25 percent individual investors' assets come from B30 (Beyond the top 30) towns. So to enhance the B30 share, micro SIP is one of the low hanging solutions," says Ram. Giving further evidence to how micro SIPs can bring in first-time investors, he points out AMFI data that showed an addition to 55 lakh new investors that have entered the MF industry in first six months of Financial Year 25. "With micro SIPs, this number can double," he says.

Now, all eyes are on SEBI to see how it defines a micro SIP and makes it feasible for mutual funds to offer it.