Smaller systematic investment plans (SIPs) in mutual funds can lead to greater financial inclusion and lay the foundation for future growth as well as greater resilience of Indian equity markets, the Securities and Exchange Board of India (SEBI) chairperson Madhabi Puri Buch has said.
Speaking at an event hosted by Business Today, Buch said the capital markets regulator was working with mutual fund houses to make Rs 250 SIP viable for the industry.
“We are working with them to see where is that cost and what SEBI can do to facilitate in making it possible to bring that viability down to Rs 250 a month. Then it would be equivalent to what Hindustan Unilever did with shampoo sashes. It will bring in financial inclusion and, equally importantly, it will give strength to our markets,” SEBI chairperson said.
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SIP works on the principle of regular investments. It is like your recurring deposit where you put in a small amount every month. It allows you to invest in a mutual fund by making smaller periodic investments (monthly or quarterly) in place of a heavy one-time investment.
Buch’s statement has come at a time when Indian mutual fund industry’s total assets under management is nearing Rs 50 trillion landmark.
According to data released by the Association of Mutual Funds of India (AMFI), the industry trade body for mutual funds on December 8, the mutual fund industry’s assets under management (AUM) reached Rs 49.04 trillion in November. This was boosted by the benchmark indices hitting all-time highs during the month.
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To be sure, some mutual fund houses are already offering SIPs as low as Rs 100, but options are limited as it may not be viable for them to offer SIPs at that level.
Explaining how lower SIPs can bring greater resilience to the Indian equity markets, Buch gave the example of how domestic investors have shielded markets from global shocks over the past year or so.
“Unlike other emerging markets, India was resilient. That was because retail money came in to fill that vacuum, both via direct investments by retail investors as well as through mutual funds. The people who left India started underperforming their benchmark index, and very soon, they returned because they could not afford to miss out on the Indian return. Therefore, in effect, the benefit of our domestic flows and the retail flows had a double impact. The impact of domestic money coming in and the impact of the foreign money returning,” said Buch.
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According to the regulator, in the remaining of her term at SEBI, she would work on making Rs 250 SIPs viable from the current Rs 500. “I think that would lay the foundation for the next many years for future growth and further resilience of the market,” Buch said.
Meanwhile, SEBI is also considering a new asset class that will cater to high-risk investors.
The market regulator has been concerned about retail investors seeking unsolicited advice. They often turn to unregistered advisers who run illegal or quasi Portfolio Management Services (PMS) in the garb of investment advice and end up putting their money in risky investments or strategies.
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