India’s markets regulator is urging fund houses to promote monthly investments as low as 250 rupees ($3) to broaden the reach of equity investing in the country, which has the world’s largest population.
The Securities and Exchange Board of India (SEBI) is working on introducing simpler customer identification rules and reducing costs as part of its efforts to popularize small-ticket investments through mutual funds, according to four sources familiar with the discussions.
Currently, 225 million investors participate in systematic investment plans (SIP), but most of them are from major cities. The introduction of smaller SIPs would help extend financial investments to smaller towns, providing fund houses with new markets to tap into.
SEBI aims to build on the success of SIPs, through which investors contributed 223.6 billion rupees ($2.59 billion) monthly to Indian equities last year, serving as a buffer when foreign investors became net sellers.
Last Friday, SEBI Chairperson Madhabi Puri Buch announced that 250-rupee SIPs would soon be introduced to promote financial inclusion, though she did not provide further details.
For the 2024-25 financial year, SIPs have more than quadrupled to 2.1 trillion rupees from 2016-17, according to the Association of Mutual Funds in India.
India’s mutual fund industry currently manages 66.93 trillion rupees ($797.87 billion) in debt and equity assets. The industry is collaborating with the regulator to reduce upfront costs related to customer identification, account opening, and settlements, with a decision expected in one or two months.
“We aim to take mutual funds to the masses,” said DP Singh, deputy managing director at SBI Mutual Fund. The largest asset management company in India by assets plans to promote 250-rupee SIPs through its parent SBI’s network and digital investment platforms once SEBI finalizes the regulations.
When distributed through digital platforms with simplified know-your-customer rules, these small SIPs could become more commercially viable, Singh added.
Although there is no restriction on offering investment plans for 250 rupees or less, these options are not yet commercially viable, according to executives at two mutual fund houses.
“We can cross-subsidize for a limited time, but eventually, costs must come down to make the product sustainable,” said one of the executives.
Demand for equity investments is increasing as young Indians, 40% of whom are under 30, are entering the riskiest areas of the market, such as futures and options.
Zerodha, India’s largest digital investment platform, has seen rising interest in SIPs below 500 rupees, said Neelesh Verma, the company’s product head for mutual funds.
While currently less than 5% of Zerodha’s total SIPs are under 500 rupees, Verma believes the product will attract more Gen Z investors.
The 250-rupee SIP plans would offer hybrid funds, which invest in both debt and equity, ensuring greater safety for investors with smaller surpluses, added SBI MF’s Singh.
