“Sachetisation”, or the strategy of offering products in small yet affordable units, has been a roaring success in India’s fast-moving consumer goods (FMCG) sector, allowing FMCG majors to penetrate the price-sensitive rural and low-income consumer segments. For many, shelling out money worth a full bottle of quality shampoo in one go may be difficult, but when that same shampoo is available in a one-time use sachet worth Rs 2 or 3, it becomes affordable and accessible to them.
In large price-sensitive markets, the approach can be effective in various sectors, including financial services. It is no surprise that India’s capital market regulator Securities and Exchange Board of India (SEBI) wants to “sachetise” mutual fund investments made through monthly systematic investment plans (SIPs).
In December 2023, SEBI Chairperson Madhabi Puri Buch had announced that the regulator was working with the mutual fund industry to see how SIPs worth just Rs 250 a month can be made viable, in order to facilitate better participation in mutual funds from “the bottom of the pyramid” for greater financial inclusion. The market regulator wanted India’s mutual fund market to “explode”, similar to what sachetisation did to the shampoo segment.
Just over a year later, SEBI has floated a consultation paper seeking views on “promoting financial inclusion” through “sachetisation” of investment in mutual funds. The proposal envisages a sachetised mutual fund product—a small ticket SIP of Rs 250. In a bid to push the mutual fund industry to offer small ticket SIPs, SEBI has convinced mutual fund industry intermediaries to charge discounted rates for small ticket SIPs, apart from proposing to reimburse certain costs for fund houses from the Investor Education and Awareness Fund.
Mutual fund investment ‘sachetisation’: Rationale given by SEBI
According to the regulator, sachetisation will enable small ticket investments in mutual funds gradually on a periodic basis. “This can assist in financial empowerment of the underserved section of the economy and nudge fund houses to expand their footprints to even remote locations in the country,” SEBI said.
While there are some asset management companies that offer small ticket SIPs as low as Rs 100 under some of their mutual fund schemes, most schemes require a minimum SIP of Rs 500. The Rs 250 SIP proposal, SEBI says, provides an opportunity to the entire industry to participate in the “cause of financial inclusion”.
Over the past few years, mutual funds have become hugely popular, particularly among India’s middle-class investors. Assets under management (AUM) of the mutual fund industry have multiplied to Rs 68 lakh crore (as of November 2024) from Rs 10 lakh crore in 2014. Total number of unique investors of mutual funds has grown from 1.7 crores as of March, 2018 to 5.2 crore as of November 30, 2024. Clearly the growth has been astronomical, but SEBI feels that the low-income strata of the population have not been able to participate in this growth story.
“…there is a considerable opportunity for increasing the reach of the Mutual Funds to all sections of the society, to enable every individual to have access to this financial product,” the regulator said in the consultation paper, adding that sachetisation of mutual fund investments can assist in financial empowerment of the economy’s “underserved section” and nudge fund houses to expand their footprint to even remote locations in India.
Targeted plan: Small ticket SIPs not for everyone
It appears that SEBI wants the sachetised SIP offering to be targeted largely towards new mutual fund investors from low-income groups, and not for retail investors in general. According to the consultation paper, an existing mutual fund investor will “not be considered as a small ticket SIP investor” for any investment at the industry level. Moreover, if any investor initiates an SIP investment other than small ticket SIP, or makes a lump sum mutual fund investment, she or he will not be considered a small ticket SIP investor.
Also, a maximum of three Rs 250 SIP plans—one each in up to three asset management companies (AMCs)—per investor will qualify for discounted rates offered by intermediaries. AMCs can offer more Rs 250 SIP plans to such investors, but any investment beyond the three first three plans will not be eligible for discounted rates from intermediaries.
Additionally, small ticket SIPs are proposed to be offered in any mutual fund scheme, except debt schemes, sectoral and thematic schemes, and small-cap and mid-cap equity schemes. Small-cap and mid-cap segments of the equity market are prone to significantly more volatility than the large-cap segment, and the regulator does not seem to want new investors from lower-income groups to make high-risk investments.
SEBI has also proposed that the small ticket SIP may be offered under the growth option of the investment plan. Under the growth option, profits made by the fund are reinvested in its underlying securities to drive future growth and fund value.
“Commitment by an investor under a small ticket SIP scheme should be for 5 years i.e. 60 investments. However, if an investor desires to stop SIP or withdraw the SIP investment prematurely, there should be no restriction on it,” SEBI said in the consultation paper.
Bringing down costs to push small ticket SIP penetration
SEBI said that industry participants involved in the mutual fund space have agreed to offer discounted rates to enable faster break-even for AMCs on cost incurred towards these investments. Besides, part of the cost of investment for AMCs and certain incentives for financial inclusion are proposed to be compensated from the Investor Education and Awareness Fund to further reduce the break-even time for AMCs and encourage further penetration.
“With subsidised charges offered by intermediaries and reimbursement of certain costs from the Investor Education and Awareness Fund, it is expected that the cost of small ticket SIP of an investor new to the mutual fund industry would break-even for the AMCs within 2 years,” SEBI said.
The regulator said that the small ticket SIP is primarily for monthly SIPs. The option of fortnightly small ticket SIPs may also be enabled, as the same will reduce the transaction cost due to fixed quarterly Unified Payment Interface (UPI) charges, which could further reduce the breakeven time for AMCs. Considering the higher cost of investment through the available alternate modes, SEBI has proposed that small ticket SIP investments should be restricted to National Automated Clearing House (NACH) and UPI auto pay mode only.
Additionally, to encourage distributors and execution only platforms (EOPs) to participate in this financial inclusion cause, SEBI has proposed to give an incentive of Rs 500 per investor, if the investor completes 24 instalments of the small ticket SIP.
The timing: Deepening India’s equity market
Notably, while SEBI had been working with industry stakeholders on small ticket SIPs, the consultation paper comes at a time when India’s equity markets are grappling with heavy selling by overseas investors due to various factors, including global volatility, uncertainties under the Donald Trump administration in the US, slowing economic growth and corporate earnings in India, and high stock market valuations, among others.
Domestic investors, institutional as well as retail, have been carrying the Indian markets on their shoulders. Mutual fund inflows, particularly through the SIP route, have helped support the Indian stock markets despite the storm of heavy selling by foreign investors. Even going forward, domestic investors in equities, including those who invest through mutual funds, are likely to be a critical factor in how the stock markets fare.
Although it is not clear when SEBI wants small ticket SIPs to be made available for investors—deadline for submitting views on the consultation paper is February 6—deepening of the market is bound to lead to more inflows. To that end, this offering could over time lead to more domestic investment flows in equity markets, providing more cushion against vagaries of overseas investors. The expectation would be that first-time mutual fund investors from under-represented sections would gradually go beyond the small ticket SIPs in their investment journey.
Mutual fund inflows, particularly through the SIP route, have helped support the Indian stock markets despite the storm of heavy selling by foreign investors. (Express Archives: Anand Singh) 
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