SEBI

SEBI’s Sachetisation of Mutual Funds for Financial Inclusion

The provision of investment avenues to all strata of society is vital in a country where financial literacy and inclusion hold the key to economic growth. By recognizing the need to empower the unserved sections and to inculcate systematic saving habits amongst them, SEBI has proposed a groundbreaking proposal, which is the sachetisation of mutual fund schemes.

It seeks to bring in a complete transformation in the idea of financial inclusion by allowing small-scale investments through a newly systematic investment plan (SIP).

This blog explores various facets of the proposal, analyzing its objectives, importance, key features, and probable impact on financial inclusion.

What is the Sachetisation of Mutual Fund Investments?

The term ‘Sachetisation’ refers to the breaking down of investments into smaller, more affordable portions, much like how consumer goods are sold in small sachets to reach lower-income groups.

Applying this to mutual funds involves offering small-ticket SIPs as low as ₹250 per month. It is a strategy to make mutual fund investments accessible to people who may find traditional lump-sum or larger SIP options beyond their financial reach.

Objectives of the Initiative of Sachetisation of Mutual Funds

The main objectives of the initiative of Sachetisation of mutual funds are mentioned below:

1. Financial Inclusion: It will help reach the mutual fund investments to the underserved and economically weaker sections of society and ensure that wealth-building opportunities reach every citizen.

2. Encouraging Systematic Savings: By enabling small and consistent contributions, the plan helps individuals develop disciplined saving habits, a cornerstone of financial security.

3. Facilitating Entry for New Investors: Targeted at first-time investors, sachetisation simplifies the process of entry into the investment ecosystem, bridging the gap between the unbanked population and capital markets.

Background of the Proposal

Indeed, the last ten years have been the best time for mutual funds in India, with Assets Under Management (AUM) expanding from ₹10 lakh crore in 2014 to ₹68.08 lakh crore in November 2024. But despite all growth and development, this financial product has hardly reached a large chunk of the masses.

Only 5.18 crore unique investors currently participate in mutual funds, reflecting the untapped potential for broader penetration. The sachetisation approach was thus meant to bridge this gap, targeting low-income groups and the rural population, allowing them to make small, periodic investments and gradually build wealth.

Key Features of the Small-Ticket SIP Scheme

Some critical features are the foundation of the sachetised mutual fund initiative to keep it accessible, affordable, and sustainable:

1. Low Minimum Investment: Since one may start SIP merely with ₹2500 per month for investing into more diverse mutual funds’ schemes, hence allowing more investing into mutual fund schemes by people with notably low disposable incomes.
2. Limit on Subsidized Investments: An investor can create only three small-ticket SIPs across different AMCs. They can definitely invest beyond that limit but the subsidized cost will be considered only for three SIPs.
3. Growth-Oriented Schemes: These SIPs will only be available under the growth option so as to benefit from long-term growth rather than acquiring regular income payouts.
4. Standardized Modes of Payment: To minimize the cost burden, the mode of payment will be standardized with NACH and UPI autopay modes only.
5. Simplified KYC Process: The proposal has relaxed the norms of Know Your Customer, permitting PAN-exempted KYC registration on the basis of Aadhaar for investments up to ₹50,000 annually.
6. Support for Distributor: Recognising the low commission on small-ticket investments, the scheme provides an incentive of ₹500 to the distributor for onboarding and educating a new investor, payable after two years of regular SIP contributions.
7. Transparency in Communications: The statutory disclosures will be made primarily through registered mobile numbers and email, with detailed disclosures through active links provided to the investors.

Subsidization and Cost Management

One of the critical challenges with small-ticket investments is the cost involved in it. The scheme tries to overcome this issue by utilizing the Investor Education and Awareness Fund to defray some of the following costs:

• Onboarding Charges: Subsidies on KYC and other charges related to onboarding.
• Discounted Fees: Concessional charges to intermediaries like stock exchanges, depositories, and payment platforms.
• Incentives for Financial Inclusion: Provide support for the distributors to do a more active promotion of the schemes.

These steps will lead to a better cost-to-revenue ratio in two years’ time and thereby encourage AMCs to sustain this initiative.

Potential Benefits of the Sachetisation Initiative

The introduction of small-ticket SIPs has far-reaching implications in terms of financial inclusion and economic empowerment:

1. Increased Accessibility: By lowering the entry barrier, sachetisation ensures that even individuals with minimal savings can participate in capital markets.
2. Increasing Financial Literacy: This program puts greater emphasis on investor education in order to let the participants know and make informed decisions about their future financial aspects.
3. Wealth Creation for the Underserved: Small and consistent investments might start compounding, ultimately giving the underserved sections the key to long-term financial security.
4. Better Market Penetration: This may provide opportunities for AMCs and distributors to expand their reach to remote and rural areas, unlocking untapped markets.
5. Economic Empowerment: The scheme has been a source of economic empowerment through investments in equity, bond, and commodity markets, adding to their economic independence.

Challenges and Considerations

While promising, this initiative has to address a number of challenges for its successful implementation:

1. Cost Management: The operations need to be financially viable so that the AMCs can continue with their operations without incurring significant losses. Subsidies and incentives have to be cautiously calibrated to balance the financial viability and inclusion goals.

2. Investor Retention: Long-term participation needs encouragement. Investors will have to be educated on how long-term SIP contributions yield better results.

3. Infrastructure and Awareness: The scheme needs proper infrastructure, at least in the rural areas, along with awareness creation about the scheme through campaigns for potential investors.

4. Fraud Prevention: The relaxed norms of KYC must be carefully monitored so that this process is neither misused nor used as an avenue for fraudulent actions.

Recommendations to Look Out For

It demands cooperation from regulatory bodies, AMCs, distributors, and even investors for sachetisation to be successful. A few key recommendations include:

1. Comprehensive Awareness Campaigns: Targeted outreach programs will educate potential investors about the benefits accruing from mutual funds and small-ticket SIPs.
2. Technology Integration: The onboarding process is easier with the help of digital platforms. It enhances transparency, thus reducing operations costs.
3. Encouraging Stakeholders: The distributors and AMCs will continue to get support and, hence will have active participation with sustained efforts toward financial inclusions.
4. Periodic Review: Regular monitoring of the effect of the initiative would help in identifying various areas of improvement and ensure that the scheme is aligned with its objectives.

To Wrap Up

Sachetisation of mutual fund investment is a major step in the democratization of the financial markets in India. The initiative has the potential to transform the financial landscape by reducing entry barriers, inducing systematic savings, and promoting participation from under-sections of society for economic inclusion.

As SEBI seeks public feedback on this proposal, let this be an opportune time for the stakeholders to contribute their views for shaping a policy in tune with the nation’s vision of inclusive growth. Together, the sachetisation initiative can lead the way to a financially empowered and economically resilient society.

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