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The Securities and Exchange Board of India (SEBI) is looking to introduce simpler customer identification rules and lower costs as it aims to popularise small-ticket investments via mutual funds, four sources familiar with the discussions said.
About 225 million investors currently invest via systematic investment plans (SIP) but a majority are from big cities. Introducing bite-sized SIPs would help take financial investments to smaller towns, which will give fund houses new markets to expand to.
The regulator hopes to build on the success of SIPs, through which investors pumped ₹22,360 crore ($2.59 billion) a month, on average, into Indian equities last year. This has acted as a buffer at a time when foreign investors have turned sellers.
Last Friday, SEBI Chairperson Madhabi Puri Buch said that ₹250 SIPs would be launched soon as a way to expand financial inclusion. She did not give further details.
For financial year 2024-2025, SIPs have more than quadrupled to ₹2,10,000 crore so far from 2016-2017, data from the Association of Mutual Funds in India showed.
India’s mutual fund industry manages ₹66,93,000 crore ($797.87 billion) in debt and equity assets.
It is working with the industry to reduce upfront costs related to customer identification and opening of accounts and settlements, an executive said, adding that a decision on the plan could be reached in one or two months.
The executive and other sources declined to be identified as the discussions with the regulator are not public.
A spokesperson for SEBI did not immediately respond to an email.
“We would like to take mutual funds to the masses,” said DP Singh, deputy managing director at SBI Mutual Fund.
The fund house, India’s largest asset management company by assets, will look to push ₹250 SIPs through its parent SBI’s network but also through digital investment platforms once the regulator’s final rules are in.
When distributed through digital platforms with simplified know-your-customer rules, these bite-sized SIPs could become more commercially viable, Singh said.
While there is no bar on offering investment plans of ₹250 or less, these options are not currently commercially viable, executives at two mutual fund houses said.
“We can cross-subsidise for a limited period of time but eventually costs will have to come down to help the product sustain,” one of them said.
Demand for equity investments has grown as young Indians, 40% of whom are under the age of 30, jump into the riskiest corners of the market, including futures and options.
Zerodha, India’s largest digital investment platform, has seen rising interest for SIPs below ₹500, said Neelesh Verma, the company’s product head for mutual funds.
While currently less than 5% of the platform’s total SIPs are under ₹500, Verma believes the product would bring in more young investors.
“It is a great way to attract Gen Z investors when they are ready to start investing.”
The ₹250 SIP plans would offer hybrid funds, which invest in both debt and equity, SBI MF’s Singh said, adding this would ensure greater safety for investors with small surpluses.