Exclusive | Soon, SEBI to come up with a consultation paper on Rs 250 SIP

To democratise the benefits of the capital market, the Securities and Exchange Board of India (SEBI) is likely to come up with a plan for popularising the concept of Rs 250 Systemic Investment Plans (SIPs). The capital market regulator has been working on this proposal for long but is taking time as it is consulting several stakeholders. As per one source, involved in discussions with the regulator on the matter, “SEBI will come up with a consultation paper on the issue and seek public comments before formulating the policy."

“In the consultation paper, the focus will be on how to rationalise the various charges and make the micro SIPs viable proposition for the fund houses and also to ensure that charges don’t pinch too much to investors," the source added.

Though few mutual fund houses offer SIPs as low as Rs 100, SEBI's idea is that Rs 250 SIPs should come across mutual funds. So, investors who cannot afford a bigger sum for investment can start with as low as Rs 250 per month. However, the regulator wants to ensure that in the name of micro SIPs, funds do not deduct significant amounts as charges, leaving a smaller sum for investment. For example, the long-term aim is that in a Rs 250 SIP, at least Rs 245-246 gets invested.  

Though SEBI Chairperson Madhabi Puri Buch has been talking about sachetising the SIPs, she recently reiterated the same at an event of SBI Mutual Fund for celebrating the AUM crossing Rs 10 Llakh crore. She said, “It's my confidence that Rs 250 SIP will not only be real but it will actually be hugely profitable for our industry and therefore we will see it financial inclusion along with the profitability of the industry."

Earlier, the industry had raised the issue of the cost involved in coming up with such SIPs. For this, the regulator has been in discussion with all stakeholders including KYC registration agencies, stock exchanges, banking channels, NPCI, depositories, and registrar and transfer agents of mutual funds. SEBI has worked out the commercial aspect of mutual funds so that costs can be minimised for such small-ticket SIPs. The regulator believes that initially there may be issues but once the volume starts going up, the fund houses will be able to not only recover the cost but make profits due to high volumes.

Speaking at the SBI Mutual Fund event, Buch explained: “The operating leverage we have in the mutual fund industry is just amazing. Once you have your product set up, technology set up, and your compliance set up, when you scale you scale so amazingly. The only real incremental cost is that of distribution and a small extent of services. Therefore given the huge scale in India, and the whole bottom of the pyramid, we keep referring to, is just a perfect recipe."

As per industry sources, the biggest cost of mutual funds in opening and processing an SIP is the one-time cost of KYC, for which registration agencies charge Rs 25-35 per client because it is mostly done through physical mode. Doing this digitally may not cost more than Rs 5. If there is a huge volume, it can be done at even Rs 2 only via CKYC. So, significant savings can be made.

Similarly, depositories charge for PAN, mobile, and email verification, which costs investors about Rs 6-7. SEBI is in talks with depositories to reduce this charge.

Depositories may create a separate charge list for micro SIPs. The KYC validation charge of Rs 5 also is added by KYC registration agencies (KRAs). Banks also charge around Rs 3-4 as a mandated fee, every time SIP is to be deducted, this too can be reduced with the help of fin-techs and NPCI. Exchange and other platform charges go up to Rs 2-3 every time the SIP is punched for the transaction. And then, the RTA charges and fund management charges also add up. So, not only the one-time costs like KYC charges but also the recurring charges like the mandate charges, platform charges, and RTA charges also need to be brought down for the viability of micro SIPs.

One exchange official on the condition of anonymity said, “Exchanges can consider a special charge structure for micro SIPs as such products are necessary for financial inclusion perspective and the pick up in volume will take care of the cost and ultimately benefit the exchanges”. 

One industry source said, “Big mutual funds can also opt for Execution only platforms which may be cheaper for them in the long run, though they may have to incur one-time cost for establishing the platform."
  
Currently, Aditya Birla Sun Life, Axis Mutual Fund, ICICI Prudential, Nippon, UTI MF, and SBI MF are among the fund houses that offer low-ticket SIPs. But it's not being pushed because of high customer acquisition costs.

The idea is the Rs 250 SIP can be a kind of Jan Nivesh Yojna like JanDhan, and citizens of the country can reap the benefits of capital market and also add to the capital formation in the economy.