In a consultation paper floated on Wednesday, market regulator SEBI proposed sachetization of mutual funds. This is done to promote financial inclusion, inculcate the habit of systematic saving and facilitate investment of small savings by investors new to the mutual fund space.

In the paper, SEBI has proposed a sachetized mutual fund product- small ticket SIPs of Rs 250. They can be offered in any scheme except debt schemes, or sectoral thematic schemes.

Some Asset Management Companies offer SIP with small-size tickets under their schemes. A mutual fund transaction, either lump sum investment or SIP has many charges such as KYC Charges, platform fees, payment gateway charges, etc. The industry participants have agreed to offer discounted rates to enable faster breaks.

Small ticket SIP of Rs 250 for an investor is restricted to three SIPs, (one each in up to 3 Asset Management Companies). AMC can offer Rs 250 SIPs, beyond three small ticket SIPs, but the discounted rates will not be available following the first three SIPs. The mode of payment will be limited to the National Automated Cleaning House (NACH) and Unified Payment Interface (UPI) auto-pay mode.

The KYC cost incurred by the schemes for small ticket SIPs may be compensated from the fund collected by AMCs by charging 1bps to mutual funds schemes for investor education and awareness.

Under the proposed scheme the commission for distribution will be marginal. Therefore, to encourage distributors and EOPs to participate in and pursue the cause, an incentive of Rs. 500/- will be provided to them for educating an investor.

With subsidization and reimbursement of certain costs from the Investor Education and Awareness Fund, it is expected the cost of the small ticket SIP of an investor new to the mutual fund industry will break even for the AMCs within 2 years.

Since 2014, the Asset Under Management (AUM) of the Mutual Fund Industry has grown from Rs. 10 trillion to Rs. 68.08 trillion as of November 30, 2024. The total number of unique investors in Mutual Funds has grown from 1.7 crore as of March 31, 2018, to 5.18 crore as of November 30, 2024. The number of investor folios has increased from 8.65 crore as of 30 November 2019 to 22.08 crore on 30- November 2024.

The number of investors participating in mutual funds has increased steadily over the years. SEBI felt that there is a considerable opportunity to increase the reach of mutual funds to all sections of society, to enable every individual access to the financial product.

The market regulator is seeking public comments on the proposal till February 6, 2025.