Mutual Funds and small SIPs: Investing in mutual funds is often viewed as a more secure option compared to the stock market due to its diversified nature and professional management. Systematic Investment Plans (SIPs) serve as popular investment tools within the realm of mutual funds, aiding individuals in attaining financial objectives at various junctures of their lives. Moreover, they assist in cultivating disciplined investing habits, thus facilitating the accumulation of wealth for the long haul.
Noteworthy data from August 2024 indicates a significant increase in SIP contributions, reaching a record high of Rs 23,547 crore. Additionally, SIP assets experienced a growth of 2.3%, amounting to Rs 13.39 lakh crore. The number of SIP accounts surpassed 9.61 crore, with a monthly net addition of 27.40 lakh accounts, underscoring the widespread acceptance and adoption of SIPs within the investment landscape.
The Securities and Exchange Board of India (SEBI) has said it would float micro Systematic Investment Plans (SIPs) to cater to a broader segment of investors. These micro SIPs are designed to enable individuals to invest a minimum amount of Rs 250 on a monthly basis. This initiative aims to include individuals with lower incomes, such as daily wage earners, homemakers, and senior citizens with limited financial resources, in the investment landscape. By lowering the entry barrier, micro SIPs seek to promote financial inclusion and encourage savings and investments among a wider demographic.
“The Rs 250 SIP will not only be real, hugely profitable for industry, therefore we will see financial inclusion, along with increased profitability because that’s what we do in India…The magic is in the sachetisation of our products; Just like we have sachetised versions in FMCG products, SBI MF is going to make this happen. The objective is to make citizens participate in the wealth creation of the country and create avenues for capital formation,” Sebi chief Madhabi Puri Buch said in July.
Investing even small amounts regularly over time can significantly impact your financial portfolio. This means you don’t have to wait for a large sum of money to start investing. For example, investing Rs 250 monthly in a Micro SIP for 25 years, totaling Rs 75,000, could potentially grow to around Rs 6 lakh with an expected annual return of 14%. This amount, compared to the initial investment, could prove to be valuable for future needs like retirement or unexpected expenses.
“Micro SIP is a good initiative to drive further participation from small investors, students, house helps and another low earning group. It also helps them experience the advantages of SIP such as rupee cost averaging, financial discipline and so on. This will also help in the broader financial inclusion of this segment of investors. This set of investors have been away from the market and have not experienced the power of compounding which comes with SIP. Most of these investors do chit funds, daily investments in unorganised credit societies, with this move their investment will start flowing into organised mutual funds. SEBI has also hinted that there will be no KYC requirement if the annual investment is less than 50K, this move will also support higher inclusion of investors from this group,” said Nitin Rao, Head product and preposition, Epsilon Money Mart
SIPs are definitely an effective method for investing in equity markets due to their ability to average out the cost of entry, thereby minimizing the impact of poor timing on lump sum investments during periods of market volatility. By committing to a monthly investment starting as low as Rs. 250, individuals, including those below the poverty line, can initiate their investment journey.
This level of affordability creates an opportunity for individuals to accumulate savings gradually, enabling them to establish a solid financial foundation to mitigate unexpected events such as job loss, medical emergencies, or retirement. Such financial resilience can culminate in enhanced financial independence during their later years, thereby reducing their dependence on social security or minimal welfare schemes.
“Reducing the SIP amount is good and it can help more investors to invest or even for a segment of investors to try how mutual funds work. But the key is to educate the investors of linking their Mutual Fund investments to their goals and keep contributing on regular basis. As an entry point is it fine, but even if the investment of Rs. 250 generate higher returns it will still have a smaller role in the overall finance of investors. Hence, educating and linking Mutual Fund Investment to financial goals is more important than just lowering SIP amount,” said Harshad Chetanwala, Co-Founder MyWealthGrowth.
Even for senior citizens, micro SIPs cater to their specific needs by allowing them to achieve modest financial objectives. Additionally, these initiatives facilitate the financial inclusion of low-income populations by assisting them in setting and reaching attainable goals for various purposes.
Moreover, micro SIPs enable students to accumulate funds for higher education and vocational courses while aiding investors in diversifying their portfolios to address unforeseen circumstances and retirement planning.