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MF Industry Eyes 'Small' Future

Ever smaller investible amounts have caught funds’ fancy

The Indian mutual fund (MF) industry is never shy of identifying an opportunity, making a strategy and immediately throwing up an investment plan. And for quite some time, these strategies are directed at an ever lower level of income groups through the means of micro systematic investment plans (M-SIP).

While that is the way to pre-empt the competition, what it has done for the industry is to increase the number of people who can invest in mutual funds by millions, by means of showing them the gains that can accrue from a frugal living, a thrifty savings habits and a prudent investing strategy.

Also, considering that much of the upper- and middle-class segments, especially in the cities,  have already been tapped, these funds are mapping a direction that will bring to them large-scale benefits by catering to the long-term needs of the common man. According to sources, only 4 per cent of the savings generated by households has been deployed in MFs. It is no surprise then that some 70 per cent of the MF assets are those invested by institutional investors.

The most recent example of a fund chasing the lowest M-Sip amount is Sahara Mutual Fund. It is looking to beat everybody with its M-SIP set at Rs 10 per day (permission is yet to be acquired from the Securities and Exchange Board of India). Gradually, M-SIP amounts have kept crashing over the last two years, along with the duration thereof, from a monthly to a daily payment, with various players looking to grab attention by offering the least amounts. Not to be outdone, SBI MF has its Rs 100 per month Chotta SIP, Reliance Mutual Fund has one pegged as low as Rs 100 per month. A Rs 50 monthly SIP by UTI MF for its Retirement Benefit Pension fund -- pension scheme for women – was another eye-catching entry into the game.

A noteworthy part about this hectic activity was the hurry with which funds wanted to deploy their M-SIP plans. With a limited infrastructure reach, most of these funds could not make these M-SIPs tick in the marketplace. What they did was to look at changing the method to approach daily wage earners and others making up the low income households in rural and semi-urban areas.

Instead of a direct entry, these funds used different channels. So, for instance, SBI took the assistance of self-help groups, non-government organisations and even micro credit/finance institutions. UTI, for its pension scheme, inked a partnership with the Shree Mahila Seva Sahakari Bank and Bihar State Co-op Milk Producers Federation.

While the battle for the least amount to be collected is raging, what is unclear yet, is the profit angle. However, what is clear is that under these M-SIP strategies fund houses are not really looking to make quick profits. In fact, M-SIPs will not be commercially viable for funds houses in the initial few years. Thereafter, the positives to be derived from these campaigns would be indirect, stemming from a growing tendency by investors to save and invest more. Moreover, since the industry would have improved its reach, it could potentially tap into the money of a huge number of new investors.

But one thing to be kept in mind about M-SIPs is that early exits can be prohibitively expensive. For instance, SBI MF will charge an investor an exit load of 3 per cent for redemptions within 3 years and 2 per cent for redemptions after 3 years, but within 5 years.

Moreover, many of these schemes require investments to be consistently made for 3 years or even more.

Though the mutual fund industry in India is already a vibrant one, it has not been able to reach the scale of its Western counterparts. This new industry-building exercise will go a long way towards achieving that goal.
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