How ₹250 monthly MF SIPS could empower low-income earners despite existing barriers
In January 2025, the market regulator introduced the concept of ₹250-amonth mutual fund investments – akin to selling shampoo in sachets instead of bottles – in a bid to bring India’s low-income earners into the financial mainstream. While smaller ticket size addresses affordability, there are barriers that make gold jewellery and informal chit funds more attractive propositions for this category of savers.
But, this means low-income earners are left with low-growth savings or end up watching their lifetime savings disappear after investing them in fraudulent schemes. Mint talked to those who tried to get their house helps to invest in mutual funds. The problem starts from trying to convince them to opt for an MF instead of buying a gold necklace.
However, once they’re in, there are structural hurdles to cross–and not all find it easy to complete the process.
Trust and persuasion
It’s not easy to convince low-income earners who typically buy jewellery for savings to invest in a financial product such as a mutual fund. Many times, they are apprehensive and unable to grasp the concept. For Ratnama, a house help, it all started when she told her employer Samit Singh’s wife that they planned to set aside some money for their child. When Singh got to know this, he urged Ratnama to put part of it in equity mutual funds to get higher returns than fixed deposits.
Singh told Mint that he spoke to Ratnama’s husband, an electrician, about how MFS work, investing categories, and the concept of net asset value, but the husband didn’t understand.
“Although I explained everything in Hindi, he zoned out. Later, he told me he hadn’t understood much but still wanted to invest in MFS as they trusted me.” After two months, Ratnama told Singh that some FDs were maturing and she wanted to invest ₹60,000 in mutual funds for her child. Singh decided to help them out.
Pan-Aadhaar link
However, the very first step towards opening a MF account turned out to be tough. Ratnama’s permanent account number (PAN) was not linked to her Aadhaar, which is needed for buying or selling of MFS. Singh found out that nobody from Ratnama’s community knew about linking PAN and Aadhaar.
There was now a ₹1,000 penalty to link PAN and Aadhaar as the deadline was over in June 2023. For people like Ratnama who earn ₹12,000-13,000 per month, this was a significant amount. Singh paid the fine, not wanting to discourage the couple, but the next step also turned out to be a speed breaker.
Bank documents
A bank cheque with account holder’s name written on it was needed for KYC registration. Ratnama’s old cheque did not have her name on it. The other document was a bank passbook, which was also something she didn’t have. That’s when she approached the bank and got the application written with the help of Singh. That took 5-6 days. Then, Singh found out that Ratnama did not have an email ID so he helped her create one and finally invested in a mutual fund after one and a half months.
“She wanted to go aggressive. When I told her that high risks can give high returns, like every first-time investor, she was super excited and wanted 100% in high-risk funds. But knowing that such people may need money sooner than planned due to emergencies, I split it as follows – ₹30K in a flexicap fund, ₹20K in a balanced advantage fund, and ₹10K in an arbitrage fund.”
For many, the bottleneck starts right at the beginning. When Rachna Monga Koppikar tried to start a ₹500 SIP for her cook, she found out that her PAN and Aadhaar weren’t linked. When she tried to link by paying the fine, she found that the PAN and Aadhaar names did not match. “Her middle name was Bhagwan in Aadhaar and Bhagvan in PAN card,” said Koppikar. “She needs to go to a Aadhaar centre to get it changed herself.”
SIPS and direct plans
Gangadhar, a techie, wanted to add a corporate touch to salaries paid to his cook and house help. He and his wife convinced them that their yearly increment would come in the form of an SIP, not as cash in hand. The duo agreed to the prospects of growing their money and having something set aside for retirement.
The techie wanted to ensure they did not end up spending their salary before the money was debited for the SIP. For this, he opened a zero-balance account for the cook, while the cleaner insisted on using her existing account.
When he opened the zero-balance account, his cook took a hit of ₹600 for debit card fee. After multiple back-and forth exchanges with customer care using email, that money was refunded.
“We didn’t want her to be hit with unexpected fees, and that’s why we had opened a zero-balance account,” said Gangadhar. “I had to send X (formerly Twitter) DMS and emails to get the debit card fee reversed. This would be impossible for our cook (Gouramma) if she was doing it on her own.” He opened an account for the cleaning maid using Phonepe. “The process was smooth, but she approached me after a few days, saying her name was spelled incorrectly.” Besides, his house help bought units of regular plan, which had inbuilt commissions, rather than units of direct plans.
He approached a friend and found out about apps offering direct MFS. But, when he tried opening the account, one app informed that she had two bank accounts with the same bank. When email exchanges didn’t lead to a solution, he tried setting up another app, and soon it was up and running.
When he tried to register for an SIP, he found he needed to submit a mandate using net banking or a debit card if the investor wants the MF operator to deduct amount to invest automatically in the scheme at regular intervals.
Gangadhar made an account for the cook using UPI mandate and started investing ₹1,000 in a SIP. It took six weeks. The account opening for Mala, the domestic help, is still in progress as her Aadhaar is not authenticated.
What can be done?
There is little incentive for MF distributors to service clients who invest ₹250-500 a month. The average commission that an MF pays to a distributor is 0.5 to 1%. An investment of ₹6,000 a year would fetch a commission of ₹42.
The 1,400-odd registered investment advisors cater to white-collared workers or high net worth individuals to make business sense. Gangadhar said account-opening could be streamlined and apps should allow prospective investors to create a UPI account that can be given to their employers.
Another helpful step would be to conduct investor awareness sessions in local languages that low-income earners can understand in their own way. Otherwise, they might panic and sell when the markets go down, said Singh.
Source: Extract of an article from Mint