Could Micro-SIP Be India’s Answer to Savings Gaps?

What are Micro-SIPs?

Micro-SIPs are systematic investment plans that allow individuals to invest a minimum of INR 50, INR 100, or INR 250 a month into a mutual fund. This variation of the traditional mutual fund systematic investment plan is made with the intent to make mutual fund investment accessible for daily wage workers, gig workers, students, young professionals and low-income households. Micro investment plans also give you an option to invest at a frequency of daily, weekly, or monthly options.

SEBI (Securities and Exchange Board of India) has taken this initiative of small-ticket SIP investment this year as a financial inclusion effort in rural and semi-urban areas. SBI mutual fund is the first one to launch micro investment plans called ‘JanNivesh SIP’ in February this year, allowing investors to start SIPs with INR 250 a month.

Why Rise of Micro SIPs is a Game Changer?

In the last two years, India’s household savings rate has been declining. At this time, micro investment plans come as a powerful tool for individuals with lower incomes to invest and save for the future. Here is why the rise of micro investment plans can be a game-changer for India:

Accessible and Affordable

Investing via mobile apps at your fingertips and automating the payment at a regular interval chosen is one of the main benefits of micro SIP that makes it convenient and accessible for all. A monthly commitment in thousands can be daunting for people from lower-income households, gig workers, and daily wage earners. But INR 100 or INR 200? That’s quite affordable. Minimum investment in hundreds and accessibility on the mobile app invite broader participation.

As a positive indication this July, mutual fund SIP inflow in India has hit a record high of INR 28,464 Cr., with a higher registration of 68,69,061. This also meets the SEBI’s main purpose of achieving financial inclusion by allowing low-income households to make a monthly contribution to mutual funds for wealth creation instead of saving in cash and gold.

Encourages Habit Formation and Financial Discipline

The recurring and regular investment of small amounts into a mutual fund cultivates savings habits among lower-income groups and young professionals. Even though contributions are small, regular commitments and consistency foster financial discipline. It also makes a difference over the long term with the help of the power of compounding and cost averaging. For example, an investment of INR 250 into a mutual fund over the next 30 years consistently (a total of INR 26,000 invested) can help you build a corpus of approximately INR 3,10,000, assuming the investment grows at a CAGR ( compounded annual growth rate) of 12%. That is the magic of compounding effect.

Diversification and Gradual Wealth Creation

Micro investment plans enable affordable entry into diversified mutual fund schemes, spreading risk and enhancing long-term gains. Over time, investors can increase their SIP amounts as income grows, progressively building wealth. Just like micro insurance that covers the protection gap, micro SIPs can also play a crucial role in wealth creation. How platforms like Jio Insurance Broking have made micro insurance accessible, Groww and Paytm Money are making micro SIPs accessible to all.

Digital accessibility plays a significant role in the rising popularity of micro SIPs and pocket SIPs. With huge demand from Gen Zs and first-time earners, LIC Mutual Fund’s small ticket-size SIPs have grown in demand, and the CEO also mentions how 90% of it is sourced through fintech platforms.

When it comes to long-term investment, habit formation and financial discipline matter more than the investment amount. Micro SIP campaigns, accessibility through digital platforms, government initiatives like UPI penetration, and Jan Dhan Yojana complement the adoption of micro investment plans in India. Cultivation of savings culture will slowly bridge the savings gap in India.

Conclusion

To conclude, in a country like India, where millions stay out of the formal investment ambit, products like micro SIPs are revolutionary to bring them to the financial mainstream. India’s savings gap is real, but so is the opportunity. With rising financial awareness, fintech adoption, and favourable government policies and regulations, Micro-SIPs can be a game-changer for the Indian households in bridging the savings divide, one small step at a time.