Sebi chairperson Madhabi Puri Buch highlighted on July 19, 2024, the potential of packetizing SIPs to foster financial inclusion, enhance mutual fund profitability, and facilitate capital formation in India. She also highlighted the robustness of India’s market infrastructure institutions amidst the Microsoft outage in an SBI Mutual Fund event.
Sachetisation of SIPs or micro SIPs means breaking down minimum SIP instalments into smaller, affordable units, making them accessible to a wider set of investors.
Buch said that India’s business landscape has witnessed remarkable instances of cost reduction while maintaining service quality which makes this country the best place to experiment with sachetisation. She cited the case of Aravind Eye Hospital, which provides superior eye care services at a fraction of the cost of other hospitals. Additionally, Buch pointed to the telecommunications sector, where India ranks 7th globally in cost-effective data delivery, surpassing many smaller nations. She said that the State Bank of India Mutual Fund will play a pivotal role in this development.
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"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."
Robust Market Infrastructure
Despite the ongoing Microsoft outage, she also highlighted the robust nature of Indian market infrastructure, drawing parallels with how earlier Indian housewives used refrigerators. Buch said is someone's refrigerator was not working, she would ask her neighbour's housewife to house her curd in her refrigerator, till her refrigerator started working.
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In India, BSE and NSE, the two stock exchanges with their own clearing houses had a similar mechanism. If BSE's clearing house experiences issues, transactions will be automatically routed to and cleared by NSE, and vice versa. In the mutual funds industry, Karvy and CAMS are both Registrar and Transfer Agents (RTAs). Sebi required them to develop an infrastructure similar to that of BSE & NSE. Instead, they chose an alternative approach by creating a separate third entity (akin to a third refrigerator) that can process investments and redemptions if any RTAs fail to handle them.
Buch expressed concerns about household financial savings being used for speculative bets rather than capital formation, leading to significant losses for the youth. The market regulator had flagged asset price froth in certain equity segments no other stakeholder was doing it and believes there are sufficient measures in place now to address this issue, Buch said.
