The Real Issue Lies in Transaction Costs: Experts Point To Key Hurdles In Rs 250 Micro-SIP

Additionally, Shenoy recommended that the model’s success rely on drastically lowering the transaction fee through bulk deals negotiated by the Association of Mutual Funds in India (AMFI) or SEBI.The Securities and Exchange Board of India (SEBI) has proposed a micro-SIP (Systematic Investment Plan) of Rs 250 in an attempt to promote financial inclusion on January 22, 2025. However, the market experts are hinting that its execution could face challenges due to transaction fees, and distribution incompetency. SEBI has labelled it as a sachetised mutual fund product. 

"To promote financial inclusion, inculcate the habit of systematic saving and facilitate the investment of small savings by investors new to the mutual fund space," Sebi noted in a discussion paper.

Capitalmind founder-CEO Deepak Shenoy analysed the proposal, pointing out key hurdles. “The problem with a Rs 250 SIP is not that it’s too small. At scale, funds would be happy to accept even Rs 1,” he wrote. 

“The real issue lies in transaction costs, such as gateway fees and registrar processing charges. For instance, at Rs 2 per transaction, that’s 0.8%—higher than most direct TERs.” TER is the total expense ratio. 

Shenoy also noted the limited benefits for distributors to encourage such plans. “Distribution simply isn’t going to bother, and directly reaching investors at a Rs 250 SIP level is costly. Expense ratio limits mean this can only be subsidized by large funds, leaving small or new funds unable to compete.”

Echoing Shenoy’s opinion distributors too shared the same concerns. They noted that small-ticket investors often need additional hand-holding. They argued that these incentives may not sufficiently cover onboarding fees including KYC and advisory services.

“We believe that distributors need to be compensated. The mode and structure of compensation still need to be worked out,” D.P. Singh, Deputy MD & Joint CEO at SBI Mutual Fund told Outlook Money.

“If all the smaller details are addressed properly, then this could be a game changer. Given the size of our population and the number of aspiring individuals, this $3 SIP—equivalent to around Rs250—will open up opportunities for many people who have not yet entered the capital markets. They will have a chance to do so through mutual funds,” Singh explained.

Additionally, Shenoy recommended that the model’s success rely on drastically lowering the transaction fee through bulk deals negotiated by the Association of Mutual Funds in India (AMFI) or SEBI.

“I don't think it is a hurdle for the distributors anymore because most distributors today use online tools. This means many people, whom distributors typically cannot reach, will start being included,” Soumya Sarkar, Founding Partner at Wealth Redefine, told Outlook Money contradicting Shenoy's view.

“I don't think that is going to be a challenge because KYC can already be done online. With a smartphone, you can easily complete the KYC process, make changes, and handle everything digitally,” Sarkar added.

“You never know—someone who starts with just 250 rupees might become a significant investor in the next 10 years. If they begin now, and a distributor supports them in the early stages, it could be a game changer for everyone involved,” he opined.

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