Savita Devi, a daily wage earner in Gujarat, is saving for her future through a mutual fund. And she has company. Around 150,000 small investors are putting Rs 50-200 per month in UTI Asset Management Company's Micro Pension Plan.
UTI AMC is not the only fund house targeting the bottom-of-the-pyramid investors to extend its presence. SBI Mutual Fund, an affiliate of the State Bank of India, also launched a 'Chota Systematic Investment Plan' in April.
Even Reliance Mutual Fund has 'Reliance Common Man SIP,' in which one can invest a minimum of Rs 100 per month. Sahara Mutual Fund is awaiting approval from the market regulator, the Securities and Exchange Board of India, for a scheme that will allow the investor to put in as little as Rs 10 per day.
'Chota SIP' is an equity-based SIP that offers long-term investment benefits to low-income households residing in rural and semi-urban areas. This product is being marketed by SBI.
All these players have definite plans to promote these schemes. SBI, for example, is not only depending on its huge network of over 15,000 branches, but is also tapping self-help groups, NGOs and micro credit/finance institutions.
Invest India Micro Pension Services and UTI's pension plan, a government notified plan jointly promoted by Sewa Bank, UTI AMC and some private individuals, is promoting these products through puppet shows and plays. It has already tied up with thousands of rickshaw pullers and the National Association of Street Vendors. It is in talks with panchayats to promote these products.
This plan will cover members who come under the Basix group's programme for the poor. Basix is a livelihood promotion institution that works with over 1.5 million poor, 90 per cent of whom are from rural households.
Most of them are women in villages of Andhra Pradesh, Karnataka, Bihar, Orissa, Jharkhand, Maharashtra, Madhya Pradesh, Tamil Nadu, Rajasthan, Chhattisgarh, West Bengal, Delhi, Uttarakhand, Sikkim and Assam.
Basix also works with over 100 non-government organisations and community-based microfinance institutions across the country. This network would help UTI tap the rural segment significantly.
"In Bihar, we collect money from doodhwalas (milkmen) at the state cooperative federation," said Ashish Agarwal, chief executive officer and director, IIMPS.
As far as investing strategy goes, fund managers at UTI and SBI have decided to take the call themselves. Collections from the UTI Micro Pension Scheme would be invested in UTI Retirement Benefit Pension Fund. The mandate, initially, would be to invest 60 per cent of the corpus in fixed income securities and the remaining in equities. This could later change.
In case of SBI Mutual Fund, the fund manager will have the option of investing in Magnum Balanced Fund, MMPS 93, MSFU Contra Fund and SBI Blue Chip Fund.
Collections from such schemes, however, have been reasonable. UTI has collected Rs 50 crore (Rs 500 million). "Collections from Gujarat have been just Rs 48,000," said Agarwal.
SBI said it has 30,000 customers. In an emailed reply, Reliance Mutual Fund said on an average, they added up to 25,000-30,0000 SIP (count) per month. Out of this, micro SIPs make a substantial contribution.
Not roses all the way
However, there are several hurdles.
For one, mutual fund investments require the investor to have a Permanent Account Number -- a big deterrent when it comes to tapping small and marginal investors.
SBI Mutual Fund's national head (sales & distribution), D P Singh, said, "We are not getting a good response at this stage. The absence of PAN cards with rural investors is the biggest hurdle."
The problem can be resolved if Sebi agrees to do away with the PAN card requirement for investments up to Rs 50,000.
Then, marketing and promoting these products is also costly as not everybody has the distribution and financial muscle of SBI or UTI. No wonder, players do not expect to make money soon.
"Promotion of these products is quite costly. But at this point of time, we are not looking to make any profit. It will take around four years to break even. Initially, the promotional cost is borne by the promoters," IIMPS Director Gautam Bhardwaj said.
The chief executive officer of one of the largest fund houses, which has so far avoided the micro SIP route, said that the business was not commercially viable because transaction costs were too high. He felt that the numbers were not in favour of fund houses.
"Just for a Rs 10 SIP, the fund house has to convince a large number of people. As a result, this business will take a long time to generate profit," he added.
Also, fund houses will have to compete with the Life Insurance Corporation of India, which is a strong player in semi-urban and rural areas.
One of the main fears is that given the fickle nature of the stock market, rural investors might easily get scared when there is a downturn in the market. Fund houses also understand this. As a result, they are making early exits prohibitive.
For instance, SBI charges an investor an exit load of 3 per cent for redemptions within three years and 2 per cent for redemptions between three and five years. UTI charges 1 per cent for exits before five years.
