Can just ₹250 a month help investors build wealth—or could it carry big risks? Ravi Kumar Jha of LIC Mutual Fund has the answer
Q. Sebi’s new ₹250 minimum SIP rule aims to boost retail participation in mutual funds. But given the extreme volatility and liquidity risks in small-caps, how will LIC MF ensure these investors don’t become ‘exit liquidity’ for big players during market downturns?
A. LIC MF acknowledges the risks not only in small-cap but in overall equity mutual fund investing, especially during downturns, as many investors tend to pause or stop their SIPs, fearing loss of wealth. That’s why we focus heavily on investor education and one-to-one meetings to educate investors primarily that during these times, collecting more units in their mutual fund folios will be of immense value. Once the equity market gets stabilised and recovers, more units in one’s mutual fund folio will translate to stronger wealth creation. We are enhancing our onboarding process with clear risk disclosures and illustrative drawdown scenarios. Our Fund Managers also maintain liquidity buffers and diversify portfolios to mitigate liquidity crunches.
In fact, LIC MF has launched Pocket SIP on 16th October 2024, wherein an investor can start their Daily SIP with a minimum Rs 100 investment amount, and/or Monthly SIP with Rs 250 and/or Quarterly SIP with min Rs 1000 ticket size. There is no upper limit in these SIPs. Thus, the Pocket SIP together with incremental top-ups in subsequent years based upon jump in salary or income, can be an excellent tool for disciplined long-term investing and creation of a robust and resilient wealth appreciation.
Q. With Sebi tightening small-cap fund valuations and now reducing entry barriers, isn’t there a risk of a bubble? What specific safeguards is LIC MF implementing—higher cash holdings, stricter redemption limits—to protect small investors?
A. Sebi’s tighter valuation norms are a welcome move to ensure fairer pricing. We support this with internal checks like thoroughly applying the principles of valuations and risk-adjusted exposure limits. We follow our board-approved investment guidelines scrupulously. We remain committed to prudently managing the various schemes and generating returns to the investors, duly adhering to the guidelines framed by the Sebi and by adhering to the Risk Management framework. While higher cash holdings are sometimes used tactically, we balance this with performance. As for redemptions, we follow Sebi guidelines strictly and daily monitor the redemptions through meaningful risk measures. Investor protection is our main priority.
Q. The ₹250 rule could flood mutual funds with unsophisticated investors. How will LIC MF educate them about the 50-70% drawdowns typical in this segment? Or is the goal simply AUM growth?
A. AUM growth is not meaningful unless it’s sustainable. LIC MF is known for building trust, especially in Bharat (Tier II/III towns). We’re rolling out vernacular awareness campaigns, SIP calculators with risk simulations, and distributor training focused on small-cap volatility. Pocket SIP is an excellent tool for developing a savings habit. The mid-cap and small-cap funds may give high growth, but also have the chance of high volatility. Nevertheless, for those young investors who wish to remain invested for a long duration (10 years and more), the probability of creating a good wealth pool at the end of the long term remains high in these types of funds.
Q. Sebi’s move seems to contradict its own warnings on small-cap froth. As an asset manager, do you think ₹250 SIPs will deepen markets or just amplify systemic risk when these investors panic-sell?
A. Any equity investing is filled with high risk. However, maintaining discipline and long-term goals always helps in the creation of a healthy wealth pool. Thus, on utilising correctly, Pocket SIPS democratise wealth creation. But yes, emotional behaviour during volatility can add to stress. That’s why we focus on SIP longevity metrics and behaviour coaching via nudges—e.g., staying invested during corrections. During times of downward movement, the same SIP amount will yield a higher accrual of units in the investor’s mutual fund folio. So, timing in the market largely helps in the growth of the SIPs with continuous participation. The magic power of compounding in SIPs translates only when an investor ignores the varying noise and challenges of the equity market and remains invested for the long term. Thus, bringing awareness through one-to-one discussions and investor awareness programs goes a long way in staying invested.
Q. LIC MF dominates the mass market. Will you leverage this ₹250 rule to push mutual funds aggressively? If yes, how do you reconcile that with Sebi’s recent stress-test disclosures showing redemption risks in small-cap funds?
A. The recent Sebi-mandated stress tests were a wake-up call for the industry. We follow the Sebi instructions rigorously. Our focus will be on managing flows, maintaining liquidity, and sustainable growth of funds, aligning with our vision, “To be a trusted partner in wealth creation and a mutual fund of choice”.
We have a strong mass connect, but with great scale comes greater responsibility. We will promote Pocket SIPs with a tiered communication strategy—small-cap and mid-cap SIPs for those who are young and have a high-risk appetite, while large-cap and hybrid funds for new entrants. As regards investors in higher age brackets and due for retirement soon, the balanced advantage funds and long-duration debt funds will be more suitable.
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