The Sachet Revolution of The Mutual Fund Industry

The Securities and Exchange Board of India (SEBI) has released a consultation paper seeking public opinion on introducing sachetized mutual fund products—small-ticket SIPs of ₹250.

This initiative aims to promote financial inclusion and instill a habit of systematic savings among the low- and middle-income segments of society, who largely remain divorced from equity markets.

Much like the sachet revolution of the late 1970s, which allowed middle-class India to access basic necessities that were previously exclusive to the affluent, SEBI’s small-ticket SIPs seek to widen the gates of financial markets by lowering the barrier to entry, thereby enabling a larger segment of the population to partake in India’s growth story.

The Sachet Revolution

In the 1970s, a visionary entrepreneur named Chinni Krishnan dreamed of making everyday products accessible to the common man. He used to say:

“Whatever I make, I want the coolies and the rickshaw pullers to use it. I want to make my product affordable to them.”

Despite initial setbacks, Krishnan pioneered the concept of selling talcum powder and Epsom salt in small packets before transitioning to sachet-packaged shampoos—an innovation that became a game changer. Following his demise, his son carried forward his vision, building a brand we know today as CavinKare.

The success of sachet-packaged products caught the attention of major corporations, inspiring industries across the board to embrace smaller, more affordable packaging. This became the foundation of the sachet revolution, making consumer goods accessible to millions who previously couldn’t afford them in bulk.

Mutual Fund Sachetisation

Not an Affordability Problem, but a Cash Flow Problem

A large segment of India’s population lives paycheck to paycheck, managing their expenses on a daily or weekly basis. The challenge they face isn’t affordability per se, but cash flow constraints.

The sachet model didn’t necessarily make products cheaper—shampoos in sachets had the same per-milliliter cost as larger bottles—but by offering smaller, low-cost packs, it enabled people to access these products without compromising other necessities. Similarly, ₹250 SIPs would allow individuals to start investing without worrying about meeting essential expenses.

Tapping into an Untapped Consumer Surplus

Multinational corporations once ignored lower-income segments, assuming they couldn’t afford their products. However, when companies introduced smaller packaging, they unlocked an untapped market, extracting consumer surplus that would have otherwise foregone.

Similarly, a small-ticket SIP would lower the entry barrier for mutual funds, making financial markets more accessible to the broader population. By catering to individuals previously excluded from investment opportunities, SEBI is paving the way for deeper financial penetration.

Building a Chain of Habits

As the saying goes:

“Chains of habit are too weak to be felt until they are too strong to be broken.”

The sachet revolution demonstrated that consumers who started with small-sized products eventually transitioned to larger packages as they climbed the socio-economic ladder. The same principle applies to mutual fund investing—introducing a ₹250 SIP will help people build the habit of regular investing. As their disposable income grows, they will likely scale up their investments, reinforcing long-term wealth accumulation.

Addressing Cost Challenges

A key criticism of sachetisation in mutual funds is that small-ticket SIPs may not be cost-effective for Asset Management Companies (AMCs). Transaction costs, Know Your Customer (KYC) charges, and payment gateway fees can erode the viability of low-value investments. According to industry reports, processing each SIP installment currently costs around ₹2–₹2.2, which translates to approximately 0.8% of a ₹250 SIP.

However, no progressive initiative can succeed without industry support. Recognizing this challenge, SEBI has collaborated with market participants, who have generously agreed to offer discounted pricing on transaction and execution costs to ensure the feasibility of this initiative. Projections suggest that AMCs will be able to break even within two years, paving the way for the long-term sustainability of the small-ticket SIP model.

In Summary

There are two Indias—India One, which resides in urban centers and enjoys an aspirational, Westernized lifestyle, and India Two, where the majority live a subsistence existence, working paycheck to paycheck. For every India One, there are at least three in India Two.

SEBI’s initiative is a commendable step toward ensuring that a large section of the population isn’t left behind in India’s economic progress. By lowering entry barriers and fostering a culture of systematic investing, this move has the potential to transform financial inclusion, much like the sachet revolution did for consumer goods.