However, this means that low-income earners are left with low-growth savings or sometimes end up watching their lifetime savings disappear after investing them in fraudulent schemes.
Mint talked to people who tried to get their house helps to invest in mutual funds. The problem starts from trying to convince them to opt for a mutual fund instead of buying a gold necklace. However, once they’re in, there are structural hurdles to cross – and not all find it easy to complete the process.
Trust and persuasion
It’s not easy to convince low-income earners who typically buy jewellery for savings to invest in a financial product such as a mutual fund. Many times, they are apprehensive and unable to grasp the concept.
For Ratnama, a house help who cleaned floors, it all started when she told her employer Samit Singh’s wife that they planned to set aside some money for their child. When Singh got to know this, he urged Ratnama to put part of it in equity mutual funds to get higher returns than fixed deposits.
Singh told Mint that he spoke to Ratnama’s husband, an electrician, about how mutual funds work, the various categories of investing and the concept of net asset value, but the husband didn’t understand.
“Although I explained everything in Hindi, he zoned out,” said Singh. “Later, he told me that he hadn’t understood much but still wanted to invest in it as they trusted me.”
After two months, Ratnama approached Singh, saying that some of her FDs were maturing and she wanted to invest ₹60,000 in mutual funds for her child. Singh decided to help them out.
PAN-Aadhaar link
However, the very first step towards opening a MF account turned out to be a roadblock. Ratnama’s permanent account number (PAN) was not linked to her Aadhaar identity number. Both needed to be linked for the smooth buying and selling of mutual funds. Singh found out that nobody from Ratnama’s community knew about linking PAN and Aadhaar.
There was now a ₹1,000 penalty to link PAN and Aadhaar because the deadline to do it for free was over in June 2023. For people like Ratnama who earn ₹12,000-13,000 per month, this was a significant amount. Singh paid the fine, not wanting to discourage the couple, but the next step also turned out to be a speed breaker.
Bank documents
A copy of a bank cheque with the account holder’s name written on it was needed for KYC registration. Ratnama had an old cheque without her name on it. The other document was a bank passbook, which was also something she didn’t have.
That’s when she approached the bank and got the application written with the help of Singh. That took another 5-6 days. After that was done, Singh found out that Ratnama did not have an email ID. Singh helped create an email ID for her and she finally invested in a mutual fund after one and a half months, Singh said.
“She wanted to go fully aggressive. When I told her high risk can give high returns, like every first-time investor, she was super excited and wanted 100% in high-risk funds. But knowing that such people may need money sooner than planned due to emergencies, I split it as follows – ₹30K in a flexicap fund, ₹20K in a balanced advantage fund, and ₹10K in an arbitrage fund,” said Singh.
For many people, the bottleneck starts right at the beginning. When Rachna Monga Koppikar tried to start a ₹500 SIP for her long-time cook, she found out that her PAN and Aadhaar weren’t linked. When she tried to link them by paying the fine, she found that the PAN and Aadhaar names did not match.
“Her middle name was Bhagwan in Aadhaar and Bhagvan in per PAN card,” said Koppikar. “She needs to go to the Aadhaar centre and get it changed herself, but I don’t know when that will happen.”
Of SIPs and direct plans
Gangadhar, a Bangalore-based techie, wanted to add a corporate touch to the salaries paid to his cook and maid. He and his wife convinced them that their yearly increment would come in the form of an SIP – not as cash in hand. The duo readily agreed to the prospects of growing their money and having something set aside for retirement.
The techie wanted to make sure that they didn’t end up spending their salary before the money was debited from the MF account. To this end, he opened a zero-balance account for the cook, whereas the cleaner insisted on using her existing account.
When he opened the zero-balance account for the cook, it was hit with ₹600 in debit card fees. After multiple back-and-forth exchanges with customer care using email, that money was refunded.
“We didn’t want her to be hit with unexpected fees, and that’s why we had opened a zero-balance account,” said Gangadhar, who sounded frustrated. “I had to send X (Twitter) DMs and emails to get the debit card fees reversed, which would have been impossible for our cook (Gouramma) if they were doing it on their own.”
He opened an account for the cleaning maid using PhonePe.
“The process was smooth, but she approached me after a few days, saying her name was spelled incorrectly,” Gangadhar said.
He also found out about one more mishap. He had purchased units of regular plans, which have inbuilt commissions, rather than units of direct plans.
He approached some friends and found out about apps that offered direct MFs. However, when he tried opening the account, one of the apps told him that she had two bank accounts with the same bank. When email exchanges didn’t lead to any solution, he tried setting it up with another app, and it was up and running.
When he tried to register for an SIP, he found out that he needed to submit a mandate using net banking or a debit card. A mandate is required if the investor wants the mutual fund operator to automatically deduct an amount and invest it in the scheme at regular intervals.
Gangadhar managed to make an account for the cook using the UPI mandate and started investing ₹1,000 in a scheme. The whole process took six weeks. The account opening for Mala the cleaner is still in progress as the app shows her Aadhaar is not authenticated.
What can be done?
There is little incentive for mutual fund distributors to service clients who invest ₹250-500 a month. The average commission that an MF pays to a distributor is 0.5 to 1%. An investment of ₹6,000 a year would fetch a commission of ₹42 (at 0.7% commission) for the year.
On the other hand, the 1,400-odd registered investment advisors cater mostly to white-collared workers or high net worth individuals and their services make sense only for those with relatively large sums of money.
The few who end up investing in MFs do so with the help of someone. Gangadhar said the account-opening process could be more streamlined. He said apps should allow prospective investors to create a UPI account that can be given to their employers.
“This ID should be set up in these apps in such a way that when someone sends funds to that UPI handle, the funds get auto-invested into a mutual fund of her choice,” he said.
Another helpful step would be to conduct investor awareness sessions in local languages that low-income earners can understand. Singh said investment apps and their content should be made in local languages so that the lower strata can also get a chance to understand products in their own way. Otherwise, they might panic and sell when the markets go down, said Singh.
