MUMBAI: Painter Rakesh Chauhan dreams of a better future for his two sons and daughter.

When a friend mentioned that mutual funds could earn more than a bank savings account, he decided to give it a try.

With the help of an agent, he began investing just 500 rupees (US$5.60) a month – a small but meaningful sum for someone who earns about US$250 in a good month.

“If I invest today, my children will benefit. They could go to good schools and get educated,” said Chauhan, whose mutual fund is currently up 10 per cent.

India is opening up its financial markets to millions of small-time investors with the introduction of “micro” mutual fund plans, which start from just US$3 a month.

Mutual funds pool money from multiple investors to invest in a diversified portfolio of securities such as stocks, bonds and other assets.

MAKING INVESTING MORE ACCESSIBLE

Analysts said it is a bold move that could unlock a vast and untapped pool of capital while giving low-income households a new way to grow their savings.

Many lower-income families in India still prefer to keep their wealth in cash or gold.

Now, the government wants to nudge them towards what it considers more “productive” assets like mutual funds.

The Association of Mutual Funds in India aims to raise household participation from less than 4 per cent to 15 per cent by 2047.

To make mutual fund investing more accessible, the Securities and Exchange Board of India – the country’s market regulator – has directed fund houses to introduce plans that allow for small monthly investments.

Shriram Asset Management Company, for instance, launched one such “bite-sized” investment plan in August aimed at lower-income rural and urban households.

“Essentially, we believe that there’s a big opportunity in India for the underserved segments, especially at the bottom of the pyramid,” said the firm’s managing director and CEO Kartik Jain.

“This kind of product will help you look at your longer-term goals and build up savings over time in a safe and balanced way, and you get a taste of the equities market.”

The ripple effect of millions of small investors entering the stock market could be enormous, said observers.

FINANCIAL LITERACY

Investment bank Goldman Sachs has forecasted that India’s household savings will generate about US$9.5 trillion of inflows into financial assets over the next decade.

“You are helping build capital formation at the macro level,” said Jain.

“At the micro level, you are starting to build this habit of regular savings, and building a corpus over time that actually helps beat inflation.”

But some experts cautioned against exposing low-income savers to the volatility of the stock market — especially in a country where financial literacy remains low.

Low levels of financial awareness mean it will take time and effort for these micro-investment plans to gain traction among the masses, they noted.

Financial planning platform Airpay Money is looking to address this gap.

It is working with its merchants across smaller cities, towns and villages to equip them with the skills needed to promote these micro-investment plans to potential investors.

Kumar Binit, CEO of Airpay Money, said the process is “not a quick-fix solution” and will “take a little more time”.

He noted that educating people and reaching deeper into smaller but fast-growing urban centres remains challenging, as many are “still used to savings and gold or fixed deposits”.

For Chauhan, investing in a mutual fund was a bold step – one driven by hope for a better future and stronger returns on his hard-earned money.

Experts say that for many others, it will take much more persuasion and financial education before they are ready to change their saving habits.