Why mutual fund penetration is low in India – Firsthand learning

I wasn’t a great fan of investing in MFs till recently when some of my investor friends finally succeeded in luring me to over 40% tax free RoI that some of these offer in spite of the warning that “MF investments are subject to market risks. Please read offer document carefully before investing. Past performance doesn’t guarantee future returns”. It sounds like warning on a pack of cigarettes and it seems as if banks have lobbied to regulators for it to protect their fixed deposits. J

Once I was convinced, I decided to start SIPs for all the members in our joint family of 9, including kids. That’s when the fun started. Below are some observations and learnings.

I called a friend who runs an investment advisor shop to advice on how to get started. He turned up the same afternoon and explained to me in detail for an hour the advantages of investing in MFs in spite of me telling that I am ready to ‘start’.

He said he’ll identify the funds we should invest in and send forms for those. The forms arrived the next day with brief instructions for filling those.

Below are the prerequisites for one to invest in MFs in India.

1. PAN (Tax ID) – Wikipedia says there are just 170 Million PANs issued out of 1.25 billion Indians!
2. Proof of Address (‘Adhaar’ Card or Electric bill or driving license etc)
3. Bank account – half the country is still waiting for one!

Below is the list of documents required irrespective of the size of investment.

1. MF Application form
2. SIP standing instructions form for auto-debit
3. KYC (‘know-your-customer’) form
4. Colored photo
5. Self-attested copy of PAN
6. Self-attested copy of proof of address - address on the application form must match exactly with the one on the proof of address
7. Check for the application amount (optional, first time or one may also give monthly checks)


8. If applying for minor child - Birth certificate

One has to sign for about 10 times on these documents depending on the MF one is applying to (am I investing or borrowing? J). A joint applicant also needs to sign about equal times except the check. All the documentation is in English that less than 5% of the population understands. The investment ‘advisor’ suggests we just sign on the blank forms and his back office will take care of filling the rest of it :-).

I tried applying for MFs online, to learn that one must complete and submit the physical form for the first time to start investing in any mutual fund.

I also got to know that NRIs can’t invest in MFs in India as AMCs just refuse to accept their applications for issues related to compliance with laws like FATCA and FEMA. (Can’t the smart people managing money for others figure out a way to comply with legal requirements for their investors?)

Technology can certainly help improve the scenario by easing the process, particularly mobile technologies with the combination of mobile number, camera and the one time password.

Thinking about such scenarios and also the low bandwidth of Internet ‘broadband’ in India, I sometimes suspect that the government conspires to keep it’s citizens backward. I hope I am wrong and the situation improves soon to let the country unleash it’s true potential.

Thank for your time reading this. I’ll highly appreciate your feedback and thoughts.


Location: Nagpur, Maharashtra, India

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