Systematic Investment Plans (SIPs) have become the most popular entry point for retail investors in India. Fintech apps made the process easy — start with just ₹100, invest from your phone, track your portfolio with colorful charts. The narrative is about “democratizing investing.”
But beneath this friendly façade lies a deeper issue: many SIP apps don’t recommend the best funds for investors. Instead, they nudge users into high-commission funds that maximize revenue for the app, not returns for the saver.
This practice undermines the promise of fintech-driven financial inclusion and repeats the same mis-selling patterns once seen in banks and distributors.
This article explores how SIP apps push high-commission funds, why investors fall for them, and the long-term consequences of these hidden incentives.
How SIP Apps Work
- Aggregator Role
Apps act as distributors, offering multiple mutual funds in one platform. - Revenue Model
Apps earn money from commissions paid by Asset Management Companies (AMCs) for distributing their funds. - Recommendation Engine
Algorithms suggest “top funds,” “trending funds,” or “best SIP picks” — but these lists are often tilted toward high-paying AMCs. - User Psychology
Simplified dashboards and gamified nudges push investors toward a handful of highlighted schemes.
The Commission Game
1. Regular Plans Over Direct Plans
Most SIP apps default to regular plans, which carry ongoing trail commissions (0.5–1% annually). Direct plans, which offer higher returns, are often hidden or not available.
2. Pay-to-Promote Placement
AMCs pay for better visibility. Funds with higher payouts are highlighted as “recommended” even if performance is mediocre.
3. Short-Term Star Ratings
Apps showcase funds with high 1-year returns, which often coincide with AMCs promoting them aggressively.
4. Category Bias
Small-cap and thematic funds, which are riskier but carry higher commissions, are pushed heavily to retail investors.
Why Investors Fall for It
- Convenience Bias
Investors assume apps are unbiased advisors, not commission-driven distributors. - Trust in Technology
People trust algorithms more than human agents, ignoring that algorithms are programmed with incentives. - Simplified Messaging
Phrases like “best SIP fund” or “editor’s pick” mask conflicts of interest. - First-Time Investor Ignorance
New investors don’t know the difference between direct and regular plans.
Case Studies
Case 1: The Regular Trap
A Delhi investor used a popular SIP app that only offered regular plans. Over 15 years, his ₹10,000 monthly SIP would yield nearly ₹12 lakhs less compared to direct plans.
Case 2: The Trending Small-Cap Push
A Pune professional was nudged into small-cap funds shown as “trending.” When markets corrected, his portfolio fell 35%. The app earned commissions regardless of his losses.
Case 3: The AMC Tie-Up
One fintech app had an “exclusive partnership” with a mid-tier AMC. Its funds topped every recommendation list despite long-term underperformance.
The Hidden Costs
- Lower Returns
Expense ratios in regular plans reduce investor wealth by lakhs over decades. - Higher Risk Exposure
Riskier funds pushed for commissions amplify volatility in portfolios. - Trust Erosion
Investors lose faith in SIPs when they realize apps weren’t neutral advisors. - Tax Drag
Frequent churn recommendations lead to unnecessary short-term capital gains taxes.
The Industry’s Defense
Fintech apps argue:
- “We provide convenience.”
- “Investors can choose any fund.”
- “We disclose expense ratios.”
But disclosures are buried in fine print. Highlighting and nudges still bias user behavior.
Global Parallels
- U.S. Robo-Advisors: Some recommend ETFs from partner firms, earning higher fees.
- UK Platforms: “Best buy” lists skewed toward funds paying higher commissions triggered regulatory crackdowns.
- China’s Fintech Push: Apps funneled investors into high-fee wealth products until regulators intervened.
The problem is global: digital doesn’t mean neutral.
Warning Signs for Investors
- Apps offering only regular plans.
- “Top fund” lists that rarely change despite market cycles.
- Overemphasis on small-cap or thematic funds.
- Lack of clear disclosure about commissions.
- Push notifications urging “don’t miss this fund.”
What Regulators Should Do
- Mandatory Commission Disclosure
Apps must display the exact commission earned from each fund. - Direct Plan Default
Default SIP option should be direct plans, with regular as opt-in. - Ban Pay-to-Promote Rankings
Recommendation lists should be audited for neutrality. - Audit Algorithms
SEBI should inspect app algorithms for bias toward commission-heavy funds. - Investor Awareness Drives
Educate savers about direct vs regular plans.
How Investors Can Protect Themselves
- Choose Direct Plans
Use AMC websites or SEBI-registered direct platforms. - Ignore “Top Fund” Labels
Do your own research — rolling returns matter more than marketing tags. - Check Expense Ratios
Compare direct vs regular. Even 1% difference compounds into lakhs. - Diversify Wisely
Don’t let app nudges push you into risky categories. - Stay Alert to Push Notifications
Remember: every nudge is designed to benefit the app, not you.
Could SIP Apps Lose Credibility?
Yes. If too many investors realize they were funneled into high-commission funds, trust in fintech-led SIP platforms could collapse. Just as ULIPs became infamous after mis-selling scandals, SIP apps risk the same fate.
Conclusion
SIP apps promised to democratize investing, but many became just digital distributors chasing commissions. By nudging investors into high-fee, high-risk funds, they quietly drained wealth while marketing themselves as tech-driven advisors.
The truth is clear: digital convenience doesn’t erase conflicts of interest. Until regulators demand transparency and investors educate themselves, SIP apps will keep pushing high-commission funds at the expense of household savings.
The lesson for investors is simple: trust the math, not the app.
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