Critics say the scheme could draw ordinary citizens into reckless investing as they have little or no expertise in stock buying.
The government is trying to reduce the risks by allowing investments only in the top-100 stocks and encouraging people to buy shares through mutual funds or exchange traded funds.
India's stock markets are notoriously volatile.
The Sensex has risen or fallen by a double digit percentage rate in 18 of the last 20 years - it is up by more than a fifth so far this year.
That instability has already driven out many retail investors. Outflows from equity mutual funds in India rose to a two-year high in September, as investors cashed out of a stock rally.
"The Indian stock market is a bottomless pit. Why would I risk my money on shares when I can get 8-9 percent on fixed deposits?" said Harshala Apte, a primary schoolteacher in Mumbai whose father lost more than half his net worth in a bear run on the stock markets in 2009.
Jitu Dhabaria, an investment adviser in Kolkata, also remains to be convinced. "I've become resigned to getting panic calls from my investors every time the market loses a penny," he said.
That said, fund managers say they will consider the new scheme, despite the additional costs.
"It's a collective failure on our part that in a country of 1.2 billion people our combined assets are what? Some 220 billion rupees," said Nandkumar Surti, CEO at JPMorgan Asset Management India, referring to the industry's assets under management?