A Quick Peek Into The MF Industry

Veteran banker and HDFC Chairman Deepak Parekh estimate that the industry AUM will touch Rs 50 lakh crore ($690 billion) in the next five years.

Can online platforms supercharge this growth even further?

Managing the tasks

“Right now asset managers are too scattered. They have to manage a fund, look at marketing, distribution, administration and a whole lot of other things. With distribution being taken care of by tech, AMCs will be able to better focus on their core competence, that is fund management,” says Jadhav of Paytm Money.

Sundeep Sikka of Reliance mutual fund feels that as the direct channel gets popularity, the focus will be on simple products. “As the mutual fund industry evolves, ETFs could gain prominence,” says Sikka.

There is also a new regulation-driven wave that’s hitting the industry – regulator Sebi’s recent barring of mutual funds from paying upfront commissions to distributors. Which only accelerates the shift towards zero-fee platforms slowly making distributors redundant.

To take advantage of this, at least 100 startups have cropped up in the last two years, catering primarily to mutual funds and other financial services, says an industry expert. Sebi’s order is fuel to a fire that was lit thanks to many other factors- the government’s financial inclusion drive, identity program Aadhaar and democratization of data through telecom market disruptor Jio. The economic environment, in terms of declining interest rates and real estate, is in a poor shape has further pushed the growth.

Amongst all of these though, lies an irony. The lack of a clear monetization model.

If you build a better mousetrap

It seems the rush to offer tech as a solution is more to do with market potential and less to do with monetization. Paytm Money and other tech platforms offer direct plans. In direct plans, the total expense ratio or TER (the amount that asset management companies deduct as operational expense charges) is much lower than in regular plans, since there is no distributor involved. The platform does not get anything for selling direct plans.

Industry experts agree that there is no revenue model in place for platforms that have come in recently. In fact, it has become so competitive that ET Money switched from offering regular plans to direct plans in September this year. Zerodha’s mutual fund platform Coin, that was charging Rs 50 for investments, had to withdraw it due to competitive pressure.

“Right now, everybody is postponing monetization. It is a volume game and once a critical mass comes in, there might be some opportunity in future to unlock value,” says Nithin Kamath, founder, Zerodha. Zerodha and Fundsindia can still rely on their equity broking business for revenues, but for platforms focused on direct funds, monetization is unclear.

Distraction at the later stage

Paytm Money’s Pravin Jadhav says that right now the market is so underpenetrated that first customers have to get hooked to the product. “Monetisation will be a distraction at this stage. Later, we will create value for which customers will pay,” he says. In the next few months, it plans to create customized portfolios for investors, and by 2019, it will launch equity broking. The government’s saving schemes may also come on the platform at some point.

Mutual funds, therefore, are the hook that will get customers on to a platform.

Industry experts agree that there is no revenue model in place for platforms that have come in recently. In fact, it has become so competitive that ET Money switched from offering regular plans to direct plans in September this year. Zerodha’s mutual fund platform Coin, that was charging Rs 50 for investments, had to withdraw it due to competitive pressure.

 

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