How Technology Is Shaping The Indian Mutual Fund Industry
Over the course of the past five years or so, the Indian Mutual Fund industry has traversed an important path in their history. The entire industry appeared to have slipped into an extended hiatus post the tumult and panic that characterized the global markets in 2008. The pre-2008 phase was marked by a plethora of NFO’s (New Fund Offers) that aimed to draw new investors into the fold. Not surprisingly, a number of investors, both uninformed and informed alike, severely burned their fingers in the wake of the 2008 crash. This loss of faith led to a four year phase between 2008 and late 2011 when the industry’s overall Assets under Management (AUM) grew by a mere 18-20 per cent (a compound annual growth of just 5 per cent per annum).
In the past half-decade or so, the industry seems to have successfully bucked this trend, with the industry AUM galloping ahead at a fair clip – having more than doubled from 6.68 Lac crores to 13.39 Lac Crores between December 2011 and December 2015 (a healthy growth rate of close to 19 per cent per annum, compounded). Asides of the widespread efforts being undertaken by Asset Management Companies to educate the masses on the subtleties of Mutual Fund investing, possibly the single biggest driver of growth has been ‘technology as an enabler’ for the overall ecosystem.
Rajesh Krishnamoorthy, MD of iFAST Financial India (One if India’s leading technology platforms for distributors) believes that when it comes to leveraging technology, the Mutual Fund industry has fared a lot better than other industries within Financial Services space. “The industry has done a commendable job to make sure the client experience is positively impacted with the use of the right technologies”, he says.
Towards a paperless experience
Gone are the days when Mutual Fund investors needed to wade through mountains of paperwork to get started with their investments, or for that matter to execute future transactions on investments already made. Technology has now become a ubiquitous aspect of each and every element of Mutual Fund operations – be it transaction processing, fund management, customer service or distribution. Aashish Somaaiya, MD & CEO of Motilal Oswal AMC, believes that the Mutual Fund operations are fast moving towards ‘total technology dependence’. “It’s worth noting that asides of retail banking, Mutual Funds is the only other industry which can comfortably do the entire transaction chain from receiving money to investing and back to redeeming it – everything on technology platforms, without any physical or even a paper leg to it”, said Somaaiya.
Ease of transactions
The overall ease with which a first time investor can get started with Mutual Funds has seen a significant uptrend in the past five years. For instance, the “e-KYC” process now allows non-KYC compliant investors to cross the first hurdle of KYC compliance by logging on to the KYC Registration Agency Website and using their Aadhar Card number, followed by a simple OTP based verification and subsequent document upload process.
In 2014, Sebi paved the way for future growth by permitting distributors to redeem mutual fund units as well as transact on non-demat units through the stock exchange. Using feature rich platforms such as BSE’s StAR MF, AMFI Registered Mutual Fund Advisors can now buy, sell or switch Mutual Fund units on behalf of their clients – without the obvious inefficiencies of moving papers back and forth to complete transactions. Over the past twelve months, a large number of intermediaries have adopted these platforms in order to stay relevant in the overall ecosystem. In fact, the removal of this physical layer has spawned an entirely new business model of distributing Mutual Funds “remotely”, without the need for face to face meetings with clients!
In a recent statement, the Bombay Stock exchange stated that BSE StAR MF had processed more than 81,000 orders worth Rs. 270 crore on 28th March. They claim to have processed close to 33 Lakh orders in FY 2015-16 and are well poised for further growth. This augurs well for clients, as their overall investing experience is bound to get enhanced as their distributors choose to go online.
Beyond transactions: Enhancing the distributor experience
Besides facilitating transactional ease, technological advancements have been instrumental in creating efficiencies for distributors as well. A case in point is the IFAXpress platform by DSP BlackRock Mutual Fund, which provides (besides transaction capabilities), advanced analytics to its distributors – such as trends in AUM growth, client acquisition trends and in-depth analyses of their AUM mix. Properly crunched, such data can prove to be extremely valuable for distributors in the long run.
Aditi Kothari, Executive Vice President at DSP BlackRock Mutual Fund believes that technology has (rather interestingly) had a positive influence on the ‘selling behaviors’ of distributors, and this has in turn benefited clients. “Sales of our Money Market Funds (that typically don’t happen from the advisor channel due to lack of economic viability) have zoomed for us from IFAXpress. This is great for investors as they finally have someone offering them an alternative to bank savings accounts, that offers better tax efficient yield & nearly the same liquidity.”, said Kothari.
Other advanced systems aim to help previously offline distributors seamlessly ‘go online’ in a matter of a just a few days, thereby making a 360 degree overnight re-engineering of their business models a real possibility. For instance, iFAST provides distributors with a technological platform to automate everything - from research, execution, portfolio monitoring & reporting to even ‘one click’ portfolio rebalancing.
In a distribution business with wafer thin brokerage structures (that are complex and dynamic to boot!), it becomes nearly impossible for distributors to create predictable revenue streams. In such situations, platforms such as iFAST can help distributors “tech- turbocharge” their offering and even consider charging a fee to its clients in the bargain. “It’s a win-win when Financial Advisors use platforms. For the customer, they get the best of both worlds – an Advisor who has more time for them, and platform technology that is continuously being upgraded to help them monitor their wealth”, says Krishnamoorthy.
Other advanced systems aim to help previously offline distributors seamlessly ‘go online’ in a matter of a just a few days, thereby making a 360 degree overnight re-engineering of their business models a real possibility. For instance, iFAST provides distributors with a technological platform to automate everything - from research, execution, portfolio monitoring & reporting to even ‘one click’ portfolio rebalancing.
E-Commerce: Future of distribution or Faddish Trend?
In December 2015, Sebi Chairman U.K Sinha mentioned that the sale of Mutual Fund units on e-Commerce platforms could become effective soon. What this essentially means is that you may be able to purchase your Mutual Fund units ‘online’ on Flipkart or Amazon, as you would do with any other product! Whether or not this attempt to completely eliminate the advisory layer from the investing process will have a net positive impact on the ecosystem is subject to speculation, though.
Somaaiya of Motilal Oswal Mutual Fund believes that purely online Mutual Fund distribution models will struggle in India, as the human advisory element is critical – if not for dissemination of information, then for handholding clients and safeguarding them from the ‘emotional traps’ of investing. “Advice has to be intelligent and coming from a Human Being”, he goes on to say.
Traditional distribution models: Disruptions ahead?
The widespread and cost-effective dissemination of technological tools in the Mutual Fund industry suggests that it’s a matter of time before distributors will be unable to differentiate themselves on transaction capabilities alone. Unfortunately, the availability of direct plans (coupled with the widespread attempt to de-jargonize and simplify mutual funds that is currently under way) is likely to diminish the active role of distributors within the ecosystem.
In such times, it becomes critical for traditional distributors to think beyond mere transaction processing as a means of creating value addition. Although there’s no simple solution to this – a Financial Planning based approach, multi-product distribution, ‘bundled’ services and outstanding CRM practices may help distributors stay relevant. In the meantime, it’s safe to predict that technology is here to stay in the Mutual Fund industry, and will only become a larger component of the framework in the years to come.
