The Midas Touch Of Tech

Over the past five years, the Indian mutual fund (MF) industry has rapidly transformed itself. Following the 2008 panic that hit global markets, Indian MF had slipped into an extended hiatus; investors burned their fingers and their loss of faith ensured that for four years between 2008 and late 2011 the MF industry’s overall assets under management (AUM) clocked a compound annual growth rate (CAGR) of just 5 per cent. Fortunately, things have turned around since and the overall AUM has more than doubled from Rs 6.68 lakh crore to Rs 13.39 lakh crore, posting a healthy growth rate of 19 per cent per annum between 2011 and 2013. Possibly, the single biggest enabler of this growth has been technology.

Unlike the stock and commodity markets which went electronic in the mid-1990s to early 2000s, MF in many ways have been behind the curve in adopting new technology. The highly protected and regulated trust structure of MFs, coupled with the political controversy and resulting loss of investor confidence surrounding US-64 in the early part of the millennium may have set the industry back a few years in this regard.

In addition, compared to stocks and commodities, MFs are considered a more passive investment in which unit holders are expected to adopt a ‘buy and hold’ stance, with active trading being considered counterproductive. As a result, technology was never really a focal area in the MF business. Resources were instead diverted towards bolstering fund management capabilities and developing distribution channels. This trend has shifted rapidly in the past half-decade, with the industry harnessing technology to enhance both client as well as distributor experience.

Gone are the days when MF investors had to wade through a sea of paperwork to invest in mutual funds or transact on their existing folios. Aashish Sommaiyaa, managing director and CEO of Motilal Oswal AMC, believes that mutual fund operations are fast moving towards ‘total technology dependency’. “A MF client can now comfortably do the entire transaction chain from receiving money to investing and back to redeeming it — everything on technology platforms,” he says.

Ease Of Transactions
The overall ease with which a first-time investor can get started with mutual funds has gone up too. For instance, the “e-Know Your Customer (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 following a few simple steps.

In 2014, the Securities and Exchange Board of India 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 Bombay Stock Exchange’s (BSE) StAR MF and AMFI, registered MF advisors can now buy, sell or switch MF units on behalf of clients without chasing the paper trail. In the past one year, many intermediaries have adopted these platforms in order to stay relevant. In fact, the removal of this physical layer has spawned an entirely new business model of distributing MFs through remote digital action, without the need for face-to-face meetings.

In a recent statement, the BSE stated that its StAR MF had processed more than 81,000 orders worth Rs 270 crore on 28 March. It claims to have processed close to 33 lakh orders in FY 2015-16 and is well poised for further growth. This augurs well for clients, as their overall investing experience is bound to be enhanced as their distributors choose to go online.

Enhancing The Distributor Experience
Technology has been instrumental in creating efficiencies for distributors too. A case in point is the IFAXpress platform by DSP BlackRock Mutual Fund, which provides advanced analytics to distributors in addition to transactional capabilities.

Aditi Kothari, executive vice-president at DSP BlackRock Mutual Fund, believes that technology has had a positive influence on the ‘selling behaviour’ of distributors, and this has, in turn, benefited clients.“Sale of money market funds (that typically does not happen from the advisor channel due to lack of economic viability) has zoomed for us from IFAXpress. This is great for investors, as they finally have someone offering them better alternatives to bank savings accounts,” says Kothari.

Other platforms help offline distributors ‘go online’ in a matter of a few days, thereby making overnight re-engineering of their business model a real possibility. In a distribution business with unpredictable brokerage structures, it becomes difficult for distributors to create predictable revenue streams. In such situations, platforms such as the ones being offered by Mumbai-based iFAST Financial can help distributors “tech-turbocharge” their offering and even consider charging clients a fee. “It’s a win-win when financial advisors use platforms. For the customers, they get the best of both worlds,” says Rajesh Krishnamoorthy, MD, iFAST Financial India.

E-commerce: Future of Distribution?
In December 2015, Sebi chairman U.K. Sinha mentioned that sale of MF units on e-commerce platforms could become effective soon. What this essentially means is that you may be able to purchase MF units online on Flipkart and Amazon like any other product!This move may provide a further fillip to the industry by unlocking the buying power of the 400-million-plus Internet users in India. But some believe the elimination of the advisory layer from the investing process is not advisable. Sommaiyaa of Motilal Oswal says that the human advisory element is critical in order to safeguard clients from the ‘emotional traps’ of investing. “Advice has to be intelligent and coming from a human being,” he says.

As transaction-based differentiation hurtles towards redundancy, it becomes critical for traditional distributors to think beyond mere transaction processing as a means of creating value. Although there’s no simple solution to this, offering financial planning and multi-product distribution as ‘bundled’ services together with outstanding customer relationship management practices may help distributors stay relevant.

aniruddha@businessworld.in; @bose_aniruddha