Harried mutual fund distributors making repeated home visits; investors’ paperwork getting lost in the post — the mutual fund industry hopes to leave all these behind as it slowly but surely improves its distribution technology, thereby engaging the customer directly and reducing dependence on intermediaries in selling schemes.
Striving for easier process Asset management companies (AMCs) are doing all they can to attract investors through the use of technology, making the investment process as easy and paper-less as possible.
AMC websites provide extensive details on their funds and are launching new and updated apps to make the investment process smooth. This is also helping retail investors gain the confidence to make their investment decisions, making the intermediary slowly redundant.
Independent distributors — who actually make the final sale to investors — are being lured as well, with technology being made available exclusively for them. For instance, fund house DSP BlackRock recently launched the IFAXpress for use by distributors to make a convincing case regarding its funds when they meet with prospective investors.
The most striking development, possibly, is that more and more retail investors are gaining the confidence to make their own investment choices. Data released recently by the Association of Mutual Funds of India show that individual investors held ₹5.64 lakh crore in mutual funds as of May 2015, an increase of 35.78 per cent from last May. Total MF assets currently stand at over ₹12.34 lakh crore.
Direct investments (where investors bypass the distributor and buy directly from the company), the data said, amount to 13 per cent of individual assets. Access to technology and free investment advice on the Internet are slowly rendering the intermediary redundant.
McKinsey’s findings
A recent report released by consultancy firm McKinsey, based on interviews with the industry participants, reiterates this finding. It said retail direct sales (in both equity and debt) have more than doubled to ₹10,000 crore in FY15 from ₹4,300 crore in FY13.
In the more mature investment markets of the West, ‘roboadvisors’ are gaining ground. Explaining this phenomenon, Paul Stevens, President and CEO, Investment Company Institute, said these are firms with their roots in Silicon Valley. Investment Company Institute is a leading global association of regulated funds.
“The investor service takes place completely online. But behind the relationship is an algorithm which evaluates a customer’s changing risk profile and rebalances the portfolios accordingly. It’s a service that has only been in the market for a few years but it has brought the cost of advice down, which can competitively change the market’s distribution dynamics.”
Srikanth Meenakshi, Founder and Chief Operating Officer, Fundsindia.com, says a third-party intermediary is always helpful, even if not paid for. “We know that several investors visit Fundsindia for the free analysis we provide and then buy their mutual fund units directly. While we can’t stop this from happening, it proves that the advisory function is still important.”