FundsIndia.com, a leading online investment platform, has been in operation for six years.  Launched by two US-returned software product-builders-turned entrepreneurs, C.R. Chandrasekar and Srikanth Meenakshi, the platform is well regarded in the investment space for its convenient user interface and unbiased advice. 

It has been a long, tough but satisfying journey, says Srikanth, who also officiates as Chief Operating Officer at Wealth India Financial Services Pvt Ltd, which runs the platform. Asked about the difficulties encountered in his entrepreneurial journey, Srikanth admits that he had grossly underestimated the effort and capital required to build a financial services platform on a national scale. He mentions in an aside that when people refer to their ‘overnight’ success, he bristles and says testily – that ‘overnight’ success took six years!

Starting of in 2009, at the height of the global financial crisis, Srikanth says it was just the market opportunity (the absence of any investment platform in India) that excited them. Srikanth was working then at Fannie Mae in the US, which he says was at the epicentre of that crisis.  

With a grin, he says, “we were technology guys; perhaps, if we had been MBAs, we would have worried”. Looking back at that period, he says in a philosophical vein, that both he and his co-founder Chandrashekhar, felt that this too, like other crises (such as the dotcom bust), would pass.  

This was an intuitive feeling although Srikanth remembers that it was never voiced in as many words. Business has grown and at last count over 70,000 investors have trusted them (assets under management at Rs 1,200 crore) and that number seems set to increase with some conscious efforts from the company. Srikanth says it is not yet a done project — either in terms of product or business model — and there is a lot more left to do.

In this interview, Srikanth elaborates on why regulations in the mutual fund (MF) industry have been detrimental to the interests of the distribution industry as well as by extension, the investor.  Edited excerpts:

 

How did you begin this venture in 2009, a most difficult year for any financial services firm?

 

Let me go back to that period.  We didn’t know any better (laughs).  Yes, we knew what was happening, but we didn’t consider it a hurdle. Besides, we were not teenyboppers. I was 40 and my co-founder was 43.  We knew this would pass. We didn’t discuss this but we sort of intuitively knew.  We saw this huge opportunity in front of us.  In India, 2008-09, there was not a single investment platform.  There were net banking and trading platforms, but nothing for investment.  Even today, there are only a handful of investment platforms. Back then, the big rage was ULIPs.  Insurance companies were positioning it as a long-range investment option.  It was such a terrible thing for the customer out there.  

We wanted to build a platform to cater to long-term investors.  We had invested our money in MFs and we knew the power of MFs — even with entry load.  Gradually, the MF product got better, entry load was abolished and other changes happened.  Nevertheless, the product was not accessible with appropriate infrastructure, and easy user interface.  That is why we started. This gap was just too big an opportunity to let go.  We did not worry about the macro scene.  Sometimes it is good not to know too much (laughs). Perhaps, if we were MBAs, we may have worried. There were, of course, people who did tell us why it would not work — that’s par for the course.

Was there a milestone, perhaps a number, a turning point, when you knew that the concept had clicked?

 

It was actually an event.  A few months after we started, we had an investor from Pune who wanted to invest in a particular mutual fund through us. We didn’t have that MF on board at that time and it was in the process of happening. We told the investor this, but he was willing to wait and invest in it through us.  A couple of days later, we got a cheque for Rs 5 lakh and a blank application form signed by him.  He was willing to trust us based on our technology platform and willing to trust us to do the right thing.  That was a tipping point. Till then, we were a bit concerned whether investors would trust an online entity that they had not seen.  Then we found more customers coming in — willing to share information and trust us.  We knew we had been doing something worthwhile.

If you had to start again, what would you do differently?

 

I think we would get someone to do marketing right away.  We delayed that a bit.  Perhaps, we would go on mobile a bit earlier than we did — that was also delayed by a couple of months.  That would be the only change of strategy.

Has the regulatory environment been tough on intermediaries like your company?

 

Yes.  It has been challenging.  Look at the MF regulations over the last five years.  These changes have been revenue impacting. 

Aren’t they beneficial to the customer and fair — the credo that you swear by?

 

There are ways you can be beneficial to the customer without being unfair to the intermediaries. Take the direct plan — which is about the ability of the customer to go directly to an MF and get his units — this is for investors who have the acumen and ability to go directly.  But it is a sweeping regulation.  It mandates every MF to offer every scheme with a direct plan option.  It does not distinguish between different types of investors, different types of schemes.

As things stand now, the change is detrimental to the distribution industry and in the long-term to investors also.  Yes, some say there is a cost advantage in direct plans.  But that was not the object of the regulator.  The regulator only said if an investor is savvy enough to go directly, he should not be saddled with the intermediary option.  That is radically different from saying every investor should go direct because of cost advantage.  There is no discrimination on who should go direct and how.      

I’ll say how it is harmful in a specific way.  Mutual funds are not commodities.  It is not like buying toor dal from Nilgiris or Spencers and you have the same thing.  It is a finely differentiated product. When you dis-intermediate a non-commodity product, it seldom works out in favour of the customer and almost always works in favour of the manufacturer.  For instance, if a MF house comes out with a new fund offer and carpet bombs the city with hoardings, who is there to say it is not a good product and that investors should not be investing in NFOs?

 

I do concede that some distributors may have indulged in ‘sharp practices’.  But a regulator should take a nuanced view about curbing these practices, rather than how to get them out of the business. As things stand, the cap on distributor commissions does make it harder. More importantly, it discourages new entrants into distribution. They’ll stay away.

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