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Business News/ Opinion / Why online tech start-ups are good news for investors
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Why online tech start-ups are good news for investors

As these portals gain traction, more firms are expected to jump in.

Shyamal Banerjee/MintPremium
Shyamal Banerjee/Mint

As dust slowly settles down on the distribution landscape in the personal finance world, one distinct trend is emerging—sellers over the Internet. Apart from instant penetration, they are also targeting the Facebook generation; youngsters who are hooked to the Internet and who wouldn’t mind buying, say, a mutual fund (MF) over the Internet, since they are already logged on to Flipkart, iTunes or Amazon.

From basic products such as MFs, ready-made baskets of MF schemes based on your financial goals to a comprehensive financial plan and portals that allow you to file your taxes online, everything is on offer.

So, what’s driving this change? Take the case of MFs. Distributors have realized that entry loads (upfront charges collected from investors and passed onto distributors as commission; this was later abolished in 2009) are not coming back. Also, fund houses have subtly discouraged upfront fees in recent times. While upfront commission encouraged distributors to churn investors’ money, trail fees provided stability to assets. Reason being distributors earn trail fees for as long as investors stay invested; the longer the investor stays invested, the distributor earns more. A trail fee model is a win-win situation for all; fund houses get sticky money, investors reap benefits over the long run because their money stays invested for a long term and distributors earn higher fees over the long run. Fund houses such as Franklin Templeton Asset Management (India) Ltd and Canara Robeco Asset Management Co. Ltd have already started to offer a full-trail model option to its distributors (distributors can choose to either receive all their commission as trail fees or continue the old model of upfront plus trail fees).

Trail fee models bode well for start-ups such as FundsIndia.com and Scripbox (their setting-up cost is already low) who offer online buying and selling of MFs to investors. Launched in June 2009, FundsIndia.com claims to have over 25,000 customers. At the very least, here’s a portal where you can now buy and sell almost all MFs and get a consolidated account statement of your MF holdings any time.

Another outcome of the change in the Securities and Exchange Board of India’s MF laws in the past three years is that now distributors must either be financial advisers and charge their clients or continue as distributors and facilitate only transaction, for which they get paid a nominal fee from MFs. Sensing this opportunity to tap a large market of distributors who, going forward, would like to acquire new skills such as giving financial advice—maybe not as sophisticated as those given by established planners, but still offer a new service to their own clients—Mumbai-based entrepreneur Ronak Hindocha recently launched Futurewise Financial Planners Ltd. Through its online platform christened FutureAdvisor, this portal registers distributors or financial advisers onto its platform. Once they open an online account, they or their clients key in financial and key details of the latter and FutureAdvisor suggests a comprehensive financial plan. Advisers have to pay an annual fee of 25,000; they in turn are free to charge their own clients the way they want to. Hindocha is confident of acquiring about 5,000 advisers in another five years.

The good news is that these start-ups are thinking ahead. How to scale up their businesses is on top of their minds and most of them have already thought out their second and third steps. FundsIndia.com’s co-founder Srikanth Meenakshi, for instance, is very bullish about Smart Solutions, a goal-oriented basket of MF schemes that it recommends to its customers who can choose baskets depending on their financial goals such as education, marriage, retirement or a general one aimed to create long-term wealth. This is in addition to the firm taking in customer queries (about 25-30 daily on average) on their investment portfolios.

Here’s where Scripbox also comes in. Not content with just offering MFs, Scripbox’s founders felt that distributors must add value. Its co-founder Sanjiv Singhal says that since a MF’s website too offers MFs, they felt the need to give “something more" to investors. So, Scripbox offers you a basket of four MF equity schemes that its research team offers. This portfolio is reviewed regularly and changes, if any, are communicated to investors, who then have to log in and make changes themselves. In less than six months after it launched, Scripbox has almost 10,000 customers. Elsewhere -within a year’s time- Hindocha plans to reach out to those retail investors directly who don’t have an adviser and offer them a financial plan.

As these portals gain traction, more firms are expected to jump in. I don’t expect these firms to shake up the industry immediately; they may break even soon, but their key challenge will be to achieve scalability, consistently. Only time will tell how they cope. But we’re living in interesting times where new solutions are the order of the day and they aim to fight for a space with Facebook, Twitter and Flipkart on young men or women’s tablets.

kayezad.a@livemint.com

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Published: 26 Jun 2013, 07:10 PM IST
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