Will Paytm’s entry increase mutual fund penetration?
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Srikanth Bhagavat, managing director, Hexagon Capital Advisors Pvt. Ltd
Paytm is grabbing attention because it is no stranger to using technology. It has evidenced its ability to use India Stack to create a large user base of 300 million. Given India’s population of about 1.25 billion, barely 2% invest in mutual funds. Recent efforts have been paying off, but in such an environment any firm with deep pockets and technological ability can strike it big. The internet is truly a great panacea for increasing reach, especially among the millennials who currently form a smaller proportion of mutual fund investors in India than those above the 35-year age group. The argument may be that one cannot get great advice from a robot or Excel templates, and I belong to that camp, but the majority of youngsters do not need complex advisory services. They just need to make a small SIP as per their risk assessment for it to make business sense for Paytm.
Sadique Neelgund, founder, Network FP
Paytm entering the mutual fund distribution space offering direct plans as a registered investment advisor (RIA) is likely to shake up the industry landscape. Due to its reach and ease, Paytm is bound to mobilise fresh inflows and create a huge number of new investors. Investors will become more aware of availability of direct plans and RIAs with the entry of Paytm and other online investing platforms. However, investors need handholding and guidance to stay invested for a long. When markets turn volatile, investors are likely to redeem after burning their fingers, which is not good for them or the industry. The other option for investors is to reach out to an adviser or distributor for guidance. Investor experience with actual returns will define the success of this model, not just the cost factor.
The other concern is we still don’t know how Paytm intends to make money by selling direct plans with zero commissions. Once it rolls out its services and makes its business model clear, investors will have to evaluate if it’s the right channel for investing.
To conclude, Paytm is well positioned to bring in fresh inflows and create new investors, but may face a challenge in creating a positive experience for investors in the long term.
Ajit Menon, chief business officer, DHFL Pramerica Asset Managers Pvt. Ltd.
The penetration of mutual funds—which are well regulated, transparent and a diversified option for asset allocation by Indian households for their savings and investment needs—is still low. How any new digital proposition will play out, especially from a value and volume perspective, depends on what the customer really wants and the business model that addresses it. Transacting convenience is important, but the emotional aspect and managing behaviour is most important for a good investment outcome. Many do-it-yourself (DIY) savers and investors who invest directly eventually move back to their advisers. This is true even in developed markets.
One important aspect is to make the distinction between “saving” as an activity different from “investing” and people looking for convenience in that aspect. We know that Paytm has approximately 280 million users and that they are available in 10 different regional languages.
We also know that in many markets there is a significant chunk of small investors with small ticket sizes that can be sometimes unviable for traditional distribution models to service. Bringing many of those savers on board could significantly expand “new to category” individuals which I believe will benefit all stake holders eventually.
Neeraj Choksi Founder and joint managing director, NJ India Invest Pvt. Ltd
Currently, penetration of mutual funds in India is low, however in the recent past the SIP (systematic investment plan) book and retail participation has increased because of the extraordinary work done by the distributors and the industry.
E-commerce and online platforms (like Paytm) have further enhanced the reach and access of mutual funds. But unlike making a payment, investment in a mutual fund is not a compulsion. People always procrastinate such decisions and they need someone to help make them invest according to their needs.
Also, investment in a mutual fund is not a one-time activity and needs constant monitoring and behavioural coaching as behaviour of investors change with changing market conditions. Empirical evidence shows that investors under independent financial advisers and distributors do substantially better than the ones on their own.
I continue to believe that a distributor or adviser has an important role to play and their share will only grow. The market is large and I would expect that apart from Paytm, other e-commerce platforms will also have their share and shall help in expanding the market. But in order to be a leader in the space, it (Paytm) will have to figure out ways to replicate the services offered by an adviser or a distributor.