Not many of us are used to buying mutual funds using our smart phones, even though there are some apps that facilitate this. But with Paytm, one of India’s largest mobile wallets, set to enter mutual fund distribution in a month’s time, many of us (Paytm claims to have around 300 million customers) would be able to buy mutual funds with a tap of a button. On 5 April, Mint carried a story on what Paytm could offer.
Most seasoned mutual fund investors come from urban areas, and the product has only recently made inroads in semi-urban and rural areas. But nearly half of Paytm wallet’s transactions happen in tier 2 and tier 3 cities, which raises the concern that whether Paytm Money users will be adequately aware of mutual funds as a product and the risks they carry, and accordingly take informed decisions. Will people use the mutual fund platform the way we look at the e-wallet, which is commonly used so far to buy things such as movie tickets? Mint Money takes a look at the three most common questions that Paytm’s customers might have.
Paytm Money Ltd is a registered investment adviser (RIA) with the capital market regulator, the Securities and Exchange Board of India (Sebi). It would be just like any financial adviser who advises you on buying mutual funds and charges a nominal fee in return. But since it will also be a platform where you can simply buy funds, the doubt could persist.
In reality, Paytm Money would be just like any other online platform from where one can buy funds. The rules remain the same. You open an account with Paytm Money, go through the Know-Your-Client (KYC) procedure and link your bank account; any bank account. When you wish to buy a mutual fund, money will move out of that bank account and go straight to your mutual fund and you will get units in return. Paytm Money will hold neither your units nor your money. Pravin Jadhav, senior vice president, Paytm Money, told Mint that units will be available in the statement of account (SOA) format and not in demat mode. “On redemption, money will be sent to your registered bank account," said Jadhav.
Using Paytm Money, you will be able to buy and sell mutual funds as well as get some advice if you need help in making a choice. Although Jadhav didn’t elaborate on the nature and extent of advice that the app would provide, he said that “simplified tools and products would be available for investors to facilitate in their decision-making process." Investors would, however, be free to invest as per their choice.
While the e-wallet has a wide reach and Paytm Money is expected to use that reach, industry experts are cautious about its capability to give advice once the app goes live. “Paytm (Money) will expand the market, which is great. But it remains to be seen how they handle the advice part. The concept of market return is not easy to understand. I think anyone who takes Paytm Money may be an erstwhile fixed deposit investor who is used to earning an assured return," said Sanjiv Singhal, founder and chief operating officer, Scripbox, an online mutual fund adviser. Singhal said that nearly three-fourth of Scripbox’s customers are first-time investors.
There are quite a few mobile apps that allow you to transact or they give some advice along with the facility to buy and sell funds. Srikanth Meenakshi, founder and director, FundsIndia.com, said that although Paytm Money will create an impact thanks to its “large war chest in terms of marketing spend", a discerning investor would look for quality research and advisory; one that comes with a track record. The app will have to first build a track record for itself, he said.
Being a Sebi-registered invested adviser, the app will offer direct plans and not regular plans. As a seller of direct plans, it can—and will—charge a fee (Jadhav told Mint, it would be nominal) for buying funds. As an RIA, it is also mandated to give some sort of advice. What remains to be seen is in what way and form, the app offers its advice. Industry observers said the company is in talks with mutual fund research houses to procure their research and then provide that on its app.
The Paytm mobile wallet is where you can load money and buy things like movie tickets. Can you use your mutual fund investments to buy things on the wallet app?
The answer is no. As per Sebi regulations, you can only buy mutual funds from the money that comes straight out of your bank account, and when you sell the units, the money must go to your bank account. That is also why Paytm Money is a separate app that users will need to download.
The app will be available on Android and iOS platforms. It is expected to be launched by end of April, with schemes of 12 fund houses, and 25 fund houses by August.