‘While we are watchful of market movements, we are not fearful’

Founded in 2012, Scripbox has about 1.4 million downloads on Android and Apple with millennials making for 76% of its customer base. In a conversation with Mint, Atul Shinghal, CEO and founder, talks about how Covid-19 has affected investor sentiment, what they should do in the current scenario, and the possible impact of the new tax regime on ELSS

There’s been a bloodbath in the stock market primarily due to Covid-19 pandemic. What would you advise investors to do in the current scenario?

As a long term investor myself and having gone through years like 2008, I can understand the fear and panic investors are feeling. Given that Covid-19 is a health scare, the panic in the stock market is natural. As the founder of a financial services firm, I am certainly concerned. While we are watchful of market movements, we are not fearful. My advice to everyone: whether it is health or wealth, trust the experts and professionals. Don’t buy or sell in panic. Continue with your systematic investment plans. Believe in the long term nature of the markets and your long-term asset allocation will take care of your wealth needs.

As much as 50-60% of your customer base comprises of first-time investors. How are these investors reacting to the recent market developments?

On the whole, many of our investors are pursuing the right course of action - continuing their SIPs, and staying invested. With the market turmoil, the early savers are apprehensive. This is on the expected lines. To many new investors, the current situation is unprecedented. Their SIP renewal is steady. But they are not increasing the SIP amount like many new investors typically do. We used to see a 12-15% increase in the SIP amount annually. But now that’s flat lined. However, I am confident that this is temporary.

Some mature investors booked profits when the markets went up as they were nervous about the future of the economy. We haven’t seen too much sector-wise churn because we don’t advise based on sectors. We always offer a diversified portfolio which is goal-aligned, and people don’t give up on their goals. Our recommendation to investors is to continue investments via SIPs or STPs. This might also be the right time to increase your equity investments.

With the new personal tax regime proposed by the finance minister, do you think tax-saving mutual funds would lose their sheen?

Equity-linked savings scheme (ELSS) could lose its sheen, but the money will probably flow into equities. People will still have that disposable income, and it’s our job to tell people why ELSS is a good investment choice. Earlier they were investing in our recommended portfolio of tax saving mutual funds now we are hopeful that they’ll invest in our recommended portfolio of long-term mutual funds. If the new tax regime makes more sense for some of our investors, our advice would be to deploy the money meant for tax-saving instruments towards long term wealth creation in equity mutual funds.

Some financial planners said that Scripbox is pushing its investors to switch funds every year. What’s the rationale behind this kind of churn?

We do ask our customers to rebalance every year. But we make no money out of it because we are earning only trail commission. To select funds, we run a bunch of proprietary algorithms, and we recommend four to eight funds for every asset class and monitor them on a weekly and monthly basis. If our algorithm suggests that replacing a couple of funds could be better for our customers, we then suggest they reconsider their future SIPs in those funds.

We run very complex tax withdrawal algorithms to tell our customers when to switch out and move to something new. The churn is by design for the customer to benefit. It also depends on what you mean by churn. If we are changing the entire portfolio, then it defeats the purpose of investing in mutual funds. Say, you are investing ₹10,000 every month, and putting ₹2,500 in four funds. At any point in time - annually or quarterly - we will tell you to continue with three of those funds but replace the fourth fund with a better performing one.

We never ask our customers to change their portfolio entirely because it is contrary to our principles. We haven’t heard such a complaint before. We feel that regular monitoring and recommendation has helped customers. We only suggest and never force our customers.

SEBI doesn’t want advisors to be distributors and vice versa. Your clients come to you for advice on goal-based investing. Since distributors can give incidental advice, how does your model gel with SEBI’s guidelines?

From our understanding, the regulator has segregated the revenue model and the business model. Earlier companies were running one revenue model and a different business model. We are very clear when it comes to this. In terms of our revenue model, we are paid by the manufacturers (AMCs). We are a distributor, and we distribute. In doing so, we help our customers decide where they should invest. We do not charge our customers anything for the advice.

Our business model is completely transparent and aligned to the commissions we earn from AMCs. There is no double-dipping. As far as we are concerned, this is an excellent move by the regulator. If our revenue model was based on advice and we were charging customers for it, then it would be called advice specifically. We don’t do this as we are paid by the AMCs.