Over the past two-three years, online mutual fund platforms offering direct platforms have seen rapid growth. Platforms such as Paytm Money, Zerodha Coin, Groww and Kuvera do not charge anything for mutual fund investments, and the direct plans they sell do not pay out commissions.
This places them at a huge cost advantage over banks and other traditional distributors. However, many of these platforms earn money by cross-selling other financial products such as digital loans, digital gold or stockbroking. Some platforms also feature products that give prominence to particular fund houses, which may be the outcome of a tie-up.
In a blog post in May 2020, Srikanth Meenakshi, founder, Primeinvestor, launched a critique of ‘Super Funds’, a product launched by Phone Pe, a digital wallet provider owned by Flipkart, which has branched out into other financial products.
According to Meenakshi, Super Funds was a product that only permitted investment in fund-of-funds (FoFs) of Aditya Birla Sun Life Mutual Fund. However, in this case, the schemes were regular plans, which include commissions rather than direct plans. Meenakshi also took exception to the app projecting future returns from the future fund based on the past returns of the underlying portfolio.
Paytm Money, another mutual fund app, reported Nippon India Liquid Fund among its five most popular schemes in May and June. The platform prominently features insta redemption funds in its user interface, which includes a small selection of schemes such as Nippon India Liquid Fund.
A person with knowledge of the matter who declined to be named stated that Paytm Money has tie-ups with several asset management companies (AMCs) for products like insta redemption. “We don’t earn any commissions from AMCs in the current model and there are no partnerships with AMCs," a Paytm Money spokesperson said.
Most online MF platforms make money by cross-selling other products and services. Paytm Money is registered as an online point of presence (PoP) for the National Pension System (NPS). PoPs charge a commission of 0.25% on each contribution to the NPS. It is also planning to launch stockbroking services this year.
Groww, an online direct fund app launched stockbroking in April in which it charges money for intra-day trading. It also features digital gold. Kuvera, another direct mutual fund platform also has other lines of business.
“We have been offering digital gold and recently launched secured lending. I don't think that cross-selling is pushing a product. It is more about customer segmentation and offering services to customers that want them," explained, Gaurav Rastogi, chief executive officer of Kuvera.
The founders of digital mutual fund platforms have not ruled out introducing a subscription model for their customers but are not convinced about the economics of this model. “As far as subscription goes, I haven't seen it applied successfully in the mutual fund context," said Rastogi.
“In the future, we might explore premium subscription plans with advanced tools and advisory for mutual funds. A lot depends on changing social attitudes. For example, we now pay subscriptions for services such as Netflix or Amazon Prime. The recurring payment option on UPI launched recently will also help," said Lalit Keshre, co-founder and CEO, Groww.
Services such as NPS, digital gold, lending and stockbroking are not necessarily a bad thing. For a customer who requires them, they may be a good fit. They also allow online mutual fund platforms to keep their services free.
"I think it's ok for these platforms to offer a bouquet of services. But at the same time, customers should also be careful about them. You shouldn't buy something just because the platform is pushing you to buy," said Mrin Agarwal, founder, Finsafe India Pvt Ltd and co-founder, Womantra.
Also, be careful about platform products that may give excessive prominence to particular schemes of mutual funds. It is important for you to evaluate all the alternatives before making a selection.