The topic of the first panel discussion at the sixth edition of Mint Mutual Fund Conclave was: Transcending Transactional Relationships: Engaging as Partners. The panellists were: Ganesh Ram, business head, mutual funds, BSE; Neeraj Choksi, founder and joint managing director, NJ India Invest; Pravin Jadhav, whole-time director, Paytm Money; Roopa Venkatkrishnan, financial consultant; and Sanjiv Singhal, founder and chief executive officer, Scripbox. The discussion was moderated by Neil Borate, senior content producer, Mint. Here are the edited excerpts:
Neil Borate: Top performing schemes are pushed up on mutual fund (MF) apps and get bought regardless of the risks or appropriateness. What’s the solution?
Pravin Jadhav: We are trying to simplify the investing experience. Although markets are turbulent, we register around 5,000 systematic investment plans (SIPs) on a daily basis. Most of the schemes bought by users in the last one to two months were small- and mid-cap funds even though they are not the top performing schemes over the past year. People rely on other sources of information, and don’t buy schemes based just on returns. As per our data, 85% of people have a positive portfolio, even in this turbulent time.
Borate: Rather than acting as a marketplace, Scripbox chooses the schemes for customers and actively rebalances. But do you know enough about your customers—such as whether she has sold a house or is struggling with an illness in the family?
Sanjiv Singhal: The structure we follow is: we look at the goals first, then comes asset allocation and then fund selection. But yes, we don’t know if someone has sold a house or other details. But that needs more holistic long-term planning and we are moving towards that. Having started with generic objectives like long-term wealth creation, parking short-term money, creating an emergency fund, we have moved to complex objectives like planning for retirement and children’s education, which require different asset allocations. Over a period of time, we do have conversations with customers. Every customer of Scripbox has my email ID. Relationship is a business model. You can’t say I will do relationship now because the markets are tough.
Borate: Pravin, how do you communicate with investors online? A lot of investors, for example, confuse an MF owned by a bank with investing in a bank.
Jadhav: We started as a pure execution platform and let people discover it. Then we discovered that a lot of first-time investors coming on the platform don’t know what risk is. In fact, they don’t know what an MF is, let alone the difference between direct and regular plans. Now we have a hand-holding process for new investors. For the first seven days, we provide them with information about what are MFs, risk and so on. We also talk about KYC (know your customer) requirements. We are essentially persuading people who invest in fixed deposits (FDs) to invest in MFs.
Borate: With Sebi cutting total expense ratio (TER), distributor commissions have been cut by asset management companies (AMCs). As a national distributor, NJ India Invest is perhaps better than most at securing a good deal. Are your sub-distributors doing equally well? Is the industry still viable for independent financial advisers (IFAs)?
Neeraj Choksi: Some rationalization has happened; we will have to do large volumes now. It is a reality that margins are low. But there is a huge opportunity. Less than 20 million individuals invest in MFs. Individuals will have to use technology to improve productivity. A person handling, say, 100 families will now have to handle, say, 200 families. There is a dire need for (personal) advice. People still put money in traditional investments where they don’t get real returns, but just enough to keep up with inflation. Behaviour is extremely important; everything else like execution and asset allocation can be done via technology. Reassurance becomes critical and that’s where the role of an individual will be important. Where so many jobs are being lost due to tech, we feel that MF distribution is an area where there is potential to create jobs.
Borate: The Foundation of Independent Financial Advisors (FIFA) wrote a letter about AMCs passing TER cuts to distributors to two of India’s largest AMCs. Have you resigned yourself to the cuts?
Roopa Venkatkrishnan: If a ₹10,000 crore fund grows to ₹15,000 crore, the expense of fund management are the same. But these economies of scale are not for distributors. Yet the cuts have been passed down to distributors. The larger distributor can negotiate a good deal. I have been visiting small towns across India and been hearing stories where IFAs who were getting ₹20,000-30,000 per month are now earning around ₹10,000. How will such IFAs survive? The cuts have been passed on to distributors and it is completely unfair. Customers will end up being orphaned if the business becomes unviable for small distributors.
Borate: One of India’s most prominent investment platforms, Cams Online, put a ₹10 lakh restriction on withdrawals per month, citing security concerns. Are they responding to online frauds?
Ganesh Ram: I don’t think it’s just a question of fraud. Online has its own risks. But I don’t know what the real reason is behind the move. Online fraud happens across industries, not just in MFs.
Choksi: Fraud is also possible in the physical method. Anyone can change the bank account number and take the money. The risk, in fact, is lower in online investment. No one can stop fraud but the question is whether there is adequate control. There are strong levels of control in MFs compared to, say, insurance where I can pay the premium on your behalf.
Borate: Pravin, you have chosen to go direct along with several other big distributors. Is this model sustainable?
Jadhav: Around 85% of our transactions come from tier II and III towns. You are looking at people who have average portfolios of around ₹1,200 per year. They are sitting in small towns where there is no service desk from any AMC. We have to educate people about MFs, we have to do in-person verification. Till date, we have rejected around 2 million KYC documents. We have to make sure that we get the right set of investors and get the right compliance. It’s very early for us to comment on the revenue model.
Borate: The Mutual Fund Sahi Hai campaign has shifted its focus from returns to risk, which was long overdue. Should intermediaries also rethink how they are communicating to investors?
Ram: Mutual Fund Sahi Hai has spread a lot of awareness. We also need to talk about the partners in the journey. A lot of investors are not aware about things such as the role of distributors, exchanges and banks. When an investor signs a form, he agrees to take on risks. Advisers should talk about risk, but this is in-built in the process. I don’t think we should over-emphasize and talk about risk. The adviser should answer investors’ questions.