The domestic MF industry in India has come a long way with current assets under management (AUM) topping Rs 30 trillion. However, an analysis done by global brokerage firm Jefferies shows the AUM, as a percentage of GDP, is only at 12 per cent. The ratio is among the lowest, and a fraction of global average of 63 per cent. The Report believes the industry has tremendous growth potential as it has barely scratched the surface when it comes to AUM growth.
While the advantages of relative safety, less volatility, diversification of risks etc. associated with mutual fund is well recognized, there are lot more that need to be done. Here two factors, among others, are key. One is demographics, and the other is technology. The combination, if leveraged well, can take mutual funds up on popularity chart.
India has a vast, young population, and with high tech-savviness. This segment of digital natives offers a significant opportunity for asset managers to expand base fast. But, for that to happen, the millennials and young professionals must find mutual fund investing exciting, upmarket, super-convenient and, yes, glamourous. In short, MF industry needs to add some zing in their business.
One critical factor to make mutual funds popular is the ability of the asset managers to create superior customer experience, particularly catered to digital natives. The convenience of buying a mutual fund through an app, for instance, would act as a strong pull factor. AMCs can have tie-ups with start-ups in the tech sector. In fact, a tech-led MF start-ups, as a subset of Fintech, must take shape early. Fundtech-to coin a new term-functioning at the intersection of mutual fund and technology, can be a game changer. Making the experience of entry and exit, switching schemes, etc. seamless and comfortable, managers can promote SIP culture among the millennials. Seen in a broader perspective, Fundtech development can positively alter financial behavior and investment habits of the digital natives.
AMCs tend to focus solely on product innovation, but it is equally important to include a strong element of service innovation to ensure new acquisitions and faster growth trajectory. Digitally enabled value-added services can be a major source of innovation and give competitive advantage to asset managers. Using web and mobile tools and digitally driven advisory can enhance investing experience. Robo-advisory services, for example, by way of new service offering, is a new trend that can be launched.
New portfolios with a focus on upmarket sectors should form part of new offerings. For instance, Global Funds (which predominantly invest in international markets), Technology Funds (which bet on new emerging technologies likely to disrupt the tech world) are attracting lot of attention. Further, liquidity being a major consideration, particularly in Tier II/III cities and to the small investors, Liquid Funds need to be made more flexible, liquid, and efficient. Taking innovation further on the lines of ESG (Environment, Social and Governance) Funds, AMCs may ideate more on fresh thematic funds. Healthy Lifestyle Fund (focusing on reputed businesses in food, nutrition, personal care sectors), Learning /Entertainment Funds (riding on the success of companies in EdTech and OTT /Streaming platforms), may be considered in their portfolios.
Financial-saving skill is a life-skill and must be learned and honed early. A sustained campaign to create awareness on advantages of mutual fund among the students at colleges, universities, management institutes, skill centers, etc. can greatly help to foster healthy and responsible financial conduct and nudge an SIP habit amongst them. Conducting hackathon, quiz competitions etc. can generate deeper understanding and interest. A close interface with academia can also help encourage research, create intelligent data, and pattern analysis on the industry. Greater dissemination of scheme information, by using more of local/vernacular language in communication, through various media/advertisement channels is important. Roping in sports, music, tech icons, to promote mutual funds can spruce up the MF space. In this direction, AMFI’s awareness campaign Mutual Funds Sahi Hai is laudable.
The various changes in regulatory norms by SEBI have gone not only in the broad direction of removing anomalies that result in higher transaction costs, skewed sales, and mis-selling, but also ensuring improved disclosures and Board governance. AMFI has also helped formulating operating guidelines, infusing professionalism and ethical codes. All these efforts have greatly contributed to boosting investor confidence and making mutual fund one of the safest investment options available. Now, adhering to the regulations and standards, the MF houses/AMCs need to break new grounds with a growth mindset, adding an X-Factor to the products, processes, and services for creating a superior investing experience for all, particularly the millennials.
The author is former Bank Executive, author, and columnist. He is on the Board of a Mutual Fund Trustee company. The views are personal.
Disclaimer: The views expressed in the article above are those of the authors’ and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.