The panel comprised Amit Bivalkar, founder & CEO, Sapient Wealth Advisors & Brokers Pvt. Ltd; Renu Maheshwari, founder director, Association of Registered Investment Advisors (ARIA) and co-founder, Finoscholarz; Srinivas Jain, executive director and chief of strategy, SBI Mutual Fund; Anuj Kumar, managing director, CAMS; and Raghav Iyengar, chief business officer, Axis MF. Edited excerpts from the panel discussion.
Why has the share of direct plans remained at 45% of industry AUM—the same as 3 years ago, despite an increase in the number of fintech players offering this service?
Amit: I don’t think we should look at it that way. Intermediation, be it advisory or distribution, is very much important. The advent of direct plans gave an option to evolved investors to go and buy directly. They are not a competition to distribution or intermediation. Another thing is, because of the stock market boom in the last two years, there has been less participation in direct plans in the retail space. But, on the corporate side and the family office side, we have seen a lot of new accounts getting added on to the direct route.
Anuj: The 45% of direct investment share in ₹38 trillion AUM is perhaps a slightly warped metric. At the aggregate data level, after a long time, individual investors comprise 56% (around ₹21 trillion) of our market. And 80% of this 56% is intermediated, that is, either through an ARN (AMFI registration number for a distributor) or an RIA. So that’s about ₹17 trillion and this number has almost doubled in the last three and a half years now.
If we take the RIA platforms, the AUM has grown from around ₹35,000 crore in 2019 by four times to ₹1.3 trillion now.
Last year, our industry got about ₹2.4 crore as SIPs and almost ₹80 lakh via the RIA route.
What do you observe from the portfolios of investors who come to you for financial advice?
Renu: People come with some bit of MF investments but this has got no alignment with their financial goals. They buy them because someone told them that it will give them a lot of returns. There’s a lot of financial illiteracy, and intermediation is going to play the biggest role of taking these products to the masses in the country. We believe that RIAs are able to provide a good investment experience to an investor.
When MF Central was launched, there was debate on whether it was required when MF Utilities was already there? Can you provide us some statistics on the number of registered investors and app downloads and the key problems that investors are facing?
Anuj: We launched MF Central in September last year. It is the only platform which is completely real time built as a very thin veneer over the RTA system. The MF industry has typically for many decades operated in the batch mode but here, everything is in real time. Any transaction that commences will enter the RTA systems directly without any batching. MF Central has now integrated and you can see all your holdings in SOA mode (non-demat) and demat mode and your ETFs (exchange-traded funds), all in the same statement.
So far, the unwritten rule in the industry was that as an intermediary, or a broker or advisor, you could only show on your property those transactions that the consumer had done with you. That’s going away now, which means basis the consumers consent, we will be able to download all transactions and show them to the investor.
One thing for consumers that we have been trying to do as an industry is to deal with nominations. But we were not very successful because it meant a physical trip to one of the RTA or AMC offices. We are seeing very big traffic in nominee insertion. In terms of numbers, we have 85,000 app downloads and 3 lakh registered users and about 10,000 login sessions. Now our expectation is that a good number is at least 20 to 30 times bigger than this.
If you see the element of automation that exists in our industry, and if you see banking and insurance, we’ve done much better. We give you the integrated picture of all your holdings instantly. We give you unlimited service without any charges and with just paying the TER on the plan. A lot of banks are going to charge you for a lot of things that you seek from them, we charge you nothing. And then for these integrated platforms, it’s almost instant service today.
How is the MFD business going to change in the near future?
Anuj: I think, there are many do- it-yourself (DIY) people who try to do everything on a six inch screen and they will continue to do that. They will be self-seekers and will make mistakes. And it’s not just the number that we see in our industry. If you see the 20 million demat accounts, each opened in 2020 and 2021, these are exactly the people who feel they don’t need any advice. They did not get into bank deposits, and then move to mutual funds and direct equity and F&O (futures and options) and then crypto. They landed at crypto straight. How many of them are long-term fatalities? I don’t know. But a lot of them will never return to the market. So, I think it is clear that jumping that cycle is not easy.
The machines can do transactions and give you the information very easily. But there has to be sage advice and more than that, there is an emotional hand holding part of it, which is very essential. The industry has been debating this for many years. I would conclude that while these platforms will proliferate, a lot of relationship management, emotional handholding, deal closure, and getting the uninitiated into MFs for the first time will have to be done by people.
AMFI, in its recent campaign, said it wanted to promote distribution as a career option. Will this change the equation?
Raghav: I think the challenge for us as an industry is that we lack intermediation. There’s a lot of fintech and DIY but investing has largely become a personalized experience and for that you need intermediation. So, I think the challenge for us is to convince somebody to become an enterpreneur. One, this business takes a lot of time to build. I think it’s early days yet and we have not seen any great numbers.
The other thing is the Sebi sandbox, wherein we can take 5,000 trainees and pay them a certain fixed remuneration. And this is a big change because in the past, the regulator has said that upfront payments need to be prohibited and you cannot pay someone quasi remuneration. I think we will get into a pilot mode in the next 2-3 months. So, I think these are brilliant initiatives and we need more.
Srinivas: I agree with the consensus that there is definitely a dire need for adding more MFDs in the market. So, insurance has about 2.4 million agents, and 1.3-1.4 million of that comes from LIC itself. In 2021, they added 170,000 new agents. The MF industry has only 170,000 agents.