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Guest Column How to achieve Rs.100 lakh crore AUM by 2018

How to achieve Rs.100 lakh crore AUM by 2018

MF industry needs disruptive thinking rather than incremental thinking
Sanjay Bhargava Jul 27, 2017

I joined Citibank in 1981.  The quote below is from John Reed, former CEO, Citigroup and is now part of Citibank history.

"We are creating something new," he wrote in 1976. "I refer to a fundamentally new business starting with a dedication to the consumer, and to the proposition that we can offer a set of services that will substantially satisfy a family's financial needs under terms and conditions that will earn the shareholders an adequate profit while creating a healthy, positive and straightforward relationship with the customer." Written on vacation, this document became known in Citicorp annals as the ‘Memo from the Beach’.

I became a senior citizen this year so am starting to enjoy my golden years, a permanent vacation, and am writing this memo from Aradhana Apartments in New Delhi which echoes John Reed’s thoughts 31 years later. Banking focused on institutions till John Reed brought in consumer banking. In the mutual fund sector in India, we now can serve everyone profitably and build “Municorns” (Companies that will have a market cap of $100 billion by 2030).

In the near term if we are to change our mindset and do a few things, we could grow the mutual fund AUM to Rs.100 lakh crore by August 15, 2018. This means a 5X growth in one year for the industry. To do this we have to use disruptive thinking and require a massive mindset change. However, AMFI estimates Rs.95 lakh crore by 2025. This is the difference between incremental thinking and disruptive thinking.

The change has to be propelled by the government (MoF), SEBI and RBI. For the industry to think disruptively MoF, SEBI, RBI have to think disruptively. In India NPCI took over a decade to start making a difference. GST took almost 15 years. Who can blame the industry for being incremental thinkers?

By announcing a second consultation paper on revising advisory guidelines, it seems that SEBI has already taken the first step. Advisory market in India has a huge potential. Currently, industry is chasing assets, so focus has always been mostly on the HNIs and corporates. Lately, retail focus is visible, but it is largely incremental in nature. If we really want disruptive results, focus needs to be on the numbers of mutual fund investors and not assets. Flat fee based advisory models that use technology are bound to focus on number of users and this is what I call as disruptive.

Just as NPCI made digital payments possible, an MEP (market expansion platform) can make every account profitable.

So, what should MoF, SEBI and RBI do? First they need to believe that every account can be profitable and then license at least two MEPs by inviting entrepreneurs to apply. The business opportunity is so large that if this is marketed right there will be a feeding frenzy.

I will end with one example of how archaic the current thinking is. Today, to register a mandate to debit your bank account and move money upto a limit you specify by electronic debit to your mutual fund account, can take anywhere from 10 to 21 days, if your paper mandate does not get rejected. If you belong to the class of 50% of Indians who cannot sign, you are excluded. Incremental thinking says that we will probably get to an e-mandate in about six months but it will probably be a complex process. Disruptive thinking would get instant mandate registration done 24x7x365 for all Indians within thirty days. And this is not science fiction. It can be done.

We remain optimistic that India as a nation is moving to disruptive thinking. My wife Anita and I were both part of the PayPal founding team in 1999 and have seen first hand the power of disruptive thinking. PayPal is not a municorn. It has taken 17 years to reach $60 billion+ market cap but the next version of companies like PayPal, even if they do not exist today, will be municorns.

Sanjay Bhargava is the Chairman of Bharosa Advisor, a SEBI registered investment advisory firm.

The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.

 

4 Comments
Sanjay · 1 month ago
This is not disruptive thinking but dreams. Even if the industry follows the mentioned steps, still no realistic calculations and assumptions can give 5x growth in .05x tenure (1 year vs 20 years). This actually is 100x incremental.

The author seems to be high while writing. Please take a reality check yourself before suggesting.

Cafemutual is really allowing anybody and everybody to write anything and everything
Vidyanand · 1 month ago
Cafemutual is official media partner of Bharosa Advisors. That is what Bharosa Advisors have put on their website. Before reading these Bharosa Advisors articles, I thought Cafemutual is platform where advisors, distributors from the industry share their experience & their ideas. But these articles unabashedly talked about Bharosa's business targets without revealing any idea or process how they gonna achieved it. Surely they don't require to disclose any business process or unique ideas. But then what's point to publish these articles on this website.

As far as disruption they want to achieve is nothing but Reliance Jio kind of disruption. Bharosa is backed up by capital provided by venture capitals & various other sources. When even leaders of the industry not sufficiently capitalized, it is easy for these robo advisories make in roads; having capacity to bear any losses for longer period than current leaders.
Anita Bhargava · 1 month ago
Vidyanand, I do not know where you are getting this information from. Bharosa has NO media partner. Bharosa is very small but it does believe that just as Reliance Jio is trying to disrupt the telecom market, we need disruptive thinking to make every Indian a mutual fund investor. Bharosa cannot do this alone. All stake holders will benefit if the pie grows larger.
Reply
Kamal Manocha · 1 month ago
Change is in-evitable, and is bound to bring in-convenience, but an opportunity as well.

- MFs and Insurance are need based products and penetration should be 100% and this needs need low cost structures, transparent pricing and simplicity.

- Hidden fees which is abnormally high - is the reason for bad percpetion about these products and this is the cause of low penetration.

- When we know india is a growing economy, Where we are see many structural changes that should help indian capital markets sustainably for long term, why 2% penetration. The idea must be whole hearted participation.

- Only policy change can make this happen. RIA segragation from distributor would bring in low and transparent pricing along with un-biased approach.

- This change will bring in perceptual shift and that is what will build demand for the product.

- So, RIA's fiduciary approach will create demand and distributors sales approach will fulfill demand. Basically Volume increases multi-fold, overall cost reduces multi-fold.
Technology acts as an enabler.


The question is do we want this change or not. It seems SEBI sees a merit in this and that is why is trying for last 5 yrs. Lets hope industry supports it. . .
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