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Guest Column Mutual funds are not for ‘sale’

Mutual funds are not for ‘sale’

“When you get something for nothing, you just haven’t been billed for it yet” – Franklin P. Jones.
Vidya Bala Aug 29, 2018

“At @paytm Money, we want to become the wealth advisor to the auto rickshaw guy and a shopkeeper. If the auto guy earns extra Rs 500 on a certain day, we want him to pick up the phone and invest it” – Vijay Shekar Sharma, CEO, Paytm.

With due respects to Mr Sharma, I am afraid that treating mutual funds or investment products like one would treat wallets or UPI transctions or other micro financial product (like personal loans) is not quite the right perspective.

It is hard to imagine selling mutual funds to a daily wage earner with the risk of his Rs 500 going to Rs 480 the next day! What an autorickshaw driver or a pani poori vendor needs is a simple, open, banking system. Not mutual funds, which are subject to market risks, require scheme information document to be read and where past returns are not indicative of future performance.

But that is not really my topic of discussion in this article. It is about the Paytm effect on almost all the Direct Platforms, that have decided to go ‘free’.

I do see a lot of comments welcoming such a move by these platforms although there are a few well-considered questions by investors who ask how a free model can sustain.

Entry products to cross sell

With the advent of these zero platforms, mutual funds are slowly being reduced to products that will be used by companies merely to cross-sell other products. Whether it is a brokerage or a loan platform or even a stand-alone (for now) investment platform, mutual funds in these new digital platforms will at best or worst, remain ‘onboarding products’ to get you in as leads for other products.

Wait, before you get into a distributor bashing mode with me, let me clarify: I am all for paying a fair fee for advisory if you decide to go direct. My only point to you is that there are no free lunches. Here are some questions I’d like to raise both from an investment and a platform service perspective:

  • Why are these platforms offered for free? How can they afford quality research and advice (since they offer you portfolios) in a sustained manner for free?
  • If their intention is to run a business and it comes about by cross-selling other products – do you think those are products that are suitable for you or come with a low cost (insurance, derivatives, PMS or AIFs etc.)?
  • Are these platforms where you can buy when there is a discount and then hop to the next discount platform? When it comes to money and investment, it is a long-term, delayed gratification affair. Can you jump from one platform to the other like you would do between Amazon and Flipkart or between Uber and Ola?
  • Ease of transacting is just one convenience. How do your propose to tend to your portfolio and grow it? Transferring money using UPI or Paytm is one small drop in your journey. Are you equipped with the tools and knowledge to grow your money?
  • How can a packaged handful of funds alone meet the customised needs of everyone?
  • How can an investment website have funds that are sold as being ‘popular funds’? Will the popular funds – L&T Emerging Businesses and HDFC Smallcap – showcased in one of the zero fee direct digital platforms, fit the bill of a new investor who has no clue about mutual funds? Are mutual fund investments akin to buying goods on e-commerce sites where the most popular product is showcased to you or when you buy a shirt, you are told people who bought this bought a pair of trousers too?
  • Even if a portfolio is packaged and offered to you, that is just a small part of a bigger investment journey. Will the service offered ensure you stay invested with the right funds, in the right allocation and decide which funds to redeem when you want to?
  • Are these platforms going to help you review your portfolio on an ongoing basis for a ‘no fee’?

Agreed that these platforms may well serve the purpose of investors who would like to have an online transaction platform with no help whatsoever needed on the advisory side. But are these the three crore customers that the new platforms talk of attracting? I doubt. In our own customer surveys, an overwhelming 90% of our investors have admitted that they need help managing their portfolio. They need guidance, advice, handholding and above all reassurance. This is the reason why IFAs as a community has achieved to retain customers while the churn is higher in other institutional models.

Digital is the way but not this way

At FundsIndia we are convinced digital is the way forward not only to take mutual funds to millions of customers but to manage investments optimally. But in our view it takes the following to do that:

  • Start with what the investor needs rather than what you can offer.
  • Understanding the pain points of the investor and seeing what problem we are solving for them.
  • Equip and empower the investor to transact, handle and review their portfolio and seek help when needed.
  • Not go with short-term waves of popular or top products.
  • Identify the investor’s fears and aspirations by understanding his/her investment behaviour by patiently observing and understanding their investment patterns.
  • Engage and at times alert the investor to help him/her get over an investment behaviour that is detrimental for wealth creation.
  • Above all, refrain from glamourizing mutual funds like a commodity with instant results, which it is not!

The consumerist attitude of make hay while the sun shines might work with fast moving goods – you buy wherever it is cheap, buy when it is free and so on.

When it comes to investing, serious planning, patient investing, steady holding and informed decision making are the only time-tested ways to grow money, whichever channel you choose to use. Any channel of investing that is not friendly on these fronts will at best be fancy gizmos that you might want to experiment with before settling in for the right ones. When you do that – when you want to get serious with your investments – come to us!

Vidya Bala is the Head of Mutual Fund Research at FundsIndia. The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.

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28 Comments
Girish Changulani · 6 months ago
Sir, You have nailed it !
One of the best articles I have ever read on CafeMutual.
Marimuthu · 6 months ago
The mobile or SMS is enough to invest? So risk profile, customers need, investors age asset allocation? This are what idea, I cannot believe, investment is not only money, same time more then money is idea and known the investment cycles,
Rajeev Bharti · 6 months ago
Investment / Mutual fund is not a product that can any one use. Understand the need to buy a mutual fund. I am working from last 15 year. We have seen the people who understand the market well , they also get distracted ed when market falling down. The market is growing at this time , you seem to be faint. If there is correction in the market for two three years now what will happen to them. Only the mutual fund market will be bad.
Sunil Lalge · 6 months ago
The mobile or SMS is enough to invest? So risk profile, customers need, investors age asset allocation? This are what idea, I cannot believe, investment is not only money, same time more then money is idea and known the investment cycles,

Regulator should think and debate on this subject before implementing it.
Raghu · 6 months ago
Very well articulated. We'll look forward for you to start direct plan on your platform with a reasonable fee.
Manmeet Khurana · 6 months ago
Brilliant write up Vidya! Explicit, in the face and wrapped up in a articulate play of words!
Investments irrespective of the amount are high involvement decisions and not just dependent on leveraging technology alone!
BHASKAR KUMAR · 6 months ago
Modern system will reduce time, on the contrary it will generate some risk.
Think-tank can not stop, as they are running without brake.
KNVSSARMA · 6 months ago
Good article very practical also.... sebi should think where they are heading with regulations... This is the time to rethink....
Kamal Garg · 6 months ago
I think absolutely bang on. There is no free lunch in this world. It is ultimately with some hidden or non-transparent objective or some other product/service onboarding. People should be aware of all these risks associated with a mutual fund investment.
Vishal rastogi · 6 months ago
Best article first time in Cafemutual...... It should be extend more with where is risk management & regulation , is that all only for IFA's .......!
Dippak · 6 months ago
A very well articulated article Vidya madam, kudos!Nearly all points are covered and well justified.The matured behavior and the stand-support given by another regulator IRDA is unfortunaltely overlooked bu MF regulator!As rightly said,digital is way ahead-as a convinience,not a reason for purchase!
Dippak · 6 months ago
A very well articulated article Vidya madam, kudos!Nearly all points are covered and well justified.The matured behavior and the stand-support given by another regulator IRDA is unfortunaltely overlooked bu MF regulator!As rightly said,digital is way ahead-as a convinience,not a reason for purchase!
Anurag · 6 months ago
Best article!!
Sujatha Anantharaman · 6 months ago
Very well articulated by Vidya. True that investment into MF cannot be sold like any other in the market. It has its own sheen.
Reply
anil sah · 6 months ago
I fully agree with Ms Vidya bala that Mutual fund is nt 4r sale. but 2 safe guard small investor money paytm shuld be permitted to sell only ultra short duration fund.
Manikandan · 6 months ago
Good article and amfi/sebi chairman should read this, think of it. Go a head vidhya for further article to break the eye of the sellers or vendors
ravendra · 6 months ago
Good article and amfi/sebi chairman should read this, think of it. Go a head vidhya for further article to break the eye of the sellers or vendors
Madhuri · 6 months ago
Exectly, very well written. just to push mutual fund business all this taktics are used, Amfi should rethink over this type of permission.
Ranjan dutta gupta · 6 months ago
It is high time SEBi should think over how actually growth can happen in Mutual fund. Growth cannot happen like this kind of direct selling. Individual investors so far lost sizable amount by selecting mutual fund schemes on their own in MF. SEBI should learn this. I just want to say if with the help of distributor/advisor investors can earn 18% return pay the distributor 2% either as commission or advisory fee then also the investors are earning 16%. Instead wrong investment Investors earn 10% without any fee etc then what is better. Why SEBI is bending upon to reduce off and on the commission structure just with some report from some academics who has no knowledge about Mutual fund. SeBi must stop giving Paytm the licence of selling MF product . SEBI must recognize it's failure to give a big boost in MF industry.
surinder singh · 6 months ago
I am fully agree with Ms Vidya Bala.
HARENDRA MAHESHWARI · 6 months ago
BEST ARTICLE, SEBI AND AMFI SHOULD THINK AGAIN .
Kanji thapnia · 6 months ago
Now very good time for mutual fund investment business.very good article for us.thank you.no any nagative work for mutual fund business.
Padmaja Praveen · 6 months ago
Great article well written. Amazing research.
Chetan Shah · 6 months ago
An eye opener article to SEBI and AMFI. Thanks Vidya for the commendable article.
SRINIVAS RAO KASINATHUNI · 6 months ago
The caption aptly summarizes it all.. We should not commoditize mutual funds... Of course, manufacturers may be interested in increasing sales rapidly by firing on all cylinders... but unlike other products, a mutual fund investor will never return if his first experience is bad... that is why they require that kid-glove treatment the first few years... why even seasoned investors are perturbed my market fluctuations some times.. so it is dangerous to sell them without a careful evaluation of consequences.
Avinash · 6 months ago
Its one of the best article I read. Want to forward (off course with credentials of author herself). Can I do that?
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