Just a fraction of retail investors buys direct plans of mutual funds through AMC website or app.
A recent report published by McKinsey India shows that 3.5-5% of retail investors buy direct plans of mutual funds through AMC website or app, which is largely driven by trust and stickiness with fund houses. The report attributed this muted response to high cost of acquisition with low conversion rate. Nearly 10-20% of visitors execute transaction through AMC website or app.
Cafemutual spoke to R&T agents to find out the volume of transaction through AMC websites and mobile apps. Both CAMS and Karvy Fintech said that AMCs website and mobile app account for 7% of the total transactions. However, distributors initiated most of these transactions.
The McKinsey report further said that third party direct plan distributors such as Zerodha and Paytm Money have gained traction in the recent past. Though such platforms currently account for a minuscule 0.5% of the share of direct plans, the report estimated that these distributors are likely to disrupt the market with their digital outreach and potential customer base addition over the next 3-5 years.
The McKinsey report said, “The digital direct channel is expected to be the fastest evolving channel with digital aggregators mushrooming in the industry and tapping new customers across geographies while providing low-cost investment options (direct plans, customized portfolios) with massive outreach through their digital platforms. Some digital aggregators are expected to add more than two crore investors to their base over the next 3 to 5 years, which would be higher than the total customer base the Indian asset management industry has achieved since the inception of the industry.”
The report also found that growth in offline transactions in direct plans through sales team of AMCs and walk-ins remained muted. While 4-5% of direct sales originated through sales team of AMCs and large wealth managers, it was largely due to contribution from HNIs. RIAs or fee based advisory account for less than 0.5% of HNIs contribution in direct plans. However, over the next 3-5 years, the report predicts that fee based advisory will gain traction among HNIs and Ultra HNIs.
Retail investors walk-ins to AMC offices account for 4-5% of the direct plan sales.
Overall, retail investors account for 8-9% of the direct plans through both online and offline channel. Currently, share of individual contribution in direct plan was 15%.
The report has forecasted that hybrid model is the way forward. “Going direct to consumers may not be scalable or necessarily feasible in the near term, but there is opportunity on the B2B2C front. Managers need to align with the digital strategy of distributors (banks and advisors) in ways that help distributors advise customers about asset allocation rather than sell products. Some managers are buying stakes in B2B fintechs and aggregators to support distributor digital strategies,” said the report.