India has 37% households having an annual income between Rs.3 and Rs.10 lakh. This population is set to increase to 46% by 2025.
For India’s MF industry to reach Rs.100 lakh crore AUM with an investor base of 10 crore in next ten years, tapping the aspiring Indian middle class will be crucial. Currently, the Indian MF industry has around Rs.25 lakh crore AUM and an investor base of 2 crore, says an industry report by AMFI and BCG.
Here are some three ways to target aspiring middle class
Simplifying products
Among the ways, which the report noted for expanding coverage to middle-income households is simplification of the current products.
The MF industry offers over 2000 schemes, ranging across asset classes, strategy and risk return profile. Moreover, the industry is laden with complex jargon around product strategies, expense ratios and returns.
“This difficult jargon along with the wide range of product offerings and extensive KYC paperwork often discourages first time investors from switching from the simple traditional investment products such as bank deposits,” the report said.
To overcome such challenges, the report suggested global examples of ‘solution or goal oriented’ offerings. Some AMCs are already offering benefit-linked MF offerings such as linkages with insurance and medical payment.
“Fintechs like Goalwise have based their entire sales and distribution model around goals that range from tax savings to child education, vacation and weddings,” it noted.
The report also suggested using local language to simplify the products to masses.
Easy onboarding
Further, the report said that the current onboarding processes need to be simplified. Extensive KYC paperwork often discourages first time investors from switching from the simple traditional products.
The report suggested standardization of KYC norms across CKYC, KRA, eKYC. It also pitched for digitization of RTAs, which will enable seamless on-boarding experience and better customer engagement.
Simplifying debt
The relatively low share of debt mutual funds means there is significant headroom for penetration. Currently, share of debt mutual funds is less than 25% in individual investors’ AUM.
“A focused awareness campaign may be needed to highlight the benefits of debt-oriented funds vis-à-vis other debt investment products like fixed deposits.”
