A recently released report by Fintso, a digital solution provider for individual mutual fund distributors and AMCs suggests that many individual mutual fund distributors will be severely affected if the economy does not normalize within six months. In fact, the report predicts that individual MFDs especially distributors without a large AUM may face difficulties in sustaining their business if the recovery is not v-shaped.
The Fintso report says that the recovery method would vary as per the period of lockdown. If things normalize within six months i.e. complete functioning of the entire ecosystem, the people can expect a V shape “recovery”, habits and behavior would not change much, and people would “bide” their time before they go back to the way things were. However, if the impact stays for over one – three years, it will be a U and L shaped recovery respectively.
Here is the table that shows impact on distributors
The study further said that while larger firms can sustain due to historical business, the smaller players would be deeply impacted – first from a cash flow perspective (inflows and redemption) and then from sustainability perspective, if the recovery is not V shaped.
The report advises individual MFDs to embrace new channel communication to engage with clients, change their pitch from product sales to solution, consolidate their business and increase wallet share from their existing clients through multiple offerings.
Among the other significant highlights of the Fintso report are:
- Unchanged clients behaviour: A downturn in the equity market does not necessarily change investing behaviour, as long as people believe that it will go up. For e.g., putting it statistically, monthly Inflow of SIPs had shown growth over the last financial year and was Rs. 8,600 crore despite the fall in the markets
- Cumulatively, SIPs account for Rs.2.39 lakh crore of AUM
- Regulatory changes: Implementation of regulations leading to structural changes due to longer impact would result in business changes. There are changes that are done for immediate needs: e.g. Moratorium on loans (will affect a lot of lenders, including P2P), and some like the SEBI regulations that basically banned the usage of papers for MF transactions
- Effect on distributors: Foreseeable cost reduction like reducing back office and higher dependence on automation, omni-offerings and the need for creating their own brands
COVID-19 has disrupted the investor eco-system and the unpredictability about the period of time the industry will require to get back to normal makes the situation more challenging, says the report.