After working for 18 years as an equity broker, Kunal Bajaj came to the conclusion investing need not be complex. The urge, to create a platform that made investing in mutual funds simple, drove Kunal to leave a well-paying job in 2015, and start a financial advisory platform, Clearfunds.
The website went live just six months ago. Already it has close to 5,000 registered users. The AUM of the company currently stands at Rs20 crore.
“I spent my career as an institutional equity broker with CLSA, Credit Suisse and Jefferies, servicing insurance companies, hedge funds and mutual funds in India and overseas. The inflow from domestic investors into mutual funds was increasing month after month,” says Kunal, talking about the rationale behind his decision to launch Clearfunds. “I soon realised that we were still at the beginning of a massive change in the savings pattern of individuals. These individuals are moving away from physical assets, such as gold and property, to financial savings. They needed advice, guidance and a means to invest their hard-earned money. An online advisory platform is the simplest way to service maximum number of clients at the lowest possible cost,” he adds.
Clearfunds today is a platform that gives free advice to all those who register with them. However, if the client chooses to execute transaction based on the advice through the platform, there is a one-time only execution charge of Rs199. This fee is applicable on fresh purchase. This means, no recurring fee for SIPs.
Clearfunds facilitates transaction only in direct plans.
As with any start-up, Kunal’s initial journey was not easy. “The toughest challenge for us was finding the right talent and the right technology,” he says.
Kunal approached his acquaintances and former colleagues with an idea of floating a financial advisory platform. “The great thing about Clearfunds is the ability to work with people I have known for very long. I met Clearfunds COO, Sarosh Irani, in 2000 at JP Morgan and worked with him for six years. While our CTO, Jaideep Tibrewala, and I were in class together at Jai Hind College, Mumbai, in 1991,” he says.
Today the company has a staff of 10 for varied roles including sales, marketing, advisory and tech support.
Execution fee based model
“There were two primary reasons for choosing a model that is based on execution fee rather than advisory fee or subscription fee, or on commission,” says Kunal, explaining the rationale behind his unique business model.
“First, with the advent of the World Wide Web, investors have multiple avenues for getting their financial knowledge. Therefore, I felt that there was no point charging for the advice, which my clients could get from any source. Instead, it made more sense to charge them for the implementation of our advice,” he adds.
“When it came to charging for the implementation too, I did not see merit in a commission based model, or in charging a percentage of AUM every year. I strongly felt that investors should not be paying a percentage of their earning every year to the advisor. While the percentage of commission might seem quite small it takes away, a significant portion of the investor’s earnings,” Kunal says.
This in essence paved the way for the Clearfunds execution fee based model.
Explaining his reason for choosing a direct model with a fee on execution cost, Kunal says, “The financial industry has long relied on taking a little bit of hidden costs and commissions out of every transaction and convincing customers that they need the industry's high priced advice. However, it does not have to be this way. We believe investing does not have to be expensive and it should not have hidden costs. We believe advice should be in the customer’s interest. We have kept our pricing simple and transparent. So we charge investors only when they make a purchase decision – each time they buy a mutual fund scheme, or set up an SIP and no more.”
When asked about the reason for charging Rs199 as execution fee, Kunal elaborates on the brainstorming process that went behind it.
“We wanted to fix a price which will not seem too costly to the investor and will at the same time not pinch our pockets. Therefore, we initially tested with various amounts, from Rs1,000 to Rs500. We found that investors think these amounts are too costly. Rs199, on the other hand, is an amount that most clients are ready to pay as a one-time fee. In fact, many have given us a feedback that the amount is quite cheap,” he says.
Kunal explains that the fixed charge of Rs199 is valid for any executional transaction, be it when you start an SIP or invest lump-sum in a fund, irrespective of the amount of transaction.
Kunal uses online marketing campaigns to promote his website. “The biggest problem is most investors don’t even realise what a significant portion of their earnings they are paying to their advisors. When they are shown the entire picture they are more than willing to invest through my website by paying a one-time fee,” he says.
“Recently we ran a Facebook campaign in which we educated investors on the hidden costs in the advisory business. This campaign was quite successful and we saw many new registrations following that,” he says.
Kunal’s marketing team consists of three people who ideate on new campaign and marketing ideas. In a world where so many options are available to the investor, Kunal feels that intensive marketing campaigns and appearances in media will give his company better visibility. Kunal also writes in leading financial magazines and dailies. This he believes adds to his credibility.
The journey forward
Clearfunds currently gives financial advice based on the data collected from investors. The website serves as a transaction platform, from where investors can invest in direct plans of mutual funds. Currently, his company is working on simplifying the investment process for investors, including KYC and rebalancing. “We were earlier doing all the KYC procedures in-house, but with the introduction of cKYC, we had to outsource it to an external entity. But from June we will be doing even the cKYC in-house,” he says.
To keep the operating costs in check, the platform uses payment gateway services to provide transaction facility. “Instead of partnering with another platform like NSE or BSE, we directly linked with all the mutual funds, so that investors could look at a larger range,” Kunal says.