“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’s 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!