Team Estrade recently had the opportunity to speak to Ganesh Ram, MD & CEO – Mutual Fund Utilities. He gave impressive insights into India’s Mutual Fund industry. Following are excerpts of this interaction,
- Tell us about MF Utilities and your association with the company. What are shared services in the mutual fund industry and why they are so important?
MFU is formed jointly by all AMCs for AMCs in 2015 under the aegis of AMFI and formally launched by that time/former SEBI Chairman UK Sinha.
Prime Objective of forming MFU is to act as a central system for the MF Industry resulting in the reduction of cost for AMCs, creating operational efficiency to MFDs/RIAs/RTAs, passing on the benefits to Investors/Industry and having a level playing field.
MFU is only platform as of today to offer Commercial, Non-Commercial transactions, centralised Investors/Distributors complaints and other unique features.
My association with MFU started from May 2021 and it’s been quite exciting since then. We are looking at significant business growth and taking steps to bring more value to key stakeholders and be part of some unique Industry initiatives driving more growth.
“MFU Asset Under services is 3.15 trillion which is approx. 9% of the AUM MF Industry.”
- How many Assets Management Companies (AMCs) are members of MF Utilities? Which all entities can use the services offered by the MF utilities platform?
40 AMCs are members of MFU and it serve all 8 types of stakeholders as given below:
- Wealth & PMS
- Fintech and
MFU is the only platform to offer such variety of services….and for each entity there are unique features loaded.
- Who is your target customer? What is the average size of your daily/monthly transactions? Kindly give some details about your industry of operation – local, India and the world: market size, challenges, opportunities, key metrics, etc. How do you see the future growth of this market, along with MFU’s growth?
- As of 31st Aug 21, MFU Asset Under services is 3.15 trillion which is approx. 9% of the AUM MF Industry. MFU Consistently managed 12%+ Industry Turnover (YTD 21-22 8.16 Lakhs Crores & 1.83 Lakhs Crores in Aug 21)
- Approximately 34,260 MFDs/RIAs can transact being empanelled with MFU
- 3180+ corporates are registered and transacting with MFU
- 10+ Lakhs Investors are transacting with MFU (Direct and Regular schemes)
- MFU SIP registration book size is 11.58 Lakhs
- MFU has process 13.87 Lakhs Non-Financial transactions making it easier for Intermediary and Investor community.
- Another key metrics to note is that the Average ticket size of the SIP is ₹ 5,300 and the Average SIP Cancelation period is 13 Months. Please note industry average is Rs. 2,800 and SIP cancellation is 8 – 10 months respectively.
Our Target customer are all types of MF Distributors, Investment Advisors, and Investors and MFU stands 2nd largest contributor in AUM share which is approx. 13% .
“Probably the only financial market (Indian Mutual fund industry), which fell by 40% and recovered more than 100%.”
- How MFU’s platform is different from other platforms, especially the ones offered by brokers registered with the BSE and NSE? What is your value proposition to the retail investor and to the intuitional investor?
The exchange platforms only offer distributors to transact financial transactions with plain vanilla features and provide limited investors service and they do not offer “Level Playing Field” which SEBI is thriving to which benefits all stakeholders and specifically investors.
On the other hand, MFU being developed by AMCs offer multiple features and benefits for all stakeholders. Given below are a few those unique features:
- For Physical mode of transactions (paper based) MFU played an advantage for all stakeholders. Single form for CTs & NCTS and a single cheque for multiple transactions across AMCs. Save cost & increases efficiency for AMCs & MFDs
- The Only digital platform to offer all 7 different modes for all AMCs: MFDs, RIAs, Corporates, Custodians, Banks, PMS, & Direct Investors. So, for AMCs, it’s a single window covering all types of Investor types.
- Only platform enabled for Physical, Phygital & Digital transactions. None of other platforms in India offers this across all AMCs
- Only Platform which works with Universal Folio mapping to all existing investors folios which makes investor and transactional life cycle simpler and efficient.
- Only platform to have below unique Features benefiting MFDs/RIAs:
- Trigger-based transactions,
- Non-Commercial Trxns,
- Schedule trxns,
- eCollect for RIAs,
- Complete Sub broker model,
- Real-time Trxns tracking etc.
- Direct funds transfer to RTAs
- MFUs Corporate portal is the only platform to offer API connectivity to Corporate. From Treasury page corporate can transact and direct transfer of Funds to AMC a/c so there is no issue on Same Day NAV
5. How has the pandemic affected your industry? How do you see the market and general sentiment of Indian consumer evolving as the pandemic slowly recedes?
No doubt Pandemic affected all industry but if you look at Indian MF Industry it had higher outflow last year (Apr – Jul 20) but subsequently it was an overwhelming story. Probably the only financial market which fell by 40% and recovered more than 100%.
If you look at MF Stats: Overall positive flows in the open-ended MF schemes and market indices touching all-time high, helped the Indian MF Industry Net AUMs to breach record INR 36 lakh crore milestone in August 2021.
Retail AUM at INR 17.15 lakh crores, almost half of Total Industry AUMs, SIP AUMs at record high INR 5.26 lakh crores, which now forms 1/3rd of Retail AUM and 15% of overall AUM. There is healthy rise in SIP Accounts at record 4.32 crores and monthly SIP contribution at an all-time high at INR 9,923.15 crores is reflective of the optimism in the industry.
MF Penetration & Opportunity:
MF Industry has 2.71 Crores Unique Investors with approx. 9.8Crores Folios which means there are 3-4 Folios per Investor.
In the last 4 years MF Investors Based has doubled but as per the IT database we have 51 crores PAN issued (as of 30th June 21). This means we have only 1 MF investor for 21 PANs. There is larger scope for penetration even MF Industry has done excellently well during the last 3-4 years.
If we compared Banking Investments Vs MF Investments: 150 trillion Banks deposits Vs MF is 100 million Investor accounts.
Irrespective of the pandemic, MF Industry has added 12L New Investors during 1Q22 Vs 20L during FY 20-21, total SIP accounts crossed the 4 crores and record of 21 lakh new SIP registered in June 2021.
SIP AUM at an all-time high and now forming almost 15% of the total industry AUM which is a great milestone.
- The gap to be bridged: Comparing Banking Investments Vs MF Investments: 150 trillion Banks deposits Vs MF is 100 million Investor accounts.
- AUM growth from B-30 locations is merely 17% which need to be improved significantly. There is a great opportunity to expand Investor Footprint across B30 Locations.
- Educating to start MF saving as early as from High school, College and within each household. Results of Being invested a long time…need to be emphasised.
“With Regulator being optimistic on giving AMC licences for Fintech there would be more Fintechs who will emerge as AMC. We have already seen a couple of geared up for that.”
- What do you feel is the future of the mutual fund industry with evolution in technologies like Big Data, ML and AI? How are these augmenting your market reach? How MFU is leveraging these?
SEBI has time and again reiterated that AMCs are the owners of Investors/Distributors’ data and RTAs are their agents for the data repository. The regulator also has made it clear that investor-level data to be shared with all digital platforms for transacting in mutual funds to further augment ease of investing and servicing of investors.
So, with data going to be available, digital platforms need to gear up to provide value-added and superior services, data-based analytics by using AI, Blockchain, etc.
Additionally, digital platforms need to focus on servicing part of also and use technology to innovate how efficiently they can service the investors and distributors. Today everyone’s effort is on investor onboarding, payment, transactions, etc when we talk about innovation. But the need is to focus on Innovation in Client Services. That is one area which is lagging and requires a big-time overhaul
Over the period, data will be available from RTAs for digital platforms so given below are the key offerings they should provide and improve it using Blockchain, AI, Robotics, and other tech tools:
- Portfolio monitoring, benchmarking, and other key stats
- Indicators on simple stay or exit strategy
- Inclusion & tracking of various asset classes
- Educative and knowledge enhancing based data points, blogs etc
- Driving Risk profiling culture by enabling unique Risk profiling technique
- Providing subsidized and efficient Back-office and portfolio software for including some unique high standard features
- Use technology to explore the opportunity to simplify and make Investor onboarding easier. This is one of the major issues for MFDs/RIAs today.
- Provide eKYC and make KYC process smoother and faster
- Efforts in making brokerage management/reconciliation process better which is another pain point for Distributors
- Who is your competition? How do you perceive the threat from your competition? What is the biggest challenge faced currently by your industry?
MFU is the centralised system built by AMCs to benefit them so there is really no competition per say. As we are a non-profit entity, we cannot compete with other platforms which are commercially built.
Having that said, from business perspective we do get compared with other platforms like exchanges, PayTM, ET Money et al. But the fact is that MFU system is way far superior and loaded with many unique features which other platforms does not have as of today.
Top challenges faced by MF Industry:
- From investors perspective, DIY mode is growing…but the risk of investor losing wealth is evident and possible. Majority of DIY Investors do not have adequate handholding, critical data analysis and complete risk profiling. This results in quicker redemption and impacts both AMC & MFDs/RIAs. Asset allocation is a key risk attribute Investors need to focus on.
- From distribution/advisory perspective, the risk is that only 35% of MFDs are active and out of those 14% of MFDs manage >25 Crores. The total new MFDs registration also been drying up. Skill development for MFDs/RIAs are also very important to ensure they provide good advice to Investors.
- On product side, Debt funds are not getting adequate inflows and Investors are worried about investing in Debt. Ideally, Debt funds are best to have a balanced portfolio. Good to see inflows are high in equity schemes but investors need to understand that there is high risk in equity and diversification, balancing portfolio is the key to create wealth.
8. What are your expectations (policy direction) from the Government for your industry?
Government/SEBI the capital market regulator continuously making new regulations, policies which benefits the MF Industry. To mention a few recent directions are listed below:
- Regulator is open for Real time NAV which means Investors will get real time or quick time NAV across scheme categories. Couple of months before day SEBI has approved real time NAV for ETFs so its clear that Government is moving towards right direction.
- There is reasonable info to expect that in India, the Government is in discussions with the stakeholders for a possible bill to around a sovereign digital currency. This can have a huge impact on MF Payments if policy is formulated.
- With Regulator being optimistic on giving AMC licences for Fintech there would be more Fintechs who will emerge as AMC. We have already seen a couple of geared up for that. This will help growth in number of AMCs in India like Western countries.
- Know-your-customer is one area we expect a policy change to make it efficient. Account Aggregation (AA) which is recently in news will benefit the industry.
- What is your vision for MF Utilities, in terms of, (1) Near term, over the end of FY 2021, (2) Long term, over a 4 year horizon.
Our vision is to position MFU for MF Industry as a centralised registrar system for MF Industry. We are striving towards optimizing cost for AMCs, creating operational efficiency for MFDs, exploring newer markets/channels to drive more growth, and providing elevated customer experience and value to Investors.
Given below are our short- & long-term plans to achieve our vision:
- Today MFU contributes 13% and by 2025 we would like to see that contribution reaches 40% of Industry AUM
- Work closely with AMFI and AMCs to centralize and standardize process/procedures benefiting stakeholders.
- Continuously improve & innovate the product and process for seamless transaction experience for Distributors & Investors
- Working with AMCs & AMFI to take “Investor Awareness Programs” to B30 and remote locations. These are locations where AMCs do not have an office and there is no/minimal reach.
- Unique B-30 unique marketing plans along with AMCs and IFA Associations. This will help us to have more Investor footprint and reach.
- Explore additional distribution channels to better outreach (Banking channel etc). MFU has special designed features for Banks
- Providing Back-office and portfolio software for MFDs/RIAs including some unique high standard features
- Use technology to explore the opportunity to simplify and make Investor onboarding easier for MFDs/RIAs. This is a major issue for MFDs/RIAs today.
- Provide Investors information, risk profiling etc for them to take studious investment decisions. This is for DIY mode
- Provide low-cost KYC & other related services to MF Industry, enable eKYC on MFU platform and make KYC process smoother.
“Only Fin. Mkt. that fell by 40% & recovered by 100%+” – Ganesh Ram
“MF Financial Mkt. recovered by 100%” – Ganesh Ram