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From wallet service to wealth management

The digital mutual fund space has swelled up with Paytm, Mobikwik, PhonePe and others entering the scene. Will tier 2 and 3 markets trust them with the money?

Jan 20, 2019 by Avanish Tiwary
From wallet service to wealth management

In two seconds. Go. “Mutual fund investments are subject to market risks, read the offer document carefully before investing.”

Until April 2008, advertisements for mutual funds on television would end with the narrator warning the above unintelligibly and at warped speed. The Securities and Exchange Board of India (SEBI) then mandated it to last for a minimum of five seconds.

It was just one among the many measures taken by the regulator to make investing in mutual funds simple and transparent, and together with proliferation of digital payments, the market has changed for good. The list of those who are grateful for the same is long.

One of them is Ashok Kumar, co-founder of Scripbox, a third party online mutual funds platform. Scripbox raised USD 21.4 million last week in a Series C funding round led by its existing investor Accel Partners, with participation from Omidyar Network and NLI Investment Fund.

Kumar said the past decade has seen significant increase in the adoption of mutual funds as an instrument for long-term wealth creation in India. When they started in in 2012, the idea of buying, selling and tracking mutual funds online was quite new, and investors felt like they could only trust a human with their wealth.

“Seven years down the line, we have successfully enabled thousands of families get on the right path to long-term wealth creation through our jargon-free awareness and education, a unique approach to investing and a user-friendly platform,” Kumar said.

Scripbox claimed 70% of its customers are first-time investors in mutual funds. According to a report by Association of Mutual Funds of India (AMFI) and global analytics firm Crisil, India’s mutual fund industry has grown 12.5% annually on average in the past decade, outperforming the global growth and those of developed regions by more than double.

However, the share of savings that Indians put into mutual funds is miniscule compared to other modes such as real estate, fixed deposit and gold. “Indians save USD 500 billion annually, which is approximately 25% of the country’s GDP. Only about USD 15-20 billion is invested in market-linked assets such as mutual funds. But this is steadily changing,” Kumar said.

Everyone wants a share of the pie

With the entry of multiple players in the last few years, the digital mutual funds space has become exciting. Zerodha, the online brokerage firm, launched Coin in April 2017 to cater to investors wanting to deal in mutual funds. It claims the platform has 200,000 investors who have done transactions worth Rs 3,500 crore (USD 491 million).

Fintech platforms such as Paytm, Mobikwik and Walmart-owned PhonePe have also entered wealth management by offering trading of mutual funds.

That progression is natural, said Zerodha’s founder Nithin Kamath. “Everyone who is sitting on a captive audience is trying to sell them multiple things. That’s the law of nature. Paytm has 350 million users on their platform. They were doing bus tickets, movie tickets, and now they are doing mutual funds. PhonePe will do it soon,” he said.

While Mobikwik acquired (its first) Mumbai-based online mutual fund investment platform Clearfunds in October last year, its competitor Paytm incorporated a separate subsidiary, Paytm Money, in January 2018. Within three months, Paytm Money got the licence from SEBI to be an investment advisor and offer mutual funds to its users.

The director of Paytm Money, Pravin Jadhav, said Paytm aims to be a full stack financial services company. “Post payments business with Paytm and banking with Paytm Bank, getting into wealth management and investments was a natural extension in the journey.”

Jadhav said Paytm evaluated multiple wealth management products before deciding on mutual funds. And why was it the logical first? Because of higher awareness, thanks to industry initiatives, and low penetration levels, he said. They expect the mutual fund investor base to double from the current 17 million investors in the next five to six years.

Mobikwik claims to have over 107 million users on its platform. It plans to invest USD 15 million over the next one year to scale up its wealth management business. Mobikwik has an upper hand with the acquisition of Clearfunds as it gets access to the latter’s USD 45 million worth of assets under advisory. Mobikwik claimed the Clearfunds platform allows clients to access over 3,000 direct mutual fund schemes across all 36 asset management companies (AMCs).

Bipin Preet Singh, co-founder of Mobikwik, said, “With rising awareness about digital payments and advent of India Stack (a clutch of software applications that underlie Aadhaar's ecosystem) and UPI, more people are realising it’s easier to manage their money through apps. We will see more people investing in gold and equity digitally. As they do, they will look for an app that gives them the best user experience and allows them to connect their bank accounts.”

PhonePe, the payment and financial services arm of Flipkart, also incorporated a subsidiary PhonePe Wealth Services in November 2018 to get into wealth management. Citing the RoC (Registrar of Companies) filing, news reports said PhonePe Wealth Services has been set up with an authorised capital of Rs 50 crore and a paid-up capital of Rs 20 crore.

New users, yes! Revenue model, no?

According to Kamath of Zerodha, the entry of payment companies into wealth management will ensure users from tier 2 and 3 cities also get involved, who, as these platforms mature, will probably take interest in other wealth saving schemes as well.

“The challenge is a very shallow market participation. Paytm and Mobikwik will probably bring first-time investors quickly to the market. If anyone can do it, I think these guys should do it. We are good at getting millennials and Bangalore-based investors, but the real masses are not in just a handful of cities. We need to get out and target people who don’t have iPhones and bring them into this wealth management space,” Kamath said.

He believes since Paytm and Mobikwik know the behaviour of people who use their apps for payments and utilities, they will probably know who would potentially buy the mutual funds.

Over 65% of customers who initiate their KYC via Paytm Money have never ever invested and another 70% come from tier 2 and 3 towns. Armed with this detail, Paytm Money’s Jadhav said the firm is focussed on expanding the size of the mutual fund industry. Singh of Mobikwik too believes that most of the growth will come from cities beyond metros.

However, there is a catch to this otherwise beautiful story. None of the companies, except Scripbox, have any revenue model and all the services are for free as of now. Since Scripbox offers regular mutual funds it earns commission from AMCs as stipulated by Sebi.

In 2017, when Zerodha launched Coin, investors were given the freedom to trade mutual funds as much as possible at a nominal monthly fee of Rs 50. As people were used to trading in mutual funds without paying a fee, it had to eventually withdraw the sum in July 2018.

“We were one of the few third-party direct mutual fund platforms in the country then. Today, if you buy a regular mutual fund from a broker, no upfront fee is charged as they earn through a commission anyway. But we don’t. So people started to question why the fee was charged. They didn’t understand it,” Kamath explained.

The same is true for other third-party direct mutual funds — they are all free platforms for users. However, Kamath argued Zerodha has a better positioning in the space compared to others who, he claimed, will have to build everything from ground to offer mutual funds. He said they already had a brokerage and trading business, so the company did not have to spend much to launch Coin.

“Mutual funds was just an addition to this. Cost-wise we just have one tech guy and a three-member team supporting it,” he said.

Kamath, in fact, has a plan for monetisation. “We earn from our intra-day traders. We have an NBFC licence. We will soon start loan against security so people who have bought through our platform can easily pledge and take money. Hopefully, we will have a revenue model. It should be live in a month,” he said.

Avanish Tiwary

Avanish Tiwary is a Bangalore-based tech journalist. He focuses on emerging Indian startups and unicorns. He can be reached at

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