The Rising of the Indian Mutual Fund Industry
India has witnessed exponential growth in the mutual fund industry during the last decade, primarily due to the large size of the population of the country, with rising wealth. People now are more educated and aware of investing and they have started considering mutual funds as a second source of income. Not for individual investors only, mutual funds have become an important investment vehicle for institutional investors like EPFO as well. Therefore, Mutual Fund Distributors also need to upgrade with advanced Mutual Fund Software.
The growth in the mutual fund industry is one of the major developments in the financial markets of India. As of November 2022, the assets under management (AUM) of mutual funds stood at ₹ 40,49,440 crore. The size was ₹ 7.93 trillion as on November 30, 2012, which means a rise of more than 5 fold in a period of 10 years. And as per AMFI estimations, the Indian Mutual Fund Industry has the potential to cross Rs 100 trillion in AUM size much before 2030.
Lack of Mutual Fund Distributors
Despite such tremendous growth in the mutual fund industry, the segment of Mutual Funds Distribution is under-penetrated. There is just one mutual fund distributor for every 11400 people in India. That means there is a void in the mutual fund distribution market, which needs to be timely filled. The void exists due to a lack of awareness; as a result, lesser Indians apply for their Application reference number (ARN). However, AMFI has launched a program called “Karein Shuru” to recruit more mutual fund distributors.
Another major concern is related to the income of Mutual fund (MF) distributors, which has grown at a tepid pace. The reason is that the growth of Indian Mutual Fund is shrinking amongst a few big players only. The big players with AUM size larger than ₹1000 crore have grown at a tremendous rate of ~97% in the previous financial year. However, every other MFD in India grew at an average rate of just 40%. Moreover, MFDs with less than 10 Cr AUM size grew by just 12%.
Importance of Technology and Automation in MF Distribution Business
It is a clear indication that individual MF distributors are lacking behind somewhere. For individuals, it is very complex to run a successful MF distribution business. It requires heavy knowledge, large experience, passion for the market, empathy towards clients, and ethics in operations. Along with that, individual MFDs have to face various challenges in its day to day business including. They are forcefully entangled in daily firefighting exercises due to which they lack time for business development. Therefore, Mutual Fund Software for IFA is the need of the time
There are so many MFDs who are working really hard but are not able to grow their AUM. They are stuck at a point of saturation and don’t know how to scale the business. They feel like victims and start blaming the market, the economy, and the competitors, for their failure.
Remember, when you are busy blaming others, you are not able to take responsibility and only you will be responsible for the eventual death of your business.
As per John Chambers of CISCO, At least 40% of all businesses are going to die in the next 10 years because they will not be able to figure out how to change their entire company to accommodate new technologies.
Therefore, it is the need of the time for MFDs to digitally transform their business, accommodate new technologies, and tech-upgrade their business. MFDs are required to automate their businesses, for which they need to develop a system and implement potential technology that can drive that system.
For example, the very first step in the business journey of an MFD is to onboard their clients, and they need to process their KYC.
- Firstly MFDs need to complete the KYC process for clients
- Then separately onboard their clients on NSE– BSE–MFU
- They also need to separately register their clients for the SIP mandate
MFDs are forced to do all this firefighting on a daily basis. Just this single onboarding process requires additional man-force, which wastes time, money, and energy. Therefore, it is important to identify the major challenges In order to create an efficient system.
The Challenges to an MFD
An MFD is nothing else but an entrepreneur and it is crucial to understand that entrepreneurship is not a fashion show where you come and showcase some extravagant clothing that you will never wear outside in normal life. When you embark on the journey of building a business, especially in the finance and investment sector, you must evaluate your business and be able to identify the critical challenges that arrive on your path to building a sensible business. So here are the major challenges that an MFD is facing in its day-to-day business
- Onboarding Clients: It is already discussed in the above example that the initial challenge for an individual MFD is to automate the process of onboarding, conduct their KYC process, and register them for the SIP mandate.
- Scalability: After making 2000 or 3000 clients in their locality, MFDs reach a point of saturation. Now they don’t know the road ahead, or the appropriate way to scale or expand their businesses.
- Improve business transactions: MFDs lack the proper tools to persuade their investors to enter into mutual fund investing. For example, a young guy who has recently started earning and has zero exposure to investing cannot be persuaded to lock their money for a 30-year period. Instead, he should be motivated to invest first. He should be acknowledged the benefits of mutual funds by initially parking their savings in the most liquid funds.
- Slow Down Redemptions: To improve AUM growth, it is essential to slow down redemptions, while increasing business transactions. To slow down investment redemptions from existing customers, MFDs are required to give their investors a vision, a goal, or an objective about their future to first make them disciplined. Indian Investors are not disciplined; they may redeem their investments for even immaterial reasons.
- Multiple Assets: MFDs are not able to diversify their own portfolio of services when they very well know the power of diversification. As per a survey conducted by the Association of Mutual Funds in India, the Indian Population prefers to allocate only 31% of their money to Mutual Funds. The rest wants to invest in FDs, gold, equity, bonds, etc. Apart from investing, they also want to insure themselves through General insurance, health insurance, etc. That means MFDs must-have technology to offer multiple assets to their clients.
- Competition: There is Heavy market competition from online platforms, peer MFDs, and also from direct methods of investing. To remain one step ahead of the ongoing market competition and visible and separate from the crowd, MFDs need to implement product engineering solutions in their business.
- White-labeling: Branding is very essential in the business journey of an MFD because branding brings trust. Investors need to generate trust in an MFD before they finally decide to invest their hard-earned money. To create brand equity digitally, MFDs have to create a completely white-labeled website and Mutual Fund Software for Distributors with a single URL.
- Security: MFDs collect very sensitive information from various sources especially the personal and financial information of clients. Data security is a very big concern, especially in India. Fraudsters use internet anonymity to commit scams like KYC fraud, identity fraud, etc. And these scams are not in any way inferior to scams done by Vijay Mallya, Nirav Modi, or Harshad Mehta. As per reports, various Indian firms lost an enormous amount to data breaches during the previous financial year, which can be approx. ₹ 17.6 crores. Therefore, data security and privacy measures become very important for MFDs as well because they also collect very sensitive information from various sources especially personal and financial information of clients. And all these data collection processes are generally handled digitally, which makes MFDs vulnerable to data theft.
MFDs are a wise and educated fraternity; they just need to keep their perspective, and their vision larger. Overall, all the above-discussed challenges are hurdles in the AUM growth of MFDs and make them stuck at the same level. It makes MFDs work hard at the same level and makes it difficult for them to change their orbit. The biggest reason they face such challenges is that they don’t know the modern techniques to run and scale their business. They rely on old and traditional ways to manage their businesses, which are outdated and not sufficient to create a sustainable business. The fastest way in which any business owner can achieve exponential growth and create a sustainable business is through automation. It will first reduce daily fire fighting exercises in the business and also give quality time in developing your business.
Wealth Elite has been continuously working to provide a single window of mutual fund software in India and related tools that an MFD requires to manage its business.