Why Fintechs in mutual funds

While the proposal is still in the debate stage, it seems to be a case of forward integration for these Fintechs. With their strong digital franchise, these Fintechs have managed to build a massive digital client base. In the process they were responsible for the lateral expansion of the retail market, on a scale that had not been seen in recent times. The idea appears to be that the entry of Fintechs will be hitting two birds with one stone. It is a profitable business opportunity for Fintechs and it also results in a massive lateral expansion of the MF market.  

Is that not about marketing?

That does raise a rather piquant point. Do the Fintechs really need to become AMCs and manage funds in the first place? If their skill is in the creation and nurturing of the investor market place, they will be better off distributing MFs and other products to investors. Most of the Fintechs like Paytm and Phone Pe have already been extremely aggressive in pushing financial products like gold bonds, digital gold and mutual funds. That is, perhaps, the best way to help them leverage their digital franchise to expand the customer base. What is the need to permit them to manage funds? 

Need some entry barriers

To an extent, such a move would dilute the entry barriers that currently exist for the AMC business. Of course, SEBI has proposed to double the net worth requirements for AMCs from Rs.50 crore to Rs.100 crore. However, that is hardly an entry barrier as Paytm is backed by Warren Buffett and Phone Pe is backed by Wal-Mart. A net worth of Rs.100 crore is perhaps small change for these groups and hardly an entry barrier. The real entry barrier must be with respect to track record and past performance. In India, we have seen formidable names like Templeton and HDFC MF faltering on performance. It is hard to fathom what difference Fintechs can make in such demanding conditions. 

Address the real challenge

Let me aver that Fintechs have a role to play in mutual funds, but that should be more in the area of distribution, selling and financial advisory to a lesser extent. Today, the top-10 AMCs account for more than 85% of the AUM. The AUM is still predominantly urban-based. The real support from Fintechs must come in enabling the reach of mutual funds to a larger audience, at a much lower cost and using the micro–saving approach in rural and semi-urban locations. That is the strength of digital Fintechs. Allowing them into fund management will only dilute their focus; which should actually be on creating a digital marketplace!