InvestorQ : Do you see it as a good idea that SEBI has now allowed Fintech companies to also float asset management companies and foray into the mutual funds business in India?
prachi Patwardhan made post

Do you see it as a good idea that SEBI has now allowed Fintech companies to also float asset management companies and foray into the mutual funds business in India?

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sara Kunju answered.
8 months ago
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SEBI had last week announced that it will allow Fintechs like Paytm, Mobikwik and Phone Pe to float their own asset management companies or AMCs in India. The broad thrust appears to be that since the Fintechs have built a sizable digital database of customers, they will be able to extent their offerings by permitting these Fintechs to offer mutual fund products.

To begin with, the proposal is under debate and no final call has been taken on the above. It must be admitted that with their strong digital franchises, Fintechs have managed to build a massive digital client base; largely in the lower end of the financial affordability spectrum. In the process they are responsible for the lateral expansion of the retail MF market.

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. The lateral expansion in recent times has been of a largely unprecedented measure and it can really change the face of retail participation in MFs.

However, there is a small risk that cannot be ignored here. It is likely to dilute the entry barriers that currently exist for the AMC business. SEBI has proposed to double net worth requirements for AMCs from Rs.50 crore to Rs.100 crore. But for Fintechs backed by the likes of Warren Buffett and Wal-Mart, that is almost akin to small change.

The real entry barrier should have been with respect to track record and past performance in the asset management business. In India, we have seen formidable names like Templeton and HDFC MF faltering on the performance front. It is hard to fathom what is the big difference Fintechs can make in demanding conditions on the asset management front?

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