InvestorQ : Will permitting Fintech companies into mutual funds business actually help expand the retail participation in mutual funds in India?
prachi Patwardhan made post

Will permitting Fintech companies into mutual funds business actually help expand the retail participation in mutual funds in India?

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sara Kunju answered.
2 months ago
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The primary question to ask is whether you need the expertise of these Fintech players in asset management or in marketing and reaching out via digital modes. If the latter is the core idea, then these Fintechs can effectively do the job as distributors. There is no reason for them to become AMCs to leverage their distribution and digital heft in mutual funds.

In the last few months, the Fintechs like Paytm and Phone Pe have already been extremely aggressive in selling financial products like gold bonds, digital gold and mutual funds to their captive digital client base. That is, perhaps, the correct model to help them leverage their digital franchise to expand the customer base. Why really permit them to manage funds?

The real challenge in mutual funds is the quality of reach, especially among retail customers. Fintechs have a role to play in mutual funds, but that should be ideally in the area of distribution, selling and financial advisory, albeit to a lesser extent. That is where the digital franchise can be influenced and attracted to the long term investment goals.

Let us look at the skew of mutual funds today. The top-10 AMCs in India in terms of AUM, account for more than 87% of the AUM and even that is largely urban-based. The penetration of rural and semi-urban is hardly anything. The real support from Fintechs can actually come in enabling the reach of mutual funds to a larger audience in Tier-2 towns.

What Fintechs must be leveraged is to expand the client reach and replicate business at minimal cost. This is the micro-saving approach that could work in rural and semi-urban locations. Allowing Fintechs into fund management will only dilute their focus; which should really be on nurturing the digital marketplace. It is time for second thoughts on this.

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