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Online MF distributors, robo advisors catch fancy of private equity players

( 11:52, 01-Apr-16)

Online mutual fund distributors and robo advisors are increasingly catching the fancy of private equity players. While Rs 150 crore has been invested into the likes of scripbox, arthyantra, fundsindia and 5nuance, more are in the offing. 
 

Faering Capital, Foundation Capital and Inventus Capital Partner have invested in fundsindia, WFA Global in Arthyantra, scripbox has funding from Accel Partners and a group of angel investors, and 5nance too has been funded by angel investors. Many others such as bharosaclub, orowealth, inezta, unovest, advisesure are in discussions with prospective investors to raise capital. 

From a regulatory perspective, distribution is seeing a lot of disruption. Traditional distribution, or the agentdriven model, which is fragmented is subject to a lot of challenges and regulations are slowly moving in favour of digitisation. Though offline mode is still a large contributor, online transactions are picking up due to easing regulations and higher acceptance of the product. 
 

"Changing demographics, lower interest rate regime, acceptability of mutual funds as a wealth creation tool, low penetration are some of the reasons attracting investors to these models," says Sreekanth Meenakshi, founder, fundsindia.com. 

"Mutual fund is a financial product where you can complete your transaction paperless, and hence going ahead you are likely to see an increase in online transactions," says Ashish Somaiya, CEO, Motilal Oswal Mutual Fund. Currently, the penetration of mutual funds is low and less than 5% of the population invests in mutual funds. Given that the number of internet users has crossed 400 million and we have 1 billion mobile phone users in India, many investors consider investing in mutual funds online and through mobile applications. 
 

As investors buy more mutual fund products to meet their life goals, there is a higher need for advice. While HNI customers can afford the services of a wealth manager or a private banker, many middle class investors who cannot afford a wealth manager are turning towards robo advisors, or online websites. Distributors are differentiating themselves from competition by offering advisory as well. 
 

"Automated wealth advisors, or robo-advisory, is a significant global trend — several global companies such as Wealthfront, Betterment and Personal Capital manage between $1 and 2 billion each. Emergence of these players is challenging the conventional model of having a relationship manager based wealth advisory. 

These firms use algorithms to make portfolio allocation decisions and often rely on index funds to offer customized, cost effective advisory services," says Amit Kumar, Partner and Director, Boston Consultancy Group. 

Different models are emerging in the mutual fund distribution space. While some offer direct plans with a fixed advisory fee, there are others who offer regular plans with robo advisory and financial planning as their core strength. 

Source - Economic Times

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