Mutual fund distribution in 2017

The demonetization move by our Prime Minister had three major effects. First was the strapping down of black money. The second was the subsequent cash crunch and third was the increase in digital transactions. Mobile wallets and plastic money (credit and debit card) were the heroes saving the day.

E-wallets experienced their highest growth following demonetization. While internet had become a preferred choice of many even pre-demonetization, post the implication of the rule, the internet became the lifeblood. Whether you talk about basic groceries or even your LPG cylinder, everything can now be booked online. Cool, isn’t it?

Where do mutual funds stand in this scenario? Are the existing distribution channels still prevalent or has the market moved to new and improved modes of mutual fund distributions?

Currently, the mutual fund distribution channel looks like this:

What’s new?

The Securities Exchange Board of India (SEBI) is proposing new distribution outlets for mutual fund schemes.  With demonetization here to stay and India moving to a digital age, these new channels of distribution are expected to increase the popularity of mutual fund schemes. Three such propositions, with a move to democratize mutual fund distributions, are as follows:

• E-commerce platforms to sell mutual funds

If SEBI’s plans materialize, leading e-commerce companies would soon be allowed to sell mutual fund plans to their customers. So, while you earlier visited e-commerce platforms to buy apparels or trendy gadgets, with the new move, you can find answers to your investments too at the same portal. SEBI is in the process of finalizing guidelines to facilitate a sale of mutual funds through e-commerce websites. Two benefits are expected from this move:

1. Mutual fund penetration would likely increase as e-commerce platforms are extremely popular among shoppers, and
2. Customers would be able to buy mutual funds with lower charge structures as the commission payable to such e-commerce websites would be lower than those paid to brokers.

Limited variety of funds, namely balanced funds, and ETFs, would initially be launched for sale on such websites for testing the waters. On receiving a favorable response, other variety of fund schemes would also be available online.

• E-wallets to accept mutual fund investments

In yet another proposition, similar to the earlier one, SEBI is also intending to allow you to buy or invest in a mutual fund through digital wallets. While earlier you used your debit/credit cards or net banking facilities for buying or making your SIP payments, with the new proposition, you can use your e-wallets for the same. The benefit would be the ease and convenience of making payments using e-wallets and also a faster payment gateway with minimal errors.

The next time you visit a popular e-commerce giant for buying your mobile don’t be surprised if you find a mutual fund scheme advertised therein!

• Bharat Interface for Money (BHIM) / Unified Payment Interface (UPI)

With the prospect of mobile investing getting close to reality by the day, what are the odds that the government sponsored UPI / BHIM concept remains on the sidelines? With SEBI working on the regulatory front for mobile investing, the BHIM app/ UPI seems almost ready to jump on the mutual fund distribution bandwagon.

One major plus for BHIM/UPI is the fact that it seamlessly integrates your bank account with your mobile number. This makes life easy for the regulator in terms of tracking and auditing transactions.
This can easily be likened to investing straight from your bank account.

India is going digital and internet seems to be a solution for every query, product, and service. Mutual Funds already feature in almost every individual’s portfolio and with SEBI’s new efforts of widening their existing distribution channel they are set to become more popular.