Another UPI Like Disruption?
This time, it's the mutual fund industry that's up for massive disruption.
Stock market is in a bull run. Everyone around you, on Instagram Reels, on LinkedIn posts is shouting at the top of their voices and asking you to invest. Afterall, how else will you beat inflation or retire early and travel the world?
Now you don’t want to be left out while others are supposedly earning truckloads of cash. But not being an expert yourself, you decide to put your money in mutual funds instead of putting them in the stock. Your selection of Mutual Fund suits your risk appetite, is not very costly, offers a decent return and is handled by reputable fund managers. You can finally sleep in peace.
Until...
News Flash: SEBI’s Game-Changer Move to Simplify Mutual Fund Investment.
The news mentions things like Registrar and Transfer Agents, Mutual Fund Distributors, Fintech utilities and a whole host of terminologies.
Confused?
Let’s decode the different entities that work together in building the Mutual Fund machine.
When you want to buy a Mutual Fund, what’s the first thing that you do?
Most of us hop on the website of some famous Mutual Fund distributors such as ICICI Securities, HDFC Banks, IIFL Wealth Management or to the modern day fintech companies such as Groww, Kuvera, etc. Some charge distribution commission, some don’t.
There we explore the various Mutual Fund options offered by various Asset Management Companies (currently there are 44 fund houses in India).
And then all you have to do is hit the “buy” button.
Although this process looks easy, a lot many things go in the backdrop and it has some glaring flaws.
All that those front end distributors (Groww, Kuvera, ICICI etc) do is provide you with a nice, clean and beautiful user interface. The real deal is what happens at the back-end.
At the back-end, these Mutual Fund aggregators are connected to stock exchange platforms such as BSE Star and NSE. What are these?
Those are second-round order aggregators for Mutual Fund aggregators!
They collect all orders between 9:00AM and 3:00PM and send this data to the Registrar and Transfer Agents (RTAs). (Woah! Complex isn’t it?)
And these RTAs are a very essential piece of the puzzle. Let’s see how.
Asset Management Companies (AMCs) are required to maintain records of all transactions done by investors. Everything from buying, selling, change of address. This is not the core business of an AMC. So they delegate this job to RTAs. Karvy and CAMS are two popular names.
You see, so many layers behind the Mutual Fund units that you religiously buy every month.
In a bid to simplify this, SEBI has ordered all RTAs to come up with a platform where investors can transact directly. It will be like a one stop solution for customers for all their MF needs.
So does it mean we can say goodbye to all Mutual Fund aggregators and the stock exchange platforms?
Maybe not.
Several fund houses of India had assembled in the past to solve this problem. They formed a not-for-profit platform called Mutual Funds Utility that connects directly to RTAs. But the problem with that platform is that out of 44 Fund Houses, only 39 have enrolled.
So if you want to buy into a fund from the remaining 5, you will have to look elsewhere. Also, many don’t find its user interface to be that user-friendly.
Because of the mutual fund aggregators, the industry has been able to attract investments from 10 crore people in India so far.
It remains to be seen how well the RTAs execute the mandate given by SEBI. Will the new RTA led platform bring in an even bigger revolution?
Until next time…
Why just read? Come, and have a fun chat with the creators of the piece by joining us on WhatsApp (yes, it’s operated by humans and we love talking to you!)