“Mutual funds’ share in the country’s financial savings is still about 6%, and AuM penetration as a percentage of GDP is at half or one-third of other developed countries”, states the AMFI report.
To achieve the 100 trillion AuM growth mark, India will need to multiply its investor base by five times to reach 10 crore investors.
We believe the potential the Indian market has is colossal indeed, but there are a few barriers that are preventing the success and growth of the market, such as:
- The vastness of the land and industry’s wherewithal to reach every potential investor.
- Decline in the gross household savings rate - 37.8% in March 2008 to 30.5% in March 2018.
- Lack of inclusion of the middle-income group due to complexities in product comprehension.
Do you believe an additional 4 lakh ARNs is the only solution to gain this feat? Though the impressive growth of the financial planning software in India is beginning to look promising already, we have to address these problems together. Besides, we would also be needing constructive and practical solutions.
Where should we start?
Let’s begin with the banks; the average number of bank branches in T2, T3, and the rest of India undeniably and vastly exceeds the average number of ARNs. AMCs could operate on a hub and spoke model in co-operation with the widespread reach of bank branches, payment banks, and other direct channels. The goal here is to equip these employees with a better understanding of Mutual Funds, its potential to maximize savings, and, most crucially, the benefits in its earning potential when compared to insurance policies. To influence, educate, and shift seasoned investors from traditional instruments like fixed deposits to MF products may take a while, but with the right support, this change is possible. Additionally, with the best mutual fund distributor software in India, things won’t turn out to be messy.
Besides, I believe the potential of the IFAs is acutely under-utilized when it comes to their access to the widespread population. Furnished with in-depth intelligence, up-to-date information, and seamless backend support, this would mitigate risks involved and better equip IFAs to service existing clients, while comfortably acquiring new customers simultaneously. As already discussed, there lie the issues of cut in equity funds ER and dissolution of the upfront commissions, challenging newly joined IFAs to balance their operating expenses. Some may discuss the need for AMFI to disburse business loans to newly appointed IFAs at lower interest rates, but would that suffice? I believe it wouldn’t. We must arm our IFAs with significant knowledge and support to spread awareness to the untapped Tier 2 and beyond markets, only then will their true potential be unleashed.
This approach could address the barrier of reach across the country and include the middle-income investors who are currently untapped. The right support from the industry will lead to a rise in the number of IFAs and, in-turn ARNs in the future, taking us to the inevitable 100 trillion AuM goal.
To Round it Up!
Mutual funds are among the things we all look up to, so why not extend the mutual funds to every one of us. Though the financial planning tools in India are doing their best, it’s time that you all contribute to making the venture successful.
By Rajan Pathak, Co-Founder & MD, Fintso
Rajan is known for his in-depth insight into the financial entrepreneur’s venture with 25+ years of establishing various B2B businesses, which gives him the edge and adeptness to scale the advisory business.
As the CEO of IFAN Finserv (formerly ING), Rajan managed a team of 40+ people, created a wide network serving 1300+ Independent Financial Advisors managing assets over $500 million.