SEBI
to eye e-commerce companies for selling mutual funds reminded me of what
happened with Motorola.
The
fortunes of Motorola revived due to e-commerce portal Flipkart when it started
selling moto phone models in 2014. Always a user of motorola products in the
previous decade, I was an early adopter of a Moto-G phone. So, when any one
around me asked me about a phone for purchase, Moto E/G, due to the “value for money”
proposition was the obvious suggestion. However, the biggest concern (with 100
percent strike rate) was “post purchase service”. Does Motorola have service
centers around the city/country? was the popular enquiry. I had to literally
coax them to buying Moto stating that the servicing may not be required at the
first place and even if it is required
our “around-the-corner” mobile service centres will be equipped. Moto was a big
success for both Motorola and for Flipkart.
I am
glad that SEBI is thinking creatively to increase penetration and dismiss the
theory that they are just following the herd mentatlity of every thing going
digital. However, I am intrigued about the modus operandi.
Firstly,
there is a talk of new plans for each online player. Like in other countries,
there could be different share classes for each fund. Depending on the commission
paid to e-commerce companies, there could be multiple plans – one for flipkart,
one for snap deal, one for paytm etc. This will take mutual funds back to
pre-2009 era where SEBI in all its wisdom (and rightfully so) thought that
there should be only one saleable plan – the regular plan – no institutional, no
super institutional, no retail et al. Again in 2012, came the advent of direct
plans. That doubled the number of plans available to deal with. Now comes FK
plans, SD plans, PTM plans among others and not to forget their
daily/weekly/monthly/quarterly/yearly dividend options.
Alternatively,
there could be only one plan for e-commerce players. Defining a seperate TER
(Total Expense Ratio) may do the trick. The draw back in this is that this channel
can mobilize larger assets but still get paid lower than the traditional
channels. To ennumerate, a fund charging TER of 2.5% for regular plan may pay
1% to distributor. E-commerce plan may charge 2% and pay 0.8% to the ecommerce
company. Why should the online company agree? I hope predatory pricing is not
allowed in one form or the other. Else, it would tantamount to “paying back”
the investor to acquire him.
One
more element which needs to be focussed on is that investment unlike
consumption does not involve instant gratification. In whatever way the
information about a fund for purchase (after research and through use of
analytics) is presented, there will be other funds which would better. There
comes the element of dissappointment to the investor and I am not sure how
ecommerce companies will be equipped to deal with this. The new model may
remove any human interaction. The investors usually need human intervention during
periods of market crashes – Yes! There will be bad times in markets as well.
Post
the spending binge, the e-commerce companies will return to normal pricing. In
this steady state, the gross margins on goods sold would be in double digits
(20-50%). Compared to this, the best margin in a mutual fund is 1% and that too
as trail (thanks to recent guidelines by AMFI). Will ecommerce companies be excited
to participate in this opportunity? Or should SEBI focus on getting MF Utility
equipped to deal with this opportunity. Sadly, in over two years of wait, all I
have seen is an issuance of a number (yet another in ones life called CAN) and
no online facility. Already exisisting online
portals need to be assisted – especially on the long winding-never ending KYC
process.
While
one may not turn a blind eye to the growing digitization era, the traditional
channel should also be supported and expanded. There are harldy 20,000 active
mutual fund distributors (and sadly most of them distribute insurance, amway
products, tupperware etc as well) for a population of 1.25 crores people. They
are hit by the constantly changing regulations and market dynamics. There are
lakhs of insurance agents who work in a silo of their when the end customer
needs are mostly the same – achieving the goals set out by him/her. My fear is
that more country men than not may end up living poorer if these solders on the
ground are not guided / taken care of. There is nothing like a perfect
solution!. However, I feel that a combination and association of the online and
offline models is the way forward.
Disclosure: Views are personal. Numbers quoted may have margin of error.
