Fintech platforms are leading a rapid expansion in mutual fund investor base, allowing small-value systematic investment plans (SIPs) starting as low as Rs 500 a month as their tech-first approach helps them distribute these products at lower costs, industry executives said.
Data from last year, sourced from asset management companies, showed that on an average SIPs through platforms such as Groww, PhonePe and ET Money ranged between Rs 1,500 to Rs 2,500 against Rs 5,000 for traditional firms.
Groww, the largest player in this segment in terms of new plans being added monthly, had an average SIP value of between Rs 2,000 and Rs 2,500 while it was around Rs 1,000 for Walmart-owned PhonePe, data showed. For ETMoney, the amount stood at around Rs 2,600. ET Money is a subsidiary of Times Internet, digital arm of the Times Group that publishes this paper.
“Over two-thirds of our mutual fund customers and assets under management (AUM) are from beyond the top 30 cities… In contrast, at an overall industry level, approximately one-fourth of individual investors’ AUM is contributed by investors from these cities,” said Ujjwal Jain, chief executive officer of Share.Market, the wealth management subsidiary of PhonePe. “As a result, our average ticket size has been on the lower side,” he said.
As these customers get more comfortable investing in mutual funds, the average ticket size will improve, Jain added.
The increase in market share by fintechs is proof of how direct mutual funds are gaining popularity over regular ones.
“Online direct, which is what fintechs in India drive, has grown significantly over the years and in a short span, contributed to almost 40% of the industry’s incremental new user growth,” said Mukesh Kalra, chief executive officer of ETMoney. Within a span of around six years, these tech platforms had managed to overtake the traditional businesses, which have been operating for more than 20 years, he added.
Mutual fund investor count in the country grew by over 20 million in 2023 to reach around 42 million, according to Association of Mutual Funds in India (AMFI). The industry’s assets under management (AUM) reached Rs 50 lakh crore last month, as per AMFI data released on Monday.
On January 3, ET reported that fintech startups are emerging as top distributors of mutual fund products, adding lakhs of new SIPs every month. They drew in nearly half the new SIPs opened in November 2023, according to data from asset management companies shared exclusively with ET.
Groww managed around 5.4 million SIPs, ETMoney was at 1.03 million while Paytm Money, the wealth management arm of Paytm, had about 850,000.
PhonePe saw over 1.15 million successful mutual fund SIP transactions in November 2023, which increased to over 1.24 million in December 2023.
In November, the overall industry had around 74 million SIP accounts, according to data from AMFI.
Mumbai-based AngelOne reported about 720,000 unique SIPs registered in the second quarter of the current fiscal.
“One of the biggest factors investors think about when choosing a platform is trust… We primarily cater to do-it-yourself users who are savvy enough to manage their own investments,” said Neelesh Verma, product head, mutual funds, at online stockbroking firm Zerodha.
Verma added that the average ticket size for SIPs on Zerodha range between Rs 5,000 and Rs 6,000 and the assets under management (AUM) for their mutual fund business stood at Rs 58,000 crore.
Groww and Paytm Money did not respond to ET’s queries as of press time Tuesday.
Retention Challenge
Fintech though face issues around cancellation of SIPs with some of these investors missing their payments on a monthly basis.
According to AMFI data, between April and November last year around 13 million SIPs were either closed or discontinued.
“For fintechs, retention has been a challenge as average ticket size of investments are low, which shows there might be limited appetite to invest,” founder of a wealthtech startup said on the condition of anonymity.
With the proliferation of direct mutual funds, there are also questions on the revenue model for these startups, given direct funds are offered free of cost.
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ETMoney’s Kalra said direct platforms are either generating revenue from broking or by charging customers a wealth management fee, which is a recurring revenue generation model. While broking is high initial monetisation and intensely competitive, the other two are recurring, long-term business models and are emerging white spaces, he said.
“The introduction of EOP (execution only platforms) licence by Sebi has provided a new monetisation avenue for online-direct platforms like ET Money wherein the players can make money on every transaction either by charging customers or by getting money from AMCs,” Kalra said.
While pushing small-ticket SIPs helps in increasing penetration, what needs to be balanced is the sustainability of the model at an industry level, said a fintech founder operating in this segment. Lower-sized SIPs do not build AUMs, which is why there is a need to look at business models away from mutual funds, he added.
