Direct mutual fund platforms finally have a route to generate revenue as the markets regulator has come out with guidelines for a new set of execution-only platforms (EOPs), but they are not sure how to monetise their offerings.
Players like Groww, Zerodha’s Coin, ETMoney and others who were offering direct mutual funds to their users for free will now be able to charge for their services.
But the question these fintechs are grappling with is, who do they charge for their services? Especially given the direct market was created on free services, creating a monetisation avenue now might be tough, industry insiders said.
The Securities and Exchange Board of India (Sebi) in a directive issued on June 13 spoke about the creation of a new category of companies as EOPs.
The market regulator has created two categories of EOPs – those that will work with the asset management companies, and those that will work on behalf of investors. Depending on whose behalf they work with, they can create a revenue model accordingly.
Direct MF platforms could become EOPs and charge for their services. They are not sure how.
Discover the stories of your interest
“The question now is, who will pay for these services which for so many years have been offered free of cost?” said a top executive at a wealth tech startup who requested not to be identified. “Consumers are used to getting it for free and AMCs have not paid these companies ever.”Getting new business
Direct MFs are increasingly gaining traction among retail investors. Data from Association of Mutual Fund of India (AMFI) shows that as of May 2023, 21% of the retail investors chose to invest directly. This share is growing quickly.
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A founder of a large direct mutual fund platform pointed out that given so much of the new business is being brought by the direct platforms, they can pitch a paid arrangement with AMCs.
The question is, with their research and right profiling of the customers, will they be able to help them switch to the right AMCs and their right products?
“We believe EOPs should be considered direct to consumer digital platform & will continue to play pivotal role in increasing penetration of mutual funds in India. Therefore remuneration structure for EOP should be based on the value provided and costs incurred across an investor’s journey, from customer acquisition to transaction to providing strong support,” said Mukesh Kalra, founder, ET Money.
ETMoney is part of Bennett, Coleman & Company Ltd that also publishes ET.
Another top executive in the mutual fund space said it might be difficult for these platforms to charge customers, given in the internet world most of the consumers are used to getting their services free.
“The understanding is very clear… Offline is mostly sold through the regular route but when you are selling anything online, it has to be through direct channels and without any additional charges,” the wealth tech executive quoted earlier said.
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Keep it free for consumers
The overall consensus in the industry seems to be towards charging AMCs and keeping it free for consumers.
But the question doing the rounds is, who will take the first step towards a fee-based structure?
“Among all the major fintechs, only PhonePe runs a regular platform with a fee channel, most of the others are offering direct services,” said a top executive at a large brokerage house.
He also pointed out that MFCentral – a platform built by KFintech and Cams where an investor can transact across all his or her MF portfolio – has made buying mutual funds extremely easy for individuals.
The experience is much better than buying from the AMCs directly, the executive added.
It is this dilemma that has gotten many top executives at direct MF platforms confused. Most of the people at these firms ET spoke to said they are still deliberating on the way forward.
Players like Zerodha and Groww are generating massive revenue from their core trading offerings. They mostly look at the MF platform as a customer acquisition tool.
“Even if one platform is offering for free, how do the others convince the consumers to pay for similar services,” said the fintech founder quoted earlier.
Top executive at a brokerage house pointed out that the investors could eventually push all of these platforms to becoming EOPs. Investors are looking for returns and they are pushing their portfolio companies to chase revenue, he added.
Interestingly, the very startups that disrupted the market with free offerings are now grappling with revenue generation opportunities despite being allowed to do so by the sector regulator.
Direct mutual fund platforms finally have a route to generate revenue as the markets regulator has come out with guidelines for a new set of execution-only platforms (EOPs), but they are not sure how to monetise their offerings.
Players like Groww, Zerodha’s Coin, ETMoney and others who were offering direct mutual funds to their users for free will now be able to charge for their services.
But the question these fintechs are grappling with is, who do they charge for their services? Especially given the direct market was created on free services, creating a monetisation avenue now might be tough, industry insiders said.
The Securities and Exchange Board of India (Sebi) in a directive issued on June 13 spoke about the creation of a new category of companies as EOPs.
The market regulator has created two categories of EOPs – those that will work with the asset management companies, and those that will work on behalf of investors. Depending on whose behalf they work with, they can create a revenue model accordingly.
Direct MF platforms could become EOPs and charge for their services. They are not sure how.
Discover the stories of your interest
“The question now is, who will pay for these services which for so many years have been offered free of cost?” said a top executive at a wealth tech startup who requested not to be identified. “Consumers are used to getting it for free and AMCs have not paid these companies ever.”Getting new business
Direct MFs are increasingly gaining traction among retail investors. Data from Association of Mutual Fund of India (AMFI) shows that as of May 2023, 21% of the retail investors chose to invest directly. This share is growing quickly.
ETtech
A founder of a large direct mutual fund platform pointed out that given so much of the new business is being brought by the direct platforms, they can pitch a paid arrangement with AMCs.
The question is, with their research and right profiling of the customers, will they be able to help them switch to the right AMCs and their right products?
“We believe EOPs should be considered direct to consumer digital platform & will continue to play pivotal role in increasing penetration of mutual funds in India. Therefore remuneration structure for EOP should be based on the value provided and costs incurred across an investor’s journey, from customer acquisition to transaction to providing strong support,” said Mukesh Kalra, founder, ET Money.
ETMoney is part of Bennett, Coleman & Company Ltd that also publishes ET.
Another top executive in the mutual fund space said it might be difficult for these platforms to charge customers, given in the internet world most of the consumers are used to getting their services free.
“The understanding is very clear… Offline is mostly sold through the regular route but when you are selling anything online, it has to be through direct channels and without any additional charges,” the wealth tech executive quoted earlier said.
ETtech
Keep it free for consumers
The overall consensus in the industry seems to be towards charging AMCs and keeping it free for consumers.
But the question doing the rounds is, who will take the first step towards a fee-based structure?
“Among all the major fintechs, only PhonePe runs a regular platform with a fee channel, most of the others are offering direct services,” said a top executive at a large brokerage house.
He also pointed out that MFCentral – a platform built by KFintech and Cams where an investor can transact across all his or her MF portfolio – has made buying mutual funds extremely easy for individuals.
The experience is much better than buying from the AMCs directly, the executive added.
It is this dilemma that has gotten many top executives at direct MF platforms confused. Most of the people at these firms ET spoke to said they are still deliberating on the way forward.
Players like Zerodha and Groww are generating massive revenue from their core trading offerings. They mostly look at the MF platform as a customer acquisition tool.
“Even if one platform is offering for free, how do the others convince the consumers to pay for similar services,” said the fintech founder quoted earlier.
Top executive at a brokerage house pointed out that the investors could eventually push all of these platforms to becoming EOPs. Investors are looking for returns and they are pushing their portfolio companies to chase revenue, he added.
Interestingly, the very startups that disrupted the market with free offerings are now grappling with revenue generation opportunities despite being allowed to do so by the sector regulator.
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