UNTAPPED GROWTH AHEAD....AMC & IFA VIRTUAL ROUTE

Before we look back into 2020 we need to know how the or what type of opportunity 2021 holds for the Mutual Fund Industry. The industry has a strong growth path and the untapped side of the MF industry is an opportunity. At an IFA level, the industry has significant opportunity to grow provided one is able to identify the same. Covid-19 is blessing provided you are able to identify the boon and the curse. AMCs have big and huge opportunity to grow in the coming years. India won’t be surprised if very soon Foreign AMC’s comes back to Indian again. The existing 44 AMCs have huge opportunities to expand after identifying the right place.

 In our interaction with many IFA we have come across they are having a problem with covid-19 miserably but at the same time have lost the vision for the coming decade. Well, let’s begin with number crunching to understand and then we move ahead.

 Out of the 130 cr population, we find that MF investors are 2cr only. Whereas the registered taxpayers in India are 8.5cr. The number of income taxpayers jumped 14% in 2018/19 to 8.45 crore from 7.42 crore a year ago, registering the sharpest growth in the last five years. The Pancard holders in India are 42 cr. Adhar has 123 cr of people. Hence the numbers itself clarifies where the growth lies for the next 10 years for this industry. Even the Registered taxpayers’ number is a big opportunity for the AMC’s to tap and expand their business. These are not numbers. These are real opportunities which if properly strategized will lead to significant growth for the AMC as well for the IFA. Yes IFA is part of the ecosystem which cannot be and should not be ignored.

 Mutual fund industry registering a growth by over 20 per cent, it has only 2 crore investors. Tier 2 and 3 cities are becoming developed and post covid-19 these areas will develop faster as much of the cost will be shifting from Tier 1 cities. The rising middle class is the biggest opportunity. Rural India development leads to significant creation of wealth opportunities. These new Income tax payer numbers are the reflection of the rising middle class.

When you identify where the money flows and where the developments and aspiration growths are happening -opportunities for the AMCs lies there only.

The above picture can be seen from both angle 1) Under  penetration where the focus is much on urban side and slow towards B-30 2) Opportunity for AMC’s to tap these network through B2B platform to achieve the growth.  AMC’s cannot set up or take up the additional cost of setting up micro branches and tapping these locations. This is a very expensive affair in these tight roped situations where WFH is being promoted to cut down administration cost. This is the place where B2B network needs to come and AMC’s needs to focus on building B-30 or B-50 to be a B2B network model.

The Mutual Fund Industry has witnessed many hardships in 2020 where markets went for a toss with sudden lockdown and then the Franklin Fiasco. Investors were scared and all leaders jumped upon to calm the panic. Every corner of the industry suffered. The IFA suffered the most since they faced the only redemption and till now also they are facing redemption.  Most of the IFA living is based on Equity Mutual Funds as the brokerage on the same keeps their kitchen alive.  Job cuts, pay cuts, stoppage of SIP & redemption were part of the time. But this time when the Franklin Fiasco happened the Equity MF investors were also shaken up. Even the Liquid fund portfolio of the IFA’s got redeemed. RIA’s also suffered significantly 1) due to Covid and 2) Every Fin-tech or Robo-tech is an advisory model automated in a simple plain vanilla way to run the show. The RIA’s are no longer very exciting for many players now.

Most of the IFA’s of mid-sized size witnessed 50% erosion of the portfolio small ones are simply no longer exits. Large ones also burnt their hands but job cuts and pay cuts helped them to adjust the same. These are now well-known facts but what we don’t know is that all these investors will come back again to market may in 2021 or 2022 but not through the same channel of IFA but to the large ocean called AMC. AMC will get back the corpus but the same may not come from the known IFA (pre-covid).

In 2015 we did not have so many Fintech and smartphone-driven platforms. Now we have many hence the corpus does not need any specific hands to carry. The unfortunate truth in India is that initially when a product is launched a significant corpus is kept for marketing and taking the product to every home. This amount is called the brokerage. When an Industry scales up then we don’t need the brokers and we slowly eradicate them. There are many examples but one of the most striking one to identify is the POST Office MIS scheme which used to attract lakhs of MIS Agents when a commission was 4% and when the same was brought down t0 1% in 2011 killed those agents earning. I hope this is well remembered by everyone.

AMC’s will grow to provide the use the IFA segment judiciously to expand the business. It is well clear that many new IFA’s will come up catching the hand of the AMC’s in these untapped opportunities, as well as many IFA’s concentrated in one urban place, will die out eventually.

AMC’s has a huge opportunity to grow the business over the next 10 years. Their business will never end and their growth will continue as they move to penetrate their business. Remote or virtual branch model will be a key driver of this vertical to grow. The virtual model along with extensive activities with IFA’s in these locations will help the AMCs to grow their business.

On the other hand distributors of large and midsized should move ahead with Virtual IFA concept or branches to expand their business and tap these areas also. The same model can be replicated by the IFA’s also to reach out to B-30 or B-50 or any such area. The IFA model also needs a makeover and large ones or midsized ones needs to explore technologically to create a presence and tap these markets. Only an app will not play. IFA’s catching up with another group of IFA’s and expanding the business in B-30 or B-50 is the key to be part of the ecosystem.

AMCs needs to have their own agents created and handhold so that the whole value chain process is developed and they at an individual AMC level grow their business through their own recruited, trained IFAs. Well, you need modernisation in the whole process and infrastructure and the way you conducted business in the past decade. B2B is highly effective post-Covid-19 for expansion.

Mere Dost Picture Abhi Baki Hai.