How technology is propelling the mutual funds industry

With a large strata of the population not yet covered by the mutual fund industry, technology provides the much needed push to expand reach

Updated: Oct 17, 2018 11:42:24 AM UTC
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In today’s age, technology is par for the course. In any walk of life, its ubiquitous presence has made things ‘smart’.

The financial markets are no exception. Take a look at the mutual fund industry, for instance. Caught in the web of digitalisation, it has begun to use technology intelligently across all its processes - fund management, executing transactions, and customer servicing.

In fact, digitalisation of the payment spectrum is the key to the industry’s meteoric rise in recent years. The industry’s assets under management more than tripled from Rs 7.66 trillion in August 2013 to over Rs 25 trillion in August 2018.

Proof lies in the data
In the two years ended March 2018, the volume of digital payments via mobile phones increased over 100 percent on an annualised basis. While payments through Immediate Payment Service (IMPS) surged 106 percent, mobile wallets and mobile banking volumes jumped over 120 percent each. In contrast, the volume of payments through debit and credit cards – the more mature digital payment systems – logged 15 percent annual growth.

In the mutual fund industry, the share of digital gross inflows increased from just 0.5 percent two years ago to more than 6 percent in March 2018 and to nearly 10 percent in June 2018.

Share of digital payments in overall inflows has surged
SM_shutterstock_563843218 Room for more
Huge digital progress notwithstanding, there is scope for further penetration – across regions and investor segments. Data shows that the adoption of digital payments is higher in T15 cities than in B15 peers*. Another analysis shows that the usage of digital payments is the highest from institutional investors, who tend to have more knowledge of the product spectrum and financial avenues than their individual/retail counterparts.

With a large strata of the population not covered by the mutual fund industry yet, technology provides the much-needed push to expand reach. Besides, individual investors get an opportunity to take part in the India growth story.

Meanwhile, increasing adoption of technology by the industry will also aid in reducing the overheads, especially in light of the long-term aim of the regulator and industry to reduce costs associated with the investment avenue.

Way ahead
Availability of information and hence, awareness have strengthened the cause of digitalisation. The government is doing its bit, too, through extensive efforts at financial inclusion — spreading financial awareness to the remotest parts of the country, and bridging the geographical divide. The government and markets regulator Securities and Exchange Board of India (Sebi) has also taken several initiatives to boost the fintech ecosystem and provide startups with new opportunities to launch competitive products. Introduction of payments banks and small finance banks has improved financial inclusion.

Clearly, the role of technology can only get bigger from here. Adoption will be a win-win for all – the industry, intermediaries and investors. It will deepen the industry’s penetration, provide it an effective medium to improve efficiency and reduce costs, and ultimately bestow these benefits on investors.

*T15 stands for top 15 cities, while B15 means beyond (top) 15 cities as defined by the Association of Mutual Funds of India (AMFI) based on inflows of fund house and geography. This has now been reclassified to T30 and B30 cities by SEBI from April 1, 2018.

The author is a Senior Director – Funds and Fixed Income at CRISIL Ltd.

The thoughts and opinions shared here are of the author.

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