Revolution of Distribution Channel in Indian Mutual Fund industry

The financial services segment is witnessing myriad changes in ways that are more dramatic than one would have foreseen a few years ago. From smart technologies to collaborative software and more, financial institutions are remodelling or adopting newer ways to reach out to customers. Taking a leaf from the evolving financial ecosystem is the Mutual Fund (MF) industry which is working in tandem with the changing investor needs and market scenarios.

For instance, the distribution channel of the Mutual Funds industry is arguably of utmost importance and influence. Look at the conventional MF Distribution process. It is designed in a way that leads to lot of paperwork, cumbersome and error-prone manual processes with high cost to the industry. The traditional sales/distribution model wasn’t helping AMCs to drive AUM growth or reduction in TER and led to additional costs and inefficiencies in the system.

Some of the drawbacks of the traditional MF distribution channel are:

• High TAT and Inefficiency:

– Transaction forms are physically submitted by distributors visiting AMC/RTA Office
– AMCs deploy manpower to collect transaction forms from distributor location
– Lot of paperwork, manual errors, lack of coordination, time stamping issues, etc. adding cost to AMCs
– RTA processes only those fund houses they serve
– Lack of manpower reach across pan India to connect or train distributors

• Lesser sales growth:

– Only large-scale AMCs or AMCs with banking channel and deep pockets were able to flourish, irrespective of fund performance.
– Mid or low scaled AMCs sales continue to drop irrespective of fund performance due to lack of distributor reach
– No level playing field for distributor fraternity as only a few key distributors were driving >80% of Industry AUM covering a few top AMCs.
– Erosion in distributor count due to high TER and reduction in commission

• High Cost to AMCs and Industry:

– Higher TER as AMCs were incurring high cost, upfront fees and marketing expenses irrespective of AUM growth.
– AMCs incurring higher cost for physical form of transaction
– Many AMCs could not afford to have their own digital platform
– AMCs need to employ RM across regions, and incur manpower and overhead expenses
– Only AMCs with deep pocket could afford physical offices/manpower at remote/B30 locations.
– Overall industry growth impacted due to higher TER and cost
It’s vital for any distribution channel to devote time for acquiring new clients, retain them to stay invested, reduce their operational cost and upgrade themselves with evolving market dynamics. AMCs are also in need of distribution channels who can cater to new markets, especially in B30 locations.

Through extensive efforts and in in line with the vision of market regulator, to significantly improve retail penetration and drive digitization, digital distribution platforms are now empowering the Mutual Fund industry.
BSE StAR MF platform has been instrumental in driving this change and providing an effective medium to improve efficiency and reduce costs, and pass on these benefits to investors

How BSE StAR MF Digital distribution had positive impact:
• Lowering TAT and driving efficiency:

– No need of physical visit by AMCs or Distributors
– AMCs/RTAs redeployed manpower to other business activities
– No Paperwork, significant reduction in manual errors and complete elimination of other prevailing issues
– StAR MF is open for all AMCs and all schemes
– Dedicated helpline, regional RMs and central team helps in driving efficiency and addressing transactional issues.
– BSE takes efforts in reaching out & empanelling distributors across India and training them.

• Higher Sales:

– BSE StAR MF consistently contributed positive equity net inflow to the industry though industry reported negative net equity inflow.
– Many AMCs who ranked among top 25 a year before, is now part of Top 10 Sales volume rank including mid or low scaled AMCs
– Addressed the level playing field in distributor fraternity by bringing many Distributors, Fintech, banks etc. Approximately 95 fintech players are connected to BSE StAR MF as of mid Sep 20
– AMCs were able to increase Sales due to BSE’s increase in distributors count (68k+ as of mid Sep 20), training and conducting product webinars in collaboration with BSE.

• Reduction of Cost to AMCs and Industry:

– BSE StAR MF has helped AMCs to reduce TER and significant reduction in cost incurred by AMCs as compared to conventional distribution mode
– AMCs without their own digital platform can completely migrate and digital platform maintenance cost has reduced for other AMCs
– For AMCs, Distributor management cost were Zero as BSE StAR MF was managing all the reconciliation, queries and other services to Distributors.
– Overall BSE StAR MF can help in industry growth by reducing cost and TER and able to consistently surge digital growth.

BSE’s Path-Breaking Digital Distribution Initiatives:
– Empanelling 68k+ distributors with 46% of Distributors are from B30, last 3 years YoY growth in distributors count was >200% and to specifically empanelled 10850+ Distributors during lock down period (Apr20 to Aug20)

– 1st platform to introduce: (1) Common empanelment for easier empanelment & (2) Phygital Focus for easing digital onboarding for Distributors. These were introduced much earlier to Lockdown period which is significantly benefiting AMCs now

– It is a platform for all type of distributors – Stockbrokers, MF Distributors, RIAs, Banks, PMS, etc

– Dedicated Helpline, Telegram Group with 8k+ active distributors, Dedicated RMs with vernacular support, imparting continuous training, webinars for new schemes/NFO etc

– Seamless high-tech connectivity: Web and App based platforms with API & IML plug & play mode. This has made BSE StAR MF a go-to platform for Fintech and other digital players to connect

– Continuous Value addition services like eKYC, Back office Portfolio software, Brokerage Management, SIP Pause etc

– Knowledge based and Skill upgrade Webinars/events with AMCs, Fintech, IFA associations, Banks, etc
BSE has been quoted as “UPI of MF Industry” as it’s a pioneer in digital distribution and instrumental in driving online MF Distribution infrastructure for Distributors/Advisors, Investors, Fund Houses and other industry participants.

Clearly, technology has played an important role in the evolution of MF industry and has minimised inherent risks that led to improved financial inclusion and boost in the industry’s penetration.

The author of this article is Mr. Ganesh Ram, Business Head-Mutual Funds, BSE

The views and opinions expressed are not of IIFL Securities, indiainfoline.com