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Investing in innovation

Mutual funds are going off the beaten track to connect with customers, though the results have been mixed. While some have worked well, others have not gained as much traction

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The mutual fund industry may be going through tough times but this does not seem to have slowed down the players who have come up with several interesting innovations and measures in the last few years.

Some of these include the use of mobile phones to carry out mutual fund transactions; allowing easier redemptions by linking funds to a debit card; allowing investment in gold exchange traded funds even without a demat account as well as bringing in a protection angle to investments to take on rivals in the insurance space.

However, it's a fair bet that most investors haven't heard of them, considering the state of mutual fund penetration. The mutual fund industry has 41.3 million folios or investor accounts, according to data as on September 30, from the Association of Mutual Funds in India. For a country with a population of 1.2 billion, this represents a penetration of around 3 per cent, assuming no duplication in the folios, which is said to account for a fourth of the folios.

The first of the innovations looks to leverage the widespread use of the telecom industry to improve the penetration by bridging the gap between investors and mutual fund products. This is done by allowing them to transact through the use of the messaging service on their mobile phones. Investors, however, must first register for the facility with the fund house. They will then receive Personal Identification Number or PIN to authenticate these transactions.

If the investor wishes to buy a mutual fund, he messages 'buy' followed by the amount and the PIN. A similar procedure is to be followed if he wishes to sell or redeem his units. The facility can also be used for switching the investment from one scheme to another. There were 1,600 transactions in October through SMS and use of internet through mobile phones, according to an estimate by Reliance Mutual Fund.

A joint report by the Confederation of Indian Industry (CII) and consultancy firm PricewaterhouseCoopers entitled 'Unearthing the growth potential in untapped markets' noted the need for innovative delivery mechanisms, especially in rural areas.

"Some fund houses are riding on the mobile wave and using this route to make the operational procedure simpler and hassle-free for investors. They can either opt for application based or SMS-based investing. The latter is simpler and does not require the user to have a smart phone or high-speed internet connectivity, whereas application-based services require a smart phone with GPRS connectivity," said the report which was released in June

General Packet Radio Service or GPRS is a telecom technology allowing internet access. The report also suggests exploring other means to enhance distribution.

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First Published: Mon, September 14 2020. 17:22 IST
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