While reading articles about mutual funds, any curious investors in the same would recently have come across the word platform many times. He would have learned that the industry is in the process of implementing online platforms, which will make investing in funds much easier. A lot of us now find the online interfaces to various transactional systems like bank accounts, credit cards, bill payment extremely convenient and we are looking forward to being able to invest online in mutual funds with the same ease.
Of course, investing online in funds is already possible. Online brokers like ICICIdirect.com have allowed online investing for a long time now and the websites of many mutual fund companies also have facilities for online investing.
So, why are online platforms considered important? What will they do for investors that existing online channels cannot? To answer that question, let us step back for a moment and visualise what an ideal online fund investing experience would be from a user’s point of view. The ideal would be if the investor would be able to log on to one single website and do everything there.
For example, if an investor’s know-your-customer (KYC) norms are completed once, then it should not have to be repeated for any new investment. If he shifts his house, he should be able to do it in one stroke for all his investments. If he wants to change the bank account into which his dividends are paid, then that to must be a single action applicable to all his fund investments. Of course, it goes without saying that such a system should provide the basics. Making a new investment should take a couple of minutes from decision to implementation, as should redeeming an investment. Consolidated statements across all investments should be available as a matter of course.
The important part is that the investor should be able to do all this without being tied into any single vendor. He should not have to repeat any basic actions that are applicable to all his investments, regardless of which distributor that investment has gone through and which fund companies’ funds it is in. Only an online interface that incorporates the above features would be a big step up for the investor.
So does all this platform talk in the media mean that we are heading for this sort of an online future? The answer is an extremely circumspect, maybe. The first issue is that the platforms that are currently in the news are basically a means for fund companies to connect to fund distributors. At this point in time, providing an interface to investors is not a major part of their functionality and providing a unified interface of the kind I’ve described is far from reality.
The other problem is that a unified interface cannot be provided by competing platforms anyway. Commercially competing online platforms will simply compartmentalise the user on the basis of platforms rather than by distributor or fund company, which is hardly a solution. The only solution is a neutral industry-wide platform which becomes something like the depository system that currently works so well for share trading. Something like this is currently under development under the aegis of the industry association, the AMFI. From an investor perspective, one hopes it doesn’t stop short of enhancing the investors’ experience of investing in mutual funds.