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Towards Effortless Investing

The online platform being created by the fund industry holds out promise for a great investing experience

Over the last few days, anyone interested in mutual funds would have read a number of news items about something called a ‘platform’.

The fund industry is in the process of creating online systems through which investors and fund distributors will be able to carry out transactions much more easily. To anyone who is used to online interfaces in banks, bill payment, travel bookings and such would no doubt be looking forward to experience the same ease while investing in funds. Some degree of online investing is already possible in mutual funds. Online brokers like ICICIdirect.com, as well as some fund companies’ own websites, have facilities for online investing.

However, online platforms are generally being seen in the fund industry to be a significant step forward. To judge their importance, let us step back for a moment and visualise what an ideal online fund investing experience would be from a customer’s point of view. The ideal would be if the investor would be able to log on to one single website and do everything related to his investment experience there.

For example, once the know-your-customer (KYC) profile is undertaken, it should not have to be repeated for a new investment. If he shifts house, he should be able to change the address 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. 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 for funds or for fund distribution. On a relative scale, such a system would be tremendously empowering for smaller distributors, smaller fund companies and for smaller investors and thus, democratise fund investments. The mechanics of the system that is being planned seems to involve extending the existing system of share depositories, demat accounts and the stock exchanges’ trading platforms to be able to handle mutual fund transactions.

Of course, in all this excitement, it must be noted that an electronic platform for buying and selling mutual funds only improves the mechanics of making fund transactions. It will certainly lower the cost and thus help the fund industry (fund companies as well as distributors) to be able to handle the lower costs better - that have been necessitated by the abolition of entry load.

The platform does clear a path for a bigger future, but something else must make investors want to walk on it. I get a lot of queries from investors about fund investments, but they are almost all about whether funds fit into their financial goals and about how to choose the right type of funds. For investors, the kinds of problems solved by the platform are secondary to their financial goals being served.