To make online investing as alluring as shopping, MF transaction platforms need to deliver on the feel-good
12-Nov-2015 •Aarati Krishnan
Make no mistake, mutual funds in India have a new set of rivals to contend with - online shopping portals. Anyone who has made even a single purchase online knows how aggressive these sites can be in tempting you to buy again - steep 50-60 per cent discounts, midnight offers, midweek offers, coupon codes shared 'only' with you and even chosen listings of products that the site seems to have magically guessed you can't resist!
Given these attractions, you often succumb to these offers and click on the 'buy' button. And before you know it, your bank account, with which you were hoping to start that new SIP, has been cleaned out!
This is probably why SEBI is now keen to replicate the e-commerce success with mutual fund investments. In the last couple of weeks, it has mooted a debate on why e-commerce platforms are able to so easily woo new buyers, while MFs struggle to do it. Can the use of technology make MF products equally popular, it has been asking.
It won't be easy because MF products, by their very nature, are very different from the products and services that we shop for online.
There are three points of difference.
One, most of us love to shop for new clothes, gadgets or even useless trinkets online, because such shopping gives us instant gratification. Once the product arrives, using it immediately can give us a thrill of satisfaction. Those quick thrills are why shopping has such a therapeutic effect if you are depressed or bored.
That's also why you have so many shopaholics. But you certainly won't find any invest-o-holics, because financial products do exactly the opposite. They force you to sacrifice your immediate wants so that you can earn a return sometime in the distant future. The uncertainty barrier is higher with mutual funds, because you don't even know what return you will get in that far future.
Nothing to flaunt
Second, most of us buy new gadgets, clothes or accessories so that we can flaunt them too. Owning a teakwood writing desk or MacBook Air can wow our friends because we know that only an exclusive few can own these products.
Now, where's the exclusivity associated with MF units? One MF is like any other. If we want to wow our friends with our MF investments, we can do it only after 5 or 10 years and that too, if the investment has turned a multi-bagger. Certainly not when we buy it.
Three, when shopping for products, its quite easy to make up our minds on what we like and what we hate, because our personal tastes lead us very quickly to our choices. We know instantly, from the long line-up on the e-commerce site, whether we want to click on those sky-blue Nike sneakers.
When we browse through a list of mutual funds though, we are utterly neutral about our preferences. For seasoned investors, the task is probably a little easier - they can buy funds with which they already have a good return experience. But think of a first-time investor, presented with a list of 300 odd equity schemes. Can you blame him for getting thoroughly confused and logging out?
Another factor that makes us drag our feet about MF investments is that the impact of a wrong decision is late in coming. If you pick up the sky blue sneakers and don't like them, you can simply not use them and do better next time (or even return them free of cost, these days). But with financial products, you are stuck with the wrong decision, and it can come back to bite you many years later.
How to fix it
So now that we know why getting people to buy MFs online is far trickier than getting them to buy their Diwali suits, what can SEBI and the mutual fund industry do to make MF purchases more alluring? Well, they can do the following.
One, it would certainly be difficult to design an MF product that gives you instant gratification. But fund houses can probably enhance your feel-good while investing, by reminding you about the goal towards which you are buying the fund. Suppose you just set up an SIP in Franklin India Bluechip Fund for the next 10 years. Wouldn't you feel good if the message you got was "Congrats! You've just taken the first step towards ensuring your daughter's US degree". That may make you feel more virtuous about sacrificing your current wants to make the investment. In fact, instead of mere congratulatory messages, it would be far better if online investment platforms always encouraged you to specify a goal before making any investment.
Two, it would be good if the platforms reminded investors of successful investments made in the past, every time they logged on. If you are considering a new SIP and already have four older ones running, wouldn't you be excited if a pop-up told you that your total portfolio value is up 12 times since 2005? You may not be able to brag about your brand-new investments to your friends, but you can certainly boast about your older multi-bagger funds.
Three, given that the biggest impediment to MF investing is choosing the right fund from the over-large menu, online transaction platforms should either have in-house advisors who can guide the buyer through his purchase, or online tools that allow him to make the right decision. In other products bought online, people can take the "Buy it, use it, forget it" approach.
But a portfolio of funds will need constant tracking and many mid-course corrections until the investor reaches his stated goal. This calls for an ongoing relationship between the buyer and the portal.
Therefore, far from encouraging transactions where the buyer receives no advice, what SEBI needs to do is to encourage ones where the buyer gets plenty of hand-holding. This can be done either through real-life advisers who guide him, or through quantitative tools that make the choice easier. Wouldn't it be great if an investor browsing large-cap funds, is automatically presented with a message saying - "Xyz large-cap fund has a better five year CAGR of 20 per cent with a lower expense ratio of 1.75 per cent"?
Borrowing from e-commerce and sending investment alerts to investors can be a plus too. With all the Big Data and technology tools at their disposal, it shouldn't be difficult for a MF ecommerce portal to remind an investor if his last SIP was done three years ago. Or to remind him on every January 1 to increase his SIP amount by 5 per cent. Or, even to tell him if his portfolio is due for a rebalancing from debt to equity.
Last but not the least, given the many barriers to buying MF products online, the process of onboarding a first-time investor should be made as painless as possible. Asking for multiple ID proofs, address proofs, personal verification and digital signatures is a complete no-no.
Just make it as simple as buying that iPhone and see how they take off.