How is the increasing proliferation of direct plans and the new age platforms changing the dynamics between the three key stakeholders - the investors, the distributors, and the manufacturers (AMCs)?
The proliferation of direct plans has shrunk margins for all the three stakeholders mentioned. However, this has increased the market size exponentially and will continue to do so. Thus, in the long-run, margins will expand for all the stakeholders.
We must also evaluate whether the archaic physical form-based system is viable going forward. If margins are shrinking, we believe that the entire industry should stride towards complete digitisation. This will not only improve margins but make investing a leaner process - a win-win situation for all the three stakeholders.
Another point of interest is the fact that it is the small and SIP-based investors that have been adopters of direct plans through RIAs/new-age platforms. For the large, HNI customers, distributors are still the preferred route to choose as they expect greater levels of service and experienced asset-allocation guidance.
Many people these days take to equity investing by owning the stocks directly. Innovations like smallcase are further catalysing this trend. What implications do you see on the businesses of mutual funds? Can they pose a challenge to the growth story you would envision for the fund industry?
Every industry goes through certain phases; it's the very nature of business. In the past few years, fund managers were complacent. Thus, their schemes have delivered below-average returns and have failed to outperform their respective benchmarks. Hence, many people have taken to direct investing. However, in the last few quarters, a few new AMCs and select schemes are reversing this trend.
It is also interesting to note that developed markets have already experienced this trend and looking at that, we foresee the size of the industry to grow exponentially. Hence, the domestic mutual fund industry too will gather momentum. Direct investing has also increased the level of activity in the markets. This is a very healthy trend for the Indian capital markets as it will lead to lower impact costs and a more efficient market for all.
An important thing to note here is that a lot of the new-age innovators in the financial industry are still unregulated. In our view, the regulated space will always have an edge over the unregulated one.
- Investment guru/manager you admire the most: Jim Simmons
- Business leader you'd like to emulate: Radhakishan Damani
- The most rewarding financial investment you've ever made: Establishing the brand 'quant'
- Money mantra you swear by: quant's VLRT framework
- If not a money manager, you'd be: Sound engineer