Over the past few years, there has been a significant growth in the number of investors in mutual funds, thanks to the “Mutual Funds Sahi Hai” campaign by Association of Mutual Funds of India (AMFI) and the efforts of all the key industry stakeholders. But despite this recent growth, the penetration level of mutual funds in India remains quite low with only 20 million investors currently owning mutual funds - primarily the customers are in the affluent and high net worth segments. This presents a huge opportunity for mutual funds to cater to the needs of customers at the middle of the income pyramid. In fact, according to a recent BCG report, the Indian mutual fund industry has the potential to reach 100 million customers by the end of this decade.
While the opportunity remains huge, there are a few challenges in getting these customers to invest in mutual funds. Firstly, the traditional distributors and advisers have been historically focusing on high net worth and affluent customers, whereas the middle-income segment has been largely untapped. This is unlikely to change soon as these traditional channels find it increasingly unviable to serve this segment given the low revenue margins in mutual funds. So, the challenge is to reach out to these customers and provide them easy access to mutual fund products and services. Secondly, customers in this segment tend to be quite risk averse and lack knowledge about market linked products. The choice of products that are offered to this segment, therefore, remains highly critical. This may mean offering low-risk products to these investors to get them started and gradually expose them to long-term wealth creation products.
PhonePe with its recent launch of Liquid Fund on its platform is aiming to help this middle-income segment to start their mutual fund investment journey. Liquid Fund is the safest mutual fund product that can be used to park investors’ short-term surplus money to earn a higher return with easy liquidity (refer chart 1).
Source: ICRA MFIE, RBI
Liquid Funds typically witness steady growth and provide an easy exit to investors in the form of instant redemption as and when they need access to their money. This makes it an ideal product for investors who have short term surplus in their savings accounts.
Despite these apparent benefits, individual investors have not been investing in liquid funds. For example, as per the RBI data as of March 2019, there were 1.64 billion savings accounts in the country with a total balance of over ₹ 41 lakh crore. In contrast, there are only 2.2 million liquid fund folios of individuals with total assets of mere ₹ 0.9 lakh crore.
Source: RBI, AMFI
PhonePe with its new Liquid Fund offering will provide its over 200 million users the access to this simple yet very powerful savings product.
The author is the Head of Mutual Funds, PhonePe