Physical transactions account for only 25-27 percent of the MF industry’s inflows
As India gets ready to emerge from lockdown 4.0 on June 1, the Rs 27 trillion Indian mutual funds (MF) industry is opening its shutters, but slowly. Some fund houses have started opening their branches across India, while a few others are still hesitantly testing waters by opening only a handful of offices. Still others haven’t opened a single branch yet.
Of the 135 branches that Aditya Birla Sun Life mutual fund has, the house has opened less than a third (30 percent) of its of its outlets. A. Balasubramanian, the fund house’s chief executive officer says that the fund house has opened almost all such branches in locations that managed to get 33 percent staff strength.
In an order dated May 17, the Central government said that private offices can operate with up to 33 percent of the staff strength. Axis mutual fund too has upped the shutters of many of its offices. Of the 57 branches it has all over India, the fund house has opened all its branches in green and orange zones, totalling up to 16. It has 41 branches in the red zones that remain shut. But Chandresh Nigam, chief executive officer of Axis MF says that the fund house hopes to open them gradually.
“There are challenges; last week we had to shut down one branch in the Kolhapur, which is in the orange zone because there was a rise in Coronavirus cases there and the local authorities advised us all to close offices,” says Chandresh. SBI Mutual has already opened close to 100 of its total of 210 offices. But the fund house has avoided red zones so far.
On the other spectrum are fund houses such as DSP Mutual Fund who are opening gingerly. Of the 40 branches it has all over India, the fund houses has opened just two; one each in Cochin and Goa. “Almost all my staff has been comfortably working from home and I am not in any hurry to open our branches till we are internally convinced that it’s safe out there,” says Kalpen Parekh, President, DSP Investment Managers. Tata mutual fund too hasn’t opened any of its 72 branches yet. Prathit D. Bhobe, chief executive officer of Tata mutual says that the fund house has started internal discussions about how to open its branches and the standard safety protocols it must put in place to ensure branches remain well sanitized.
For the MF industry though, keeping the shutters down hasn’t been such an inconvenience during the pandemic. Much of the industry’s inflows come digitally. Apart from the fund houses’ own websites and R & Ts’ (registrar & transfer agents) mobile apps that allow investors to deploy and redeem electronically, a chunk of inflows also comes in through the industry’s platforms for distributors such as BSE Star, National Stock Exchange, R & Ts’ platforms for straight-through processing for large distributors and the industry’s own platform Mutual Funds Utility (MFU). Anuj Kumar, President & CEO CAMS (one of India’s largest registrar and transfer agents) says that physical transactions used to account for 30-35 percent of the MF industry’s inflows two years ago.
Of late – even before the pandemic struck – they accounted for just 25-27 percent of the inflows. The balance used to flow through digitally. But after the closure of R&Ts and AMC branches during the lockdown, all transactions came online for a few weeks.
Hanoz Patel, co-founder and partner, Power Pusher Financial Services LLP, is one of the leading MF distributors in western India. The firm’s clientele includes a largely well-off, but miniscule, Zoroastrian community that has a large chunk of senior citizens. On a normal day, Hanoz’s team of six people are buried in a stash of physical applications. As India’s lockdown began, Power Pusher enrolled for CAMS edge360; an online portal launched in August 2019 that focussed on independent distributors (it has around 25,000 distributors on-boarded already) through which they can invest their customers’ funds online. Now, all Hanoz does is to log into the platform and initiate a transaction. A weblink goes to the investor’s email account, which the customer needs to click. A One-Time Password gets generated, which goes to the investor’s mobile phone for authentication. The link then takes the investor to her own bank’s internet banking channel and the amount gets invested in the fund.
March 2020 was crucial as from April, the dividend distribution tax gets abolished. Instead, dividends will now get added to our income and get taxed at our slab rates. A large number of transactions, Hanoz and CAMS point out, took place in March where investors shifted out of their dividend plans, leading to a peaking of switch transactions. The MF industry’s online preparedness took good care of it.
Much of the inflows through physical applications come in MFs through R&T offices. CAMS has 265 branches all over India. Since a single R&T serves multiple fund houses, distributors who handle physical applications prefer to visit an R&T branch to submit applications across multiple fund houses at a single counter. CAMS has been opening its branches from as early as April.
The new normal for branch visitors
Fund houses are making elaborate plans about having standard operating procedures as they open their branches. Some fund houses such as Aditya Birla have recommended that their investors download the Aarogya Setu app (the contact tracing app by the Government of India) on their mobile phones and show their status at the entrance of branches. Visitors who don’t have the app installed are required to fill a lengthy form elaborating their health status and travel history. The government of India has not yet mandated the use of Aarogya Setu although it has urged its citizens to download the app. On Axis mutual’s protocols, Chandresh says that the branches will put in place the necessary sanitisation required, though the health app is not mandatory. All fund houses mentioned here intend to provide face masks to visitors. A few others may give away gloves as well.
“Although we have started opening branches, that’s more for us to get them ready, cleaned and sanitized before they are opened as collection centres,” says Swarup Mohanty, chief executive officer of Mirae Asset Global Investments (India).Physical branches may be important, but with the growth in digital adoption and the industry’s online preparedness, customers can invest via web portals comfortably.