[AI] No-frills mutual fund investing
Surya Prakash Sharma
surya.sharma26 at gmail.com
Sun Aug 8 06:23:39 EDT 2010
many of us face difficulties in investing in Mutual funds through traditional methods. in my view this new online platform may be of some help in this regard.
No-frills mutual fund investing
businessline sunday, august 8th, 2010
With more than half of its 6,000 registered clients investing actively and a recent Rs 3-crore fund infusion from a venture capital firm, the start-up appears to have got past teething troubles.
A no-frills platform for online investing - that's the idea which Srikanth Meenakshi and C.R. Chandrasekar, both technology professionals from the US, hit upon when they decided to start a new venture in India. FundsIndia (www.fundsindia.com), an online portal that allows you to buy and sell mutual funds, stocks, fixed deposits, and pension schemes is their brainchild.
A year after its launch, the portal is still perhaps the only online personal finance service that offers investors a free platform to invest in mutual funds (Yes, free! As in you pay no fee, load or commission). The portal doesn't just allow you to buy and sell funds, it goes a step further by allowing to put your investments on autopilot - through facilities such as 'Trigger' and 'Value averaging'. Investors often find their mutual funds tough to monitor, scattered as they are across so many fund houses. FundsIndia allows you to hold all your funds through a single account, making your task easier.
With more than half of its 6,000 registered clients investing and a recent Rs 3-crore fund infusion from a venture capital firm, the start-up appears to have got past teething troubles. We thought it a good time to catch up with the founders, to find out what made them take the road less travelled.
Finding the gap
Having worked with technology-driven financial service firms in the US, both Srikanth and Chandrasekar could see a huge service gap in the Indian mutual fund industry. While there were several equity-based trading platforms,there weren't any mutual fund investing platforms.
All funds charged a 2.25 per cent entry load prior to 2009, and the partners saw the opportunity to waive that load and offer a no-frills option to mutual fund investors. It is another matter that the SEBI banned entry loads on all funds just a couple of days after the launch of FundsIndia's portal in June 2009. That was the first shot in arm for the start-up.
There has been no looking back since then. Starting with just 200-300 customers the portal quickly expanded to 1,500 by early 2010. To broaden its offerings, the venture had to first get all fund houses on board as channel partners. Did they have trouble there? Preparing the ground in advance helped.
"We kept some of the fund houses in the loop even before we formed the company. So, by the time we approached them for channel partnerships, they knew us well," explains Mr Srikanth. The channel partner hunt has so far rewarded them with 30 fund house tie-ups, including almost all the big names.
That's the supply side of the story. But, what about demand for their service? With no lavish advertising budget, the portal was marketed mainly through word of mouth and Internet ads. Luckily, for them, existing customers brought in more clients once they were happy with the service. While it is one thing to get investors to register, we wondered what they did to retain clients.
"People liked the transparency in sharing information. Whether it was their folio identity or enabling them to check their own holdings directly with the fund," says Chandrasekar. "Since we were a start-up, we realised that people will have trust issues. Therefore, the first thing was to build trust, and transparency helped us build that," he adds.
FundsIndia also offers various facilities such as allowing multiple family members to hold and operate a single account besides enabling online payments and purchases of fixed deposits. These have proved to be the key differentiators. Other factors also helped.
For one, investors in FundsIndia do not require a compulsory demat account if they are only transacting in mutual funds and fixed deposits. Secondly, the portal allows you to manage your funds better by value-added facilities.
You can set 'triggers' to buy and sell funds, set up value averaging plans across funds or even buy a basket of funds, based on standing instructions! Interestingly, some of these strategies such as trigger options or value averaging are offered by only a few fund houses today. As FundsIndia replicates these models across schemes, it managed to offer more value to clients.
The partners sum up their service as a 'free, no-frills mutual fund platform with zero account opening fee, zero maintenance fee, no transaction charges or load.'
Their revenue model though, is no different from any other service provider. An upfront commission and a trail fee received from fund houses, brokerage for equity transactions and a one-time commission from companies for corporate deposits are their key sources of revenue.
But what's life in a start-up without some turbulence? The two recollect how they had invested much of their savings to get the business up and running, leaving out just Rs 5 lakh for advertising and marketing activity.
The cost of advertising in print was prohibitive and getting quality people to work with a start-up was not easy either.
Chandrasekhar recollects sleepless nights for the partners in the initial months, when it was a challenge to infuse capital into the business and also make sure that there was no slippage in the payroll commitments to the staff.
The twosome, nevertheless, do recollect some lucky breaks. Srikanth talks of how the partners still get a kick out of seeing their venture featured in a personal finance magazine.
He also remembers how client registrations simply flooded in, after an article on their venture appeared in a vernacular newspaper!
And yet, this tech-savvy twosome know that they still have miles to go and milestone targets to meet, especially after the recent capital infusion from Inventus Capital Partners, a venture capital firm.
FundsIndia's targets are to break even one year from now; and have 20,000 investors on board by the end of the year. Not easy, but if fortune favours the brave, this start-up may well make it big!
with best regards,
S. P. Sharma
e-mail: surya.sharma26 at gmail.com
emailtosuryaprakash at rediffmail.com
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