Managing millions, making little: Can wealth management start-ups succeed?

Apps that can be used to invest in MFs, stocks, gold, etc, are attracting venture capital. But customers won't pay for the services yet, writes Deepsekhar Choudhury

Madhava Rao was convinced it was high time he started investing but didn't want to go through the hassles of dealing with an insistent financial planner. A friend told the 26-year-old about apps on which he could buy mutual funds and get financial advice without paying extra over his investment.

Groww, Paytm Money, MyWay Wealth, Kite, Coin, Orowealth, and Scripbox are few of the online wealth management and personal finance apps that have sprung up to cater for millennial investors who seek a DIY approach to financial planning. 

Google Pay, the united payments interface of Alphabet, is foraying into the space with a digital gold investment plan.

The most popular product offered across these online platforms is mutual fund. But they have their eyes set on a whole array of financial services: Digital gold, equities, insurance, etc. Big ticket venture capital firms such as Sequoia India, Accel Partners, and Omidyar Network are pouring millions of dollars to capture the nascent market.

There are two ways one could invest using these apps: 1) You could discover and determine yourself where to allocate your money and the app will facilitate the transaction (such as Coin and Kite) ; ii) you can sign up for advisory, which can be purely algorithmic (such as MyWay Wealth) or from human experts (such as Orowealth). 

Opportunity

Some numbers: The mutual fund industry in India has grown more than four folds in 10 years to Rs 23 trillion, according to an Amfi report. Only 17 million of a population of 1.3 billion are invested in the stock market. 

Groww Co-founder Harsh Jain says: “More than 200 million people in India have investable income. Out of which around 10 per cent are currently investing. Others find investing complicated or inaccessible.”

The Karvy Wealth Report says that Indians’ investment in direct equity eclipsed both fixed deposits and savings bank deposits. 

 

Business model  

Coin, Kite and Groww offer free services, while Orowealth charges a fee from customers. MyWay Wealth has both free and paid services. 

Platforms that sell mutual fund plans earn a fee from asset management companies. Subramanya S V, co-founder and CEO of MyWay Wealth and Fisdom, says: “For regular platforms like us and Scripbox, the margin is 1 per cent." 

Should a customer be worried of what seems like a free lunch? Which MFs are suggested to a user is algorithmically decided on these apps. Scripbox founder Sanjiv Singhal writes: “No individual at Scripbox has the ability to influence the selection of funds. The quantum of commission plays no part in the selection process.”    

In January, Zerodha became the biggest brokerage firm in terms of client numbers, according to the National Stock Exchange data. It offers retail and institutional broking, currencies and commodities trading, mutual funds, and bonds. Co-founder Nithin Kamath says the company’s platforms — Kite and Coin — offer a medium to investors who know what they want to buy. It doesn't charge any fees from them as the apps have a very low maintenance cost, run by a team of three.

Challenges

Given Zerodha's pole position among mainstream brokerage firms such as ICICI Securities and HDFC securities, will these online platforms disrupt the personal finance and wealth management markets in the near future? Kamath says that’s a far-fetched dream till the time Indians are habituated to discover financial products as they do for stuff on e-commerce marketplaces such as Amazon and Flipkart.

Another challenge is monetisation since most of the services are free. Rahul Jain, head of personal wealth advisory, Edelweiss, says: If the model simply relies on acquiring customers via a zero commission strategy, then there is no reasonable chance of creating a sustainable business.

Road ahead

Pravin Jadhav, director, Paytm Money says India will have more than 50 million MF investors and his company wants to have a majority of the market share. 

The recently launched Paytm arm is not looking at margins right now as customer acquisition is the key focus. It has more than a million registered customers from tier 2 and 3 cities. 

Subramanya of Fisdom concurs, saying that making money will become a focus for players only after a critical mass of customers is reached who can trust a faceless financial planner.