Online MF distribution platforms become new hot pick for PE investors

Online mutual fund distribution platforms have become the new hot commodity for private equity investors. Chennai-based FundsIndia has seen its valuations surge five-fold in three years, while other online platforms, including Groww, Nivesh.com and Orowealth have raised early-stage capital in the last two months. 

Cashing in on the growth, several new platforms such as Paytm and Paisabazaar, too, are entering the fray.

High interest in this space comes amid rapid asset growth in the fund industry, thanks to supportive market conditions. Also, the advent of technology and data penetration have given the much-needed fillip, industry observers said.

According to sources, Aditya Parekh-led Faering Capital is in talks with other investors for a possible stake sale in FundsIndia. The buzz is that Faering, one of the early investor in the online distribution platform, is likely to make as much as five-fold gains on its investment. The private equity firm invested Rs 700 million in FundsIndia in 2015.

FundsIndia has seen its revenues increase 10 times to Rs 306 million in 2016-17, from Rs 29 million in 2012-13. Of the digital-only investment platforms, FundsIndia has among the highest assets under management (AUM) of Rs 43 billion. In terms of commissions, FundsIndia has seen a 95 per cent compounded annual growth rate (CAGR) in the last five years (2012-13 to 2017-18).

According to industry observers, PE firms are closely watching the digital distribution space for investment opportunities. “We regularly get calls from PE firms, seeking investment ideas in this space," said the CEO of a fund house. 

“It is difficult to grow a distribution business through the physical infrastructure as there are several costs involved. However, through a digital platform the growth can be exponential,”  added Kaustubh Belapurkar, director of fund research at Morningstar.

“The digital platforms appeal to young population who are about to join the workforce, or are already earning an income. They also tend to be more tech-savvy.”

Groww, which is also an online distribution platform, recently raised $1.6 million (Rs 110 million) in a pre-Series-A round led by Insignia Ventures Partners, Lightbridge Partners and Kairos. Among other deals, mutual fund investment platform Nivesh.com raised seed funds of Rs 30 million in June from online deal making firm LetsVenture. Some of the angel investors who participated in the round included Google India MD Rajan Anandan and former Infosys global sales head Basab Pradhan.

In May, wealth management start-up OroWealth received $1.6 million (Rs 110 million) in a Series-A funding round led by US-based venture capital firm Powerhouse Ventures. Some of the other online distributors include Aditya Birla Money (AUM of Rs 18.5 billion), Scripbox (Rs 5.8 billion), Zerodha (Rs 1.1 billion) and ET Money (Rs 961 million). Both FundsIndia and Faering Capital refrained from commenting on any specific deals.