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Add a fund to Amazon Cart? You have Indian regulator's support

Friday, November 6, 2015 - 09:50

[NEW YORK] Indians are estimated to spend about US$9 billion this year shopping online for everything from smartphones to cupcakes. The nation's stock market regulator wants them to add another product to their shopping cart: mutual funds.

The Securities & Exchange Board of India plans to change its regulations to allow online marketplaces such as Flipkart Online Services and Amazon.com to offer funds alongside other products, Chairman UK Sinha said in an interview at his office in Mumbai.

Mutual funds have gained popularity among Indian savers, receiving more money in the past 17 months than they did in the preceding 12 years. Yet just 3 per cent of the nation's 1.2 billion people invest in them, with majority preferring bank deposits or gold, according to the Association of Mutual Funds in India. Allowing e-commerce sites to sell funds will help money managers reach out to young investors accustomed to shopping online, providing the industry with a new distribution channel, Mr Sinha said.

"There are traditional investors and there are young, computer-savvy people with money to invest at a very early age," Mr Sinha said. "We are trying to change how mutual funds are being sold in the country."

Inflows into funds have gathered force since Prime Minister Narendra Modi's Bharatiya Janata Party swept to power last May. Equity plans attracted as much as 1.2 trillion rupees (S$25.6 billion) in the 17 months through September, exceeding inflow of 934 billion rupees between January 2002 and April 2014, according to Deutsche Bank AG's estimates.

Even so, the number of investor accounts or folios have shrunk to 44 million in September from 48 million in March 2009, while distributors have dwindled to 62,000 from 90,000 in the period, according to data from AMFI and the Financial Intermediaries Association of India. Permitting e-retailers to offer funds will "seriously challenge" the might of some large distributors, Sinha said.

"The distributors have a tight control on the asset management industry, and they are threatening to not promote the direct plan" that allows investors to buy units without paying a sales fee, he said. "We're planning to open up the industry."

Bolstering marketing channels may help accelerate the shift toward financial assets as e-commerce sites have a lot of customers, Bekxy Kuriakose, the head of fixed income at Principal PNB Asset Management in Mumbai, said in an interview. India's e-commerce market is worth about US$9 billion, and could nearly triple by the end of 2019, according to Euromonitor International.

Farheen Akhtar, a spokeswoman at Snapdeal.com, and Sanghamitra Bhargov, a spokeswoman at Flipkart, didn't reply to an e-mail seeking comment on whether the companies would start selling funds.

"We don't comment on what we may or may not do in the future," an Amazon India spokeswoman said in an e-mail.

Indian households have about US$400 billion in equities, compared with US$1.1 trillion in bank fixed deposits, Morgan Stanley said in a May report. The S&P BSE Sensex has returned 13 per cent annually in the three years through October, while gold prices are headed toward their third straight year of declines. Bank deposits have paid between 8 and 9 per cent in the last three years.

"Buying online is easier for savvy, young investors who do their own research," Kaustubh Belapurkar, director of fund research at Morningstar Investment Adviser India Pvt., said by phone from Mumbai. Traditional distributors are still required for investors who need advice, he said.

The regulator isn't favoring one group of investors over another, Mr Sinha said.

"We aren't having different set of rules for different investors; we're providing an additional avenue and the investor has to select," he said.

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