Are mutual funds putting the shopping cart before the horse?

Much has been written about banking’s “WhatsApp” moment. And when it comes from Nandan Nilekani, you listen. There’s no doubt that initiatives like IndiaStack, the confluence of JAM (Jan Dhan, Aadhaar and mobile phones) and increased smartphone penetration will continue to play a huge role in improving financial inclusion.

Whether it’s direct cash transfers instead of routing subsidy payments through middlemen, or the ease with which urban and rural poor can open bank accounts, there are immense opportunities for those at the bottom the pyramid in India.

However, while all of the above is true for a large strata of society hitherto excluded, I’m not so sure it’s the ‘aha’ moment for middle income and mass affluent consumers.

For some context, I’ll draw from a recent panel discussion I participated in, organized by Businessworld as part of their first Mutual Fund India Summit. We were discussing using more out of the box thinking to grow the mutual fund industry – an industry where, after two decades of markets opening up to private competition, and hundreds of product choices, less than 3% of Indians are present. P.V. Subramanyam, a fellow panelist and prolific trainer, spoke about the need for the industry and consumers to think within the box a whole lot more than simply out of the box for the sake of sounding cool.

I tend to agree. A lot has been said about how mutual fund ownership will skyrocket if KYC is done online and financial products like mutual funds are allowed to be sold on e-commerce platforms.

The bigger challenge is convincing people that mutual funds are a meaningful path to wealth creation.

The problem is, all the effort and discourse centres around ease of purchase. This is an important factor if you’re already positively inclined towards the category. But I think the much bigger challenge is convincing people that mutual funds are a meaningful path to wealth creation.

In a nation with three times as many jewelers as bank branches, mutual funds must first sell the idea that financial assets are as good as, if not better than, physical assets as a means of meeting important financial goals. It’s an uphill battle and the skepticism is loud and clear – mutual funds must run a disclaimer warning they’re subject to market risks, while no one tells a homebuyer that you could lose your life savings if the builder runs of out money.

Mutual fund companies must see beyond ease of purchase as a roadblock.

A lot of education is required if financial assets and mutual funds in particular are to gain real traction. Unlike a mobile phone, the consumer is far from sold on mutual funds as a category. The “buy-in-3-clicks” proposition does not explain why I, as a consumer, should trust this product to meet my wealth creation goals. Mutual fund companies must see beyond ease of purchase as a roadblock and consider how their category as a whole is viewed if they want to see increased penetration in India.