The Rise of Mutual Funds App in Indian Market

There was a time, in the mid-2000s (when I started investing in MFs) when it was not so simple to begin investing in mutual funds. Lots of paperwork, cheques, and time lags. But times have changed.

With the advent of mutual fund apps in the Indian market, investing in mutual funds has become very smooth. A breeze infact.

The awareness about the benefits of mutual funds is on the rise. And the Indian investors are now increasingly acknowledging the importance of making investments in mutual funds for meeting financial goals. Not just for long-term goals using equity funds but also for their short-term needs using debt funds.

In fact, the industry added more than 80 lakh (8 million) investor accounts in FY2020-21. The total number now stands in excess of 10 crores now with a total AUM of more than Rs 30 lakh crore. And it won’t be wrong to say that a major reason for the increase in the number of new investors joining the MFs is the digitization of the investment process and the rise of mutual fund apps in India.

Ofcourse there is a growing shift away from traditional options like bank FDs (due to fall in interest rates) and real estate (lack of returns) and towards mutual funds. And let’s not forget the impact of campaigns like ‘Mutual Fund Sahi Hai and the concept of SIPs in bringing MFs into the forefront.

But over the last few years, better offerings by the AMCs and the ease of investments brought about by the new mutual fund apps are some of the key triggers that led to a rapid acceleration in MF adoption in India.

I am an Investment Advisor myself and I have gradually but surely witnessed that many people who approach me for advisory services do understand that if they do want to earn inflation-beating returns over the longer term, then bank FDs, real estate, gold won’t help them. They have to accept the inevitable need to invest in equities and the best and the most efficient way to do so is via equity mutual funds.

But there are several mutual fund app available out there. How do you choose among them?

The first thing to understand is which kinds of mutual fund plans do these apps allow you to invest in.

Some apps allow investment in direct plans while others offer regular plans only. I will not get into the details of direct vs regular again but just remember that due to lower expenses, direct plans will give more returns than regular plans of the same mutual fund schemes. Always.

Irrespective of whether you go for a direct or regular mutual fund app, the onboarding process to start investing in mutual funds is pretty seamless now. With the mutual fund app on your mobile phone, you can easily do everything without any need for physical documents to be sent over. These days, even mutual fund houses or AMCs themselves offer mobile apps to invest in their funds. Ofcourse, there is a drawback that you will only get to invest in the schemes of that AMC only. Similarly, many banks too will offer the option to invest in MF schemes on their banking apps. These are financial intermediaries (distributors) and hence only offer regular plans and not direct plans via their apps.

But other independent mobile MF apps give investors a wide range of mutual fund schemes (from different categories and AMCs) to choose from as per their requirements and financial goals. Most apps will recommend the best mutual funds based on their own assessment. It’s up to the investor whether to accept those recommendations or go for their own choices. Many apps do not allow one to pick schemes and instead, offer fixed pre-made MF portfolios to choose from.

But do understand one thing. That the mobile app investment option has limitations when it comes to offering customized services. If you need something customized when it comes to investment advice, then you need to get in touch with a fee-only SEBI-registered Investment Advisor to get unbiased professional advice.

There is another scenario when having a human advisor can be really helpful. When markets fall and portfolio value has come down, getting some trustworthy advice and assurance from a human advisor can help one stay the course.

But coming back to the mobile mutual fund apps. When choosing an app to invest in, make sure that you go with an app that is registered either with SEBI as a registered investment advisor (RIA) or with AMFI as a mutual fund distributor. This is important because you will be investing your hard-earned money through these apps and it is in your best interest to pick the safe one when it’s so common these days to become a victim to online fraud these days.

Note – A mutual fund distributor (or their App) offers ‘regular plans’ and charges commissions. An RIA (or their App) offers ‘direct’ plans and can charge fees. But these days, due to competition and the entry of large players in the direct plan space, most Direct plan apps have stopped charging fees. The fees may return in the future when markets mature, but till then and for now, it’s practically free of cost.

I often get asked that – what if one day, the mutual fund app goes out of business? What will happen to your money then?

Let me clear your doubts here. When you invest through these apps, your money is handed over to the AMC to be invested into mutual funds. These mutual fund units are then held in your name. In the event of the mobile MF app (or the company running it) goes out of business, you will not lose any money. And that’s because your money is with the AMC and not with the app. Ofcourse, it will be a hassle, later on, to get onto another app but still, your money will not be lost.

But all said and done, there is absolutely no doubt that these mutual fund apps have revolutionized MF investing in India. Sitting at home (or wherever you are), without the need for any paperwork, you can complete the entire end-to-end process of MF investing in a jiffy.

I am very bullish on the MF space as a business and am pretty sure that there is a large structural growth opportunity in the Indian mutual fund industry.

The penetration of MFs in India is still one of the lowest in the world. If you look at the Mutual Fund AUM / GDP ratio, you will see it’s way below the global average. Till now, poor financial literacy was hampering the mutual fund industry’s growth in India. Most Indians still park a major chunk of their money in the bank and traditional insurance plans (like endowment and moneyback plans).

These mutual fund apps combined with cheap internet and growing financial awareness in India are bound to convince the investors from smaller cities (so-called smaller B30 cities in MF vocabulary) to divert their savings from banks and insurances to mutual funds. And MF adoption and acceptance will get further push from the growing disposable incomes (and aspirations) and improving lifestyles amid people who will slowly but surely, are acknowledging that mutual funds are their best bet when it comes to generating great returns that help them beat inflation in the long run.

I am sure that if you are a regular reader of Stable Investor, I am sure you already invest in mutual funds. But if you know someone who still doesn’t, do try to convince them about the idea of mutual funds and how it can change their lives (see this super SIP success story example). And once they are convinced, they will find it very easy to get onto the MF bandwagon via the mutual fund apps in India.

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