Direct Plans Will Revolutionise Mutual Fund Investments
2 years ago, school friends Mohit Gang, Anil Bang and Puneet Mehta, while discussing the shortcomings hampering the mutual funds industry, came up with the idea of starting a nancial advisory service that cuts out the middlemen (distributors) — thus doing away with their in-built commissions, trail fees and distribution costs — and brings the bene ts to the clients/investors. They co-founded Moneyfront, one of the country’s first online platforms that allows investors to invest in direct plans of mutual funds, which negate the commissions and expenses that get paid out mutual fund distributors. The fully automated and paperless investment platform uses a smart algorithm to pro le the client and suggests him the best direct plans accordingly. Moneyfront CEO and Co-founder Mohit Gang speaks to Amit Ranjan Rai on the growing shift from regular plans to direct plans and the business model to make his venture pro table in the long run.
What made you start this venture? What is the thought behind and who are the people involved?
All three of us (co-founders) are from the nancial industry. We used to generally discuss a lot of the shortcomings hampering the growth of the mutual fund industry. We were of the rm view that as a country, India needs to move towards the advisory model where product providers don’t incentivise the distributors through hidden and in-built mechanisms. Hence, we decided to promote the concept of direct plans and automated unbiased advisory. The three of us — myself, Anil Bang and Puneet Mehta — who started this platform are school friends.
What is unique about the business idea for your venture? What is its USP? Do you consider it a disruptive idea in the market you’re in?
We are amongst the first few online platforms in the country to offer direct plans of mutual funds to clients. These were hitherto available only if you went through the fund house directly. We created a completely paperless platform and automated advisory tailored to a client’s risk profile. This not only eliminated in-built commissions involved but also gave clients access to direct plans which give up to 1.5 per cent higher returns than regular mutual funds plans.
What kind of funding has already gone into the venture and how much more are you targeting in the near future? Who have been the key investors funding the venture?
Initially, the three co-founders bootstrapped and then we diluted about 8 per cent of our equity last year and raised a small seed round at the idea stage. The seed round was raised primarily through friends from the financial fraternity. We are now looking to raise our next round as the platform is fully functional and live now. It is not easy to convince people to invest in a new idea.
How did you manage to do the same? What are the things you think clicked with the investors?
I guess initially it was more about the idea and the way this concept could revolutionise mutual fund investments in the country. Being a digital and technology-driven platform, the added advantages of low cost and mass reach too played a role.
How’s the business doing currently? What kind of growth is the company seeing and what kind of growth are you targeting for the next 2 years?
We have been live for almost 3 months now and already have over 3,000 clients. We are aiming to take this concept digitally to every mutual fund investor in the country and looking for hyper-growth numbers in next 2 years buoyed by macro headwinds.
Tell us about your business model? How are you making/going to make money from this model and sustain it in the long run? When do you think you’ll break even and become pro table?
Being a SEBI-registered investment advisor, we offer only direct plans of mutual funds and don’t make any in- built commissions or trail fee as most of the brokers/distributors do. Hence, to sustain our costs and technology we charge a basic at fee of Rs 1,200 per client per year. We are a low-cost business being completely digital and we are certain that after a critical number of users, this eventually will be a promising proposition.
Tell us about the size of your operations and your plans for expansion? What kind of hiring have you done and the plans ahead?
We have an active 12-member team (excluding the founding team). We also have collaborations on the tech and analytics side to aid our daily activities. We are one of the unique platforms to have complete back of ce and operations in-house and we don’t bank on any third-party industry platform for our order processing. Having worked with Citibank for 10 years in the same field, it’s been easier for me to find the right talent from the industry and banking arena. We will be gradually taking our team size to about 20-25 full-time resources by year-end.
What is your strategy to reach out your target market/customers as also your customer acquisition strategy? What is your media and marketing strategy?
Our customer acquisition strategy is mostly digital and social media driven. However, we deploy a very healthy mix of of ine strategies too, to be able to quickly scale up and make our presence felt in the right vectors. We have a full-time media agency which caters to all our social media and digital strategies.
Tell us about the key challenges you faced setting up this venture and how did you overcome them?
The initial phase was quite heavy on challenges mostly on the operational front. Because our operations are all in-house, we had to jostle a lot with RTAs (Registrar and Transfer Agents) and fund houses to set things up in the right manner. Most of the other platforms rely on exchange-driven operations or rely on the MFU (Mutual Fund Utilities) platform. We took the ominous task of setting up our own operational team and process and that initially took a lot of our time and energy. But finally it was worth all the pain. I would say that’s a one-time cost you pay to set up a complete wealth management platform.
Please give some instances of how you have used technology and innovation to grow your business.
We have developed various unique features and tools to aid clients in their investment journey. One of the key tools we have is the “switch” tool. Clients can simply upload their existing mutual fund holdings on our platform and in three simple steps, switch them completely to “direct plans” from “regular plans” — all paperless. Our clients have found this extremely useful as this enables them to consolidate their holdings at one place and in turn save a lot of commissions on their existing holdings.
What are your views on the start-up trends you come across? What would be your advice/mantras for start- ups to survive and do well in a highly competitive and unpredictable market?
The world of start-ups changes in the blink of an eye. It’s an ever-evolving and ever-changing sphere. I guess the simplest mantra to succeed is to keep your ears and eyes on what the end-consumer wants and how can you simplify that journey for him. Rest everything can be built around, but the toughest thing is to capture ideas which involve daily lives of consumers and either saves them money or time or gives them unmatched convenience. It has to solve one of these problems to be successful and long-lasting.