Data sourced from AMFI (Association for Mutual Funds of India) shows that around 70 to 80% of the investors in the index funds of these AMCs are retail users and a good share of them are from beyond the top 30 cities in the country.
Groww’s Total Index Fund, which has an AUM of Rs 118 crore, has 82% of retail investors and 57% of them are from beyond the top 30 cities. For Navi Mutual Fund, Rs 1,245 crore has been invested into passive funds by retail investors compared to Rs 335 crore by corporates. Navi’s overall AUM for its index funds as of end of February 2024 stood at Rs 2,868 crore. Its total AUM across all funds as of April 8 stood at Rs 4,600 crore.
“We were able to onboard almost 8 lakh ‘New to Mutual Fund’ (NTMF) investors via the Navi App, over 50% of our app users are from tier II and tier III cities,” a Navi spokesperson said.
ETtechSimilarly, for Zerodha Fund House, around Rs 165 crore has been pumped by retail investors into its passive funds, compared to Rs 77 crore by corporates. Zerodha has around Rs 241 crore of AUM in index funds.
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The AUM of these players, who have just started their AMC journey, is puny compared to the likes of SBI Mutual Fund or HDFC Mutual Fund
SBI Mutual Fund has Rs 25,800 crore in AUM from retail investors. SBI gets fund flow from provident fund investments made by employees. But for these fintech startups, the growth in the passive market and the expanding investor ecosystem is what holds potential.
“There are only 4.2 crore unique pan holders investing in the market, but there are 80 crore ecommerce users in the country, there is a large market beyond the metros which needs passive investing options,” said Vishal Jain, chief executive officer, Zerodha Fund House.
New entrants
These are still early days for fintechs venturing into asset management, but the business is crucial for the likes of Groww and Zerodha who want to become full service finserv players in their own right.
Navi acquired Essel Mutual Fund in 2021. Groww closed the acquisition of the mutual fund business of Indiabulls Housing Finance in May 2023. Zerodha Fund House received Sebi clearance in mid 2023 and launched its first new fund offer (NFO) in October last year.
Currently, Zerodha runs two index funds and a liquid and gold exchange traded fund. Groww offers around five equity funds with the Total Market Fund being a unique offering in India. Navi, being slightly older in this space, has a larger AUM and more funds.
“The AMC business for these fintechs is a means to expand the market, if they can attract consumers from smaller centres through passive investment opportunities, they can eventually cross sell broking and credit,” said a founder who runs a wealth management application.
Also, the likes of Groww and Zerodha have built the largest active clients base, on which they can distribute their own funds, the founder added.
“Funds from Groww AMC are available on the platform, including but not limited to Groww app; investors explore the benefits and invest, (our) unique products see a lot of pull on all platforms,” said Harsh Jain, cofounder, Groww.
Where is the money?
Generating revenue through passive funds is a major challenge, something that these new age funds will have to grapple with.
Industry insiders pointed out that passive funds typically attract an expense ratio of around 10 to 20 basis points. So, if a fund manages Rs 1,000 crore of AUM it will only generate Rs 1 crore of topline for the fund. This business will only make sense at scale, for which these startups will need to expand the Indian mutual fund market drastically.
“There will always be competition in this space in terms of pricing since you cannot create funds which give extraordinary returns, so this pressure will always remain among passive funds,” said Vijai Mantri, cofounder of JRL Money.
Commenting on the potential size of the investment market, Mantri said that the best way to understand the potential market is by tracking income taxpayers, since that is the base for people who can make investment decisions.
But globally as well as in India, the passive funds are growing in size. A Reuters report from February 2024 said that the global AUM of passive funds at $15 trillion exceeded active funds at $14.3 trillion. As per industry reports, by the end of last year Indian passive funds rallied up to Rs 8.7 lakh crore and is expected to grow further.
“Passive funds account for 17% of the total mutual fund industry AUM, and we expect the same to grow to 25-30% over the next 5 years,” a Navi spokesperson said.
This is a very critical bet for the fintech broking industry. Given these platforms get around 70 to 80% of their revenue from the highly volatile and risky futures and options trading, an AMC business will give them stability in revenues.
“We are launching innovative and relevant products such as Groww total market index, non-cyclical consumer fund, BFSI fund and such while focusing on education through informative content in various Indian languages to help our customers become more aware,” said Jain of Groww.