M/S Vijay Shekhar and team certainly have had their hands full in the recent weeks. We recently saw Berkshire Hathway taking a stake in Paytm (albeit a small one but a departure from the practice of Berkshire to not invest in tech companies). Yesterday, the much awaited mutual funds distribution platform of Paytm – simply called Paytm Money was launched. More than 8,50,000 people had already shown interest in the platform. Initially, it will offer the plans from 25 different fund houses and then move on to onboard the rest. It is a SEBI registered RIA and will only offer ‘direct’ MF plans.
As per AMFI data, the Industry’s AUM had crossed the milestone of Rs.10 Lakh Crore) for the first time in May 2014 and in a short span of about three years, the AUM size had increased more than two folds and crossed Rs. 20 Lakh Crore for the first time in August 2017. The Industry AUM stood at Rs.23.06 Lakh Crore as on 31st July 2018.
At the recently concluded industry summit AMFI Mutual Fund Summit 2018, Deepak Parekh said that the MF asset base will double to 50 lakh crore in the next five years. This looks highly possible as currently only 1.5 % of Indians or around 2 crore Indians invest in Mutual Funds. AMFI has launched the second part of the Mutual Fund Sahi Hai campaign and wishes to increase the penetration to 2% in the next one year.
This is where I think Paytm Money will be the game changer. Paytm expects the number of investors to double to 5 crores in 2023 and hopes half of them will be using its app. The growth will primarily be driven through the B30 locations which currently contribute 22% in terms of AUM held by individuals. SEBI has recently allowed an additional 30 bps as expense ratio for inflows beyond the top 30 locations.
Some numbers about Paytm
- Paytm Wallet app had a user base of 28 crores as of Dec 2017 (very likely this has crossed 30 crores as we speak)
- In August 2018, over 9.2 Cr Paytm users used our services for regular payments in the online and offline domains
- Clocked over 29,000 Cr worth of transactions in August 2018
- Tier II and Tier III cities make up 50% of its user base
- 25% of Paytm users prefer using the app in their regional languages
Now let us look at mutual fund industry news from our neighbor China. Yue Bao (Chinese for “leftover treasures”) – an investment product offered by Alibaba’s affiliate Ant Financial – became the world’s largest money market fund by May 2017 leaving behind JP Morgan Chase’s US Government market fund (US$150 billion in Assets Under Management (AUM)). As of Feb 2018, the fund manages US$251 billion. A lot of the funds are deposited by the extra money lying in the wallets of its 370 million active account holders.
Paytm has embarked on route to embark a somewhat similar success in India through its mutual fund distribution app. In the case of Paytm, the acquisition will be across the asset classes. Does it mean that the existing distributors will lose share? On the contrary, it will only increase the mutual fund pie phenomenally.
Trivia: Paytm counts Alibaba and Ant Financial Services amongst others as investors.
Sudipto Roy was heading Treasury function for Tata SSL and has an extensive experience of the Indian financial markets with a career spanning over 27 years he has worked in diverse industries such as Financial Planning & Distribution, Asset Management, Life Insurance, Insurance Broking, Equity etc. He has held a leadership position in PNB Principal Financial Planners, Kotak Mahindra Mutual Life Insurance, Birla Sun Life Insurance, and Kotak Securities.