Share of paperless mutual fund transactions declines as economy unlocks

Mutual fund transactions through the physical mode, such as branch visits, made a comeback in the September quarter with the share of non-physical transactions showing a dip relative to the June quarter for key players.

Digital transactions accounted for 56 per cent of Nippon Life India Asset Management’s purchase transactions showed June quarter results. This fell to 48 per cent in the September quarter. Electronic transactions accounted for 91.4 per cent of HDFC Asset Management Company’s total transactions in the June quarter. The overall share for the year dipped to 87 per cent in September.

It was unclear if HDFC’s electronic transactions also included buying and selling through the stock exchange platform. A spokesperson did not immediately respond to a request for comment. Nippon’s numbers exclude exchange transactions, said a company official. The two asset managers account for a fifth of the money that the industry handles. Disclosures are available for both since they are listed unlike much of the other players.

A number of people in smaller cities prefer to walk into branches and conduct their transactions, which was possible in the September quarter, said Nippon’s co-Chief Business Officer Saugata Chatterjee. The share has dipped only because of an increase in physical transactions, not a fall in the number of digital transactions, he suggested.

“From a transaction volume perspective, it has not gone down,” he said.

Results also show around 480,000 digital purchases in both the quarters for the asset manager.

Milind Barve, managing drector, HDFC Asset Management Company, during a conference call after the June quarter results had said that a change in the share digital transactions was expected after the lockdown ended.

“...People’s ability to move out of their houses with an application form and a cheque to do a physical transaction is seriously constrained, so you are right in assuming that basically physical transactions will increase and go back to more normal levels once the lockdown environment eases in different parts of the geographies that we deal in,” he said.

Only some of the larger asset managers have made the necessary technology investments to make digital transactions the norm, according to Nippon’s Chatterjee, who pointed at a possible digital divide in the industry.

Dhirendra Kumar, chief executive officer of fund tracker Value Research suggested that there is a mindset issue when it comes to adopting technology. Some asset managers may still look to send people for collecting checks and applications when everything can be done online through marginal investments in technology. Stock exchanges provide a platform which can easily be integrated through amounts which are a fraction of advertisement spends, he suggested.

“They don’t have to invest more,” he said.

The different pace of adoption appears to be borne out by past numbers. Both Nippon and HDFC recorded between 40-70 per cent of their transactions through non-physical means around the end of the financial year ending March 2019 (FY19), based on individual definitions according to numbers in previous results. The industry’s figure for the same period was under 15 per cent, according to an August 2019 report from rating agency Crisil and the Association of Mutual Funds in India (AMFI).

“The share of digital gross inflows grew from...(around 0.5 per cent)...three years ago to nearly 1/7th of gross flows by end-fiscal 2019, given the growing smartphone and internet penetration in the hinterland. Inflows through the physical route have been gradually declining,” said the report.

“Adoption will be a win-win for all – helping boost industry penetration while providing it with an effective medium to improve efficiency and reduce costs, the benefits of which can be passed on to investors,” it added.