India’s digital mutual funds bet: Will Paytm Money win this?

A grand launch in September, two solid investors in Chinese e-commerce major Alibaba and Japanese conglomerate Softbank, and the platform advantage of a company like India’s leading mobile wallet Paytm*.

What are the claims?

And claims like this.

“Higher returns: Get up to 1% higher returns with Direct Plans of Mutual Fund Schemes.”

“Zero Commissions: Pay no commissions or any charges on buying and selling of mutual fund schemes.”

These are the ingredients, one would think, would create the perfect investment app—Paytm Money.

And yet, Paytm Money has a long way to go.

Of the 5600-odd reviews for its Android app from the 500,000+ users who have downloaded it, the average rating is just 2.9/5 stars. On popular question-and-answer website Quora, many threads have been dedicated to the app’s apparent ineffectiveness and lack of a customer service number.

A financial services rival even insisted Paytm Money isn’t easy, especially not with fund selection. “It simply pushes forward funds which have done well in the recent past without accounting for risk,” he laments.

Impact of the online mutual funds

That couldn’t possibly help the app in its attempts to capture the online mutual funds market in India. More so because there’s stiff competition out there.

There are existing players such as online discount brokerage firm Zerodha, online investment platforms Scripbox and Fundsindia, Times Internet sponsored ET Money*, the number 2 mobile wallet company Mobikwik which acquired Clearfunds, Robo-advisory firm Arthayantra (more on Robo-advisory below); plus, recently, a whole host of startups have mushroomed in this space.

“These players have built a certain amount of trust with their clients and that gets deepened if you are in the business for long. Whether or not they will challenge Paytm Money but they will continue to survive because of the specific specialties they have created and their early mover advantage,” says Sundeep Sikka, CEO of Reliance Nippon life asset management.

But Paytm Money is still trying to pull out all the stops. It has tied up with rating agency Crisil, investment research company Morningstar and another mutual fund research firm Value research Online for fund ratings on the platform.

Achieving the sustainable progress

But that may not be enough. These ratings are based on past performance, and achieving a quick a 4-star or a 5-star does not a sustainable rating make. Besides, it cannot be “one size fits all”. Even among good performing funds, there has to be customization based on an individual’s requirement.

“Convenience alone does not draw people to a platform. In financial services, it returns that matter at the end of the day. Returns come when there is appropriate advice. I think it would be very naive of any platform to just bank on captive audience and integration for growth,” says Dinesh Rohira, Founder, 5nance.com, a financial investment portal.

Paytm Money, on its part, says that it has got a phenomenal response. Out of 1.4 million people who have registered to invest through the platform, CEO Pravin Jadhav claims approximately 400,000 have already come on-board. Jadhav emphasizes that his firm’s focus is not on assets but investor numbers, which is why he says it is important to understand that 60% are first-time investors.

340,000 investors have invested in denominations as small as Rs 500 ($6.85) and Rs 100 ($1.37) All this, Jadhav insists, without spending a single rupee on customer acquisition. When asked if this interest is from Paytm’s existing wallet or payments bank customers, he declined to elaborate.

Paytm Money’s challengers, primarily ET Money and to some extent, Mobikwik, have something more to offer. ET Money, which is trying to piggyback on Times Internet’s ecosystem and claims to have more than 4 million users on its platform, has been in the market for over three years.

An edge in itself. It also offers other financial products such as credit and insurance on an app with a decent user interface. Mobikwik-acquired Clearfunds, on the other hand, provides paid portfolio advisory, apart from offering direct funds for free on the platform.