The Indian regulators of the financial market have changed the landscape of investments, advisory and management fee structure of financial products. Well, I am speaking to that segment of the BFSI industry which is called Mutual Funds and AMC. The way the regulators have brought down the expense ratio and brought transparency in product pricing and classification-all leads to significant growth of new opportunities. Well, what new opportunities I will come up later in the article.
The transparency has been introduced at par with the global regulations. This is one of the remarkable acts of the regulators that in the last 10 years they have changed the structure of the format of the Industry. They have got the AMC and the model of business in similar lines to the developed economies.
Indian economy itself demands changes in the traditional rules of the finance industry. The reason being that unlike much of the developing world, India is ageing slowly, with a current median working population age of 28 this is set to rise only slightly, to 31, by 2030. The effect is that by 2030 the country will have the largest working-age population at the youngest relative age. The rural population has also shrunk considerably since 2005, falling from 59% of the population to 51%. This pushes up the demand for the reform of the financial industry in the coming years.
India is now in the track of developed economies and hence financial products transparency and pricing need to be brought under control so that maximum benefit goes to the clients. Further sales based advice model leads to miss-selling which has happened in real terms and cannot be ignored by any person who belongs to this BFSI industry. The streamlined process of fees and expense ratio followed with extensive patience driven remodelling of the industry towards Advisory Based Sales is a markable achievement by the Regulators. At the same time, there have been many collateral impacts of such transformation but for the long term growth of the BFSI space, such sacrifices are part of the game.
The simplicity of products classification, identification and mapping with proper benchmarks, rules and regulation towards advisory and sales and most importantly Promotion of Direct Schemes have changed the Mutual Fund and AMC Industry. The transformation from performance-based sales and not commission-based sales have been hugely beneficial for the long term industry.
This advisory model of business is very much in lines with Global Practices. In the developed economies Advisory based sales where performance is being competed and not the rate of commission.
In the last 10 years, we have seen that brokerage rates or commission have been one of the key factors for selling products. Very few people used to sell products based on performance or advisory. Well, I would love to hear who denies the above statement.
Now coming to the opportunity part which I foresee in the coming next 10 years is that many Foreign AMC’s will come to India to open their shops. Yes, when the industry has become at par with international standards and day by day the same rules are getting adopted the impact of this change will attract overseas AMC’s to come to India, do collaboration and sale products to Indian investors.
In the coming decade, we will witness Indian investors investing in Global Mutual Funds and AMC’s. The restriction of cross border investments will be smoothening up and new doors will be opened. I know many of my friends from the industry will say that many International AMCs have closed and winded up their business in India and went back. In those cases how my theory that they will come back again stands up. Well, the answer is simply that in the last 10 years the situation was different where commission and agents played their dice but now the same things have been eliminated and the birth of the new industry have begun.
The opportunities will be that investments will flow into the BFSI space and the so-called IFA network will be able to sell these products to the client in the coming decade.
The online model of business has changed the landscape of doing business in India and this journey will continue in the coming years as the industry transformation has happened and more is on the horizon. Global products in a simplified format like ETF and Index Funds will be soon are a part of the Indian Mutual fund Industry.
The steps of diversification will change and International AMCs will come back to tap the rising middle class of the Indian economy. The new millennial of the investor community is the point of attraction for these International AMCs to come to India. Yes, this rising segment driving on a smartphone and 5G technologies will change the landscape of investment further. These factors will be accelerating the speed for International AMC to set up shops back into the country.
For the IFA community –they should be prepared with the knowledge levels to en-cash these opportunities. Advisory services will radically change when international products will be on the offering. The opportunities and challenges will be dividing the speed of success which one needs to identify and capitalise on the same.
International AMCs will son knock the Indian doors.