What is holding India back from its next billion investors?
India has over 275 million households, with an estimated 90 per cent living in tier 1 and beyond. The economic boom and financial inclusion policies, which started from Aadhaar, have steadily been increasing the footprint of financial inclusion. Till now, this large base, especially beyond tier 1, has been plagued by low penetration of structured savings. But with changing times, wider internet availability, technological advancements, and educated youth, the concept of better financial management is finally finding ground.
The new-age investment platform and initiatives innovated by the government such as Bharat Net are trying to modernize the rural parts of the country. However, the use of technology for savings and investments is still extremely low and lacks penetration. Speaking about the same, Rajan Pathak, Co-founder of Fintso says, “First-time investors have two major needs – to have a source of the advice they can trust and help in the documentation required to make new investments. It is only when these two needs are met, they can venture beyond their normal savings habit – even if it is keeping money in a savings account. Given that any Digital “expert” is a stranger to them, it becomes crucial for them to meet a person, someone who they know, or from their location, who essentially acts as their “bridge of trust”, and they can go to for anything as a follow up. This “high touch” requirement initially is key to not only bring awareness and clarity but also to encourage individuals to invest more.” A high-touch model refers to utilizing communication abilities to ensure that the customers place their trust and partnership with a company/individual/product. According to a BCG report, 85 per cent of the investors beyond the top 30 cities require an initial high touch to take them through the first steps.
According to Fintso’s ‘The NeXT billion – Inclusion through digitization’ report, lack of trust in the source of advice, extensive documentation and need for active guidance, are reasons for the reluctance of individuals from using DIY means and platforms in any meaningful way.
Speaking about the risks and lack of awareness that retail investors face, Ajinkya Kulkarni, Co-founder of Wint Wealth states, “Many retail investors back out of investments because they faced a significant loss as they were completely unaware of the risks associated with products. Especially in the traditional sense, there has been enough mis-selling about various investments and their hefty returns without communicating about the risks. Being transparent and building trust among investors is of utmost importance to make the investment landscape inclusive for retail investors. Wint Wealth provides covered bonds to retail investors that were earlier available to institutional investors and large funds. Bringing this debt democratization for Indian investors, the company has been at the forefront of building transparent and honest conversations on the segment.”
George Mitra, MD and Co-founder of Fintso, stated, “To tap the market beyond top 30 cities, it is essential that the agents and distributors who are present there be helped to both upskill and broaden the products they cater to, to meet all the needs of their clients. Digitization of this eco-system is crucial, which allows not only support in becoming bionic advisors but also seamlessly cater to a wider number of people by assisting in execution, monitoring and reporting digitally. The use of AI can effectively be used for micro-advisory once this step (onboarding through a high touch) is done given the penetration of smart and feature-rich phones.” These distributors are primarily responsible for financial products distribution and account for 80 per cent of the total investments in markets where a largely untapped investor base resides. It has been observed that areas with higher MFDs/IFAs had higher penetration of mutual funds and vice versa.
“With over 35 lakh agents/distributors/DSA s, being present, converting them from being single product/manufacturer sales to becoming multi-product distributors, i.e. IFPPs (Independent Financial Product Providers) is key in this effort of outreach to the NeXT billion. This move is a major win-win for everyone – for the retail client as they get access to more products, services and assistance, for the agents/distributors as they get multiple revenue sources, and for the financial product manufacturers (e.g., AMCs and Insurance companies) who get more productive distribution. This enablement of the eco-system is what a platform like Fintso does.” added Mitra.
According to the BCG x AMFI 100 trillion Report, for MFs, 85 per cent of the investors beyond the top 30 cities require an initial high touch to take them through the first steps. This goes beyond helping in the documentation process and is essentially the need to provide a human interface that acts as the bridge of trust.