Share of paperless mutual fund transactions declines as economy unlocks

Physical transactions made a come back in September as offline options became viable again

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

Digital transactions accounted for 91 per cent of Nippon Life India Asset Management Company’s (AMC’s) purchase transactions, revealed the June quarter results. These fell to 82 per cent in the September quarter. They accounted for 91.4 per cent of HDFC AMC’s total transactions in the June quarter, showed the quarterly results. The overall share for the year dipped to 87 per cent in September.

The two asset managers account for a fifth of the money that the industry handles. Disclosures are available for both, given they are listed.

A number of people in smaller cities prefer to walk into branches, 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 clarified. “From a transaction volume perspective, it has not gone down,” added Chatterjee.

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

Milind Barve, managing director of HDFC AMC, had earlier said a change in the share of paperless transactions was expected after the lockdown ended.

“People’s ability to move out with an application form and a cheque to do a physical transaction is seriously constrained. You are right in assuming that physical transactions will increase and return to normal levels once the lockdown eases,” said Barve. 

Only some of the larger asset managers have made the necessary technology investments to make digital transactions the norm, said Chatterjee.  

Dhirendra Kumar, CEO of fund tracker Value Research, suggested that there is a mindset issue when it comes to adopting technology. Some asset managers still look to send people for collecting cheques and applications, when everything can be done online.

Stock exchanges and other platforms are available, and integrating them would cost a fraction of the advertisement spends, said Kumar.

The different pace of adoption seems to be borne out by past numbers. Both Nippon and HDFC AMC recorded between 40 per cent and 70 per cent of transactions through non-physical means around the end of the financial year ended March 2019 (FY19), based on individual definitions according to numbers in the previous results.

The industry’s figure for the same period was under 15 per cent, according to an August 2019 report from CRISIL and the Association of Mutual Funds in India.

“The share of digital gross inflows grew from...(around 0.5 per cent)...three years ago to nearly one-seventh of gross flows by end-FY19, given the growing smartphone and internet penetration in the hinterland. Inflows through the physical route have been declining,” stated 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,” added the report.