Page 28 - Banking Finance September 2024

ARTICLE

achieve benchmark returns without the risk of ease of access has been instrumental in increasing
underperformance by fund managers. the penetration of mutual funds across the country.

4. Regulatory Support: SEBI has been supportive of 2. Convenience and Efficiency: The convenience of
the growth of passive investing in India, with digital platforms has transformed the investment
regulations aimed at increasing transparency and process. Investors can now complete the entire
reducing costs for investors. The introduction of the investment journey-from KYC verification to fund
Total Expense Ratio (TER) cap for mutual funds has selection and portfolio management-online, without
also contributed to the attractiveness of passive funds, any paperwork. This efficiency has made it easier for
as their lower TER makes them more cost-effective. investors to start and manage their investments,
contributing to the growth of the mutual fund industry.
Data on Passive Investing Growth
3. Personalized Investment Solutions: Digital
The rise of passive investing in India is reflected in the
platforms leverage advanced technologies like artificial
rapid growth of index funds and ETFs. According to
intelligence (AI) and machine learning (ML) to offer
AMFI data, the AUM of index funds and ETFs in India personalized investment solutions. Robo-advisors, for
has grown from INR 2,500 crore in 2010 to over INR 4
example, use algorithms to provide tailored investment
lakh crore by mid-2024. The number of ETFs listed on
recommendations based on an investor's risk profile,
Indian stock exchanges has also increased significantly, financial goals, and investment horizon. This
providing investors with a wide range of options across
personalized approach has resonated with millennial
equity, debt, and commodity segments.
investors, who value customized experiences.
4. Transparency and Education: Digital platforms have
ETFs in particular have become popular among
also enhanced transparency in mutual fund investments
institutional investors, such as pension funds and
by providing investors with easy access to information,
insurance companies, due to their liquidity, transparency,
such as fund performance, expense ratios, and portfolio
and low costs. The increasing participation of retail
composition. Additionally, these platforms offer
investors in ETFs, facilitated by the ease of trading on
educational resources, such as blogs, webinars, and
stock exchanges, has further contributed to the growth of
tutorials, to help investors make informed decisions. This
passive investing in India.
focus on transparency and education has built trust and
Impact of Digital Platforms on Mutual Fund confidence among investors.
Investments 5. Cost Reduction: By eliminating intermediaries and
The advent of fintech and digital platforms has streamlining processes, digital platforms have
revolutionized the mutual fund industry, making it more contributed to cost reductions in mutual fund
accessible, efficient, and investor-friendly. Digital investments. Many digital platforms offer direct plans
platforms have played a pivotal role in democratizing of mutual funds, which have lower expense ratios
mutual fund investments, particularly among younger and compared to regular plans, leading to higher returns
tech-savvy investors. for investors over the long term.

Key Impact Areas of Digital Platforms Data on Digital Platform Growth
1. Increased Accessibility: Digital platforms have The impact of digital platforms on mutual fund
made mutual fund investments accessible to a investments is evident from the increasing adoption of
broader population, including those in tier 2 and tier online investment channels. According to a report by the
3 cities. With the ability to invest in mutual funds Boston Consulting Group (BCG) and FICCI, the share of
online, investors no longer need to visit physical digital transactions in mutual fund investments in India
branches or rely on traditional intermediaries. This has grown from 25% in 2018 to over 50% by 2024. This

26 | 2024 | SEPTEMBER | BANKING FINANCE