India's rural and Tier II, III markets are emerging as the next big frontier for mutual fund investments. With rising aspirations and increasing financial awareness, these regions are set to play a key role in the country’s investment landscape. In this interview, Manish Kothari, Co-Founder and CEO of ZFunds, shares his insights on this promising transformation and explains how mutual fund adoption is gaining momentum in these areas and why he prefers to be mutual fund distributor over a Registered Investment Advisor (RIA)
How do you see the rural market evolving over the next 10 - 20 years? What is the current size of investments coming from rural vs urban cities?
The rural market in India is at a similar stage where the urban market was about 15 years ago, indicating significant potential for growth and increased penetration. Over the next two decades, it is expected that the number of people buying mutual funds will go up from 4 crore to 20 crore and about 90% of this share will come from Tier 2 and below. At present, the wallet share of the customer towards mutual funds is in the single digits, which will go up to 50% like any other mature urban market. About 80% of our customer base comes from Tier 2 and below.
You have started Daily SIP. How is this picking up?
The concept of Daily SIP is picking up well and the future looks promising, especially with the growing trend of people moving towards the gig economy, freelancing, and earning on a project or daily basis. ZFunds is the first mutual fund platform to bring investment in daily SIPs through online mode in 2022. The company has combined human expertise with advanced technology to make it available to a wider audience and extend its reach beyond metro cities to tier 2, 3, and 4 cities.
SIP in the current format is designed for urban salaried individuals whereas 70% of India is self-employed and does not rely on monthly cash flow. This innovative product is designed to cater to the unique financial needs of non-salaried individuals like freelancers, doctors, shopkeepers, businessmen, etc. However, anyone willing can invest in mutual funds through Daily SIP. Out of 70% of self-employed India, due to lack of awareness, most of them in non-metro cities end up investing in non-transparent schemes like chit funds or low-return schemes. This Daily SIP is best suited for those people. However, anyone willing to be in metro or non-metro cities can invest in mutual funds through Daily SIP. People can invest in Daily SIPs with investment as low as Rs. 100
Why haven't you taken the RIA licence but preferred to go through the mutual fund distributor route?
Mutual funds as an industry is at a stage where its distribution needs to be augmented manifolds. We decided to go for a distribution model as it enables us to take mutual funds to every nook and corner of this country. The industry has grown on the back of a distribution-led model by banks and national distributors and we hope to build on what these pioneers have done. The RIA model is at a nascent stage in the country and is still evolving. As a young company, we opted for a model that’s been time-tested.
With recent changes suggested in the consultation paper, do you plan to take the RIA licence?
No, we are not looking to take the RIA licence. We will continue to operate in the current set up. Tier 1 comprises about 25-30% of our distribution. We don’t see any need to become RIA to cater to tier-1 cities.
Where do people in rural areas prefer to invest when it comes to MFs?
About 99% of our transactions are driven by SIPs. Within the equity segment, our customers are invested in large-cap, mid-cap, and small-cap funds. Some savvy investors are also allocating a small portion of their investments towards thematic funds.