The Association of Mutual Funds of India (Amfi) has established a taskforce to push for the creation of an industry-owned platform to service mutual funds, to reduce costs and make the industry more accessible to distributors.
The initiative stems from a previous effort by Franklin Templeton to introduce a proprietary platform to automate administration and transfer agency work for the entire industry. Other firms were not keen to use a competitor's platform, so Templeton floated the idea of the local industry developing one owned by all fund players, says Vivek Kudva, president at Franklin Templeton India in Mumbai.
The Securities and Exchange Board of India, which regulates the funds industry, liked the idea, he adds.
Amfi has set up a committee chaired by Jaideep Bhattacharya, chief marketing officer at UTI Asset Management, to come up with a proposal and drive it forward.
Kudva explains the cost of operations are a challenge to the growth of the funds industry, particularly in the current environment, when retail investors have stopped buying equity funds and prefer to put their money in state-owned bank deposits or insurance products.
"The industry's operations are still paper-based, inefficient and investor-unfriendly," Kudva says. "This project can be transformational."
An industry-owned servicing and transaction platform would allow independent financial advisors to aggregate and look at the entire industry's books of business without having to invest in their own IT. Individual investors could also use the platform to access the entire range of funds. Users could slice and dice the information to construct portfolios.
If enough fund-management companies join, the hope is that distributors will too, including commercial banks, who would not be charged because participation would lower fund companies' operational costs.
The system would be linked to existing depositary infrastructure to handle transfer-agency work and administrate customers' accounts. By slashing operational costs, the industry would be able to expand its reach to smaller cities.
"We wouldn't need new physical infrastructure," Kudva says. "We can use the internet to create gateways to individuals or advisers, who could download and print out prospectuses and application forms directly."
This is not a simple project and will take several years to complete. The platform needs a technology partner that can execute the project. So far the taskforce under Amfi has heard expressions of interest from both local entities, such as fund-admin boutiques Karvy and Cams, from software companies like Satyam, and from overseas organisations including America's Depository Trust & Clearing Corporation and Canada's FundServ.
More difficult will be regulatory changes that would allow for an industry-owned platform, and convincing distributors to participate.