China’s leading e-commerce website, Taobao, and fund managers are close to finalising a system to sell mutual funds online, says an executive in talks with the site who asked not to be named.
The platform, which will allow Taobao users to buy mutual funds on their website, is scheduled to launch by the end of August, says the head of e-commerce at an asset manager.
“Fund houses are now in the final stages of adjusting [the] system to facilitate online [fund] sales, as well as designing our online shop,” the source tells AsianInvestor.
Asset managers working with Taobao – China's version of eBay – are busy setting up customer service departments, says the executive. (Firms previously sold their funds via third-party financial advisers’ websites, meaning customer support was handled by the advisers and banks.)
A Taobao spokesman says the firm is in the process of filing the appropriate paperwork with the China Securities Regulatory Commission (CSRC) to become a third-party e-commerce distributor of funds. He declined to comment further.
Allowing fund houses to open online stores via a third-party e-commerce site is a new development, which the CSRC only approved in March.
Sites such as Taobao ultimately look set to become a new distribution channel for mutual funds in what is an increasingly crowded space. Fund houses say this will not happen overnight, noting that it will take some time for customers to get used to the idea of buying mutual funds online.
But the shift towards the internet is clearly underway. Alipay, an affiliate of Alibaba Group that processes payments for Taobao, partnered Tianhong Fund Management in June to launch a product that allows investors to invest money deposited in Alipay accounts to a Tianhong money market fund.
In just 18 days, 2.5 million investors invested Rmb6 billion ($1.08 billion) in Tianhong’s fund, which invests in short-term bonds and government bonds and generates annualised returns of around 4%.
Tianhong’s fund may have generated significant assets quickly, but the source says this model is not easy to replicate. “This is a very simple product. Whenever clients of Alipay [have] idle cash, it automatically goes into the money market fund,” the executive says.
While the source expects funds offered on the Taobao platform to generate decent interest through website's promotions, he notes that "even if sales hit Rmb10 billion, when that is divided between 20 fund houses, the investment amount [for each fund] will not be that large".
Taobao is clearly very popular. During last year’s Guanggun Festival, a day for bachelors to celebrate being single, the site generated sales of $3 billion in one day.
In April, Guotai Asset Management filed paperwork for a Taojin ('finding gold' in Chinese) internet bond fund, which will target Chinese web users. Its minimum investment is below Rmb1,000. Aimed solely at web sales, it is still pending approval from the CSRC.