Chennai based online distribution firm FundsIndia’s growth is testament to what technology can do to your business. Starting from scratch, the founders Srikanth Meenakshi and C.R. Chandrasekar have built one of the fastest growing fintech companies in mutual fund distribution space. From a humble beginning of Rs. 20 crore AUA (assets under advisory) in 2012, their AUA has grown to Rs. 3,000 crore in 2016. Now, they are on an ambitious path to grow their AUA to Rs. 10,000 crore in the next 18 months.
Early days
To pursue his passion for computers, Srikanth Meenakshi went to the US to earn a Masters degree in Computer Science and subsequently landed a job in the IT department of a healthcare firm in Orlando.
Joining the brokerage firm Foliofn in 1998 was his first brush with finance. As one of the founding employees, Srikanth and his team built the entire IT architecture at Foliofn.
Start of their venture
Srikanth came back to Hyderabad to spend more time with his family. His return to India in July 2008 coincided with the peak of financial crisis, which turned out to be best time to start their venture.
Srikanth met his college friend Chandrasekar, a techie who shared a similar passion for computer science, in Hyderabad. Chandra, as he is fondly called by his peers, was looking after a retirement account for a US based firm.
Srikanth was keen to start his second innings in India and his conversation with Chandrasekar sowed the seed to collaborate on a venture in fintech space. After exploring the market, the duo found that there were no investment platforms offering mutual funds. “We both were comfortable with the investment space. While there were many players offering direct equity online, there they were not actively dealing in mutual funds. We decided to fill this gap,” recalls Srikant.
To get started, they invested Rs. 1.50 crore from their personal savings in the venture. Putting together this platform required a lot of due diligence. To make sure they complied with all regulatory norms, they built their platform by seeking inputs from operation heads and compliance teams of AMCs.
After taking care of compliance and operational processes, they began developing the software, which acted as the backbone of the platform. “The good thing we did was that we did not outsource our IT. We hired an operations head and a programmer to put together this platform. After a few months, we built a very basic functional website,” says Srikanth.
Like any new business which goes through its initial set of challenges, Chandra and Srikanth faced their fair share of roadblocks. “The first question people would ask us when we tried to convince them to open an account is what happens if FundsIndia folds up. You can’t be offended by it. So we invested a lot of time educating investors about the structure and benefits of mutual funds,” says Srikanth.
To attract investors, they started focusing on public relations, digital advertising and getting referrals. With the three-pronged strategy, it took about 30 days to acquire their first 10 clients.
Chandrasekar and Srikanth aspired to have a pan-India presence. To fuel their growth, they required more funding which led to the search for private equity investors. One of the investors (Inventus Capital) the duo had reached out to asked them to approach again after establishing a track record. In two years since the launch in 2009, they built assets worth Rs. 20 crore in mutual funds. Realizing the potential of their offering, Inventus Capital infused Rs. 3 crore in FundsIndia in 2012.
Since then there has been no looking back. Encouraged by first funding, the duo pulled out all the stops to expand their business. Aware that the success of this platform would depend on providing a seamless experience to investors, they spent more time improving investor experience than sales. “We did not have any knowledge about the behavior of retail investors. We learned on the go. That was the biggest advantage as we did not have any fixed dogmas. Our ability to get feedback from customers and tweak our offering has helped us reach where we are,” believes Srikanth.
Srikanth says that investors started appreciating their value-added features like flexi SIP which built the momentum. This is evident by the rapid client growth. By 2012, their assets under advisory jumped to Rs. 187 crore which helped them receive their second round of funding of Rs. 20 crore. The capital helped them introduce new features on their platform, expand their IFA network as well as their direct-to-investor vertical. These initiatives took their MF AUA (assets under advisory) to Rs. 1,219 crore by 2015. Their success drew attention of more venture capitalists which got them third round of funding of Rs. 70 crore in 2015.
Today, the portal caters to over eight lakh retail investors, with approximately 10% of them being NRIs. Interestingly, their platform has attracted many first-time MF investors. Srikanth claims that around 60% of their incremental 4,000 new investors whom they onboard every month are first time MF investors.
Building the IFA network
Offering their platform to advisers was a natural extension. Though they had launched the business to business (B2B) platform after a few months of introducing business to consumer (B2C) vertical, it did not take off for the first two years.
As opposed to attracting investors, convincing IFAs to become their sub-brokers was not a cakewalk. Firstly, advisers feared that they would lose touch with their clients if they allow their clients to transact through a third-party platform. Secondly, they were not comfortable at the thought of losing ownership of the client. The company did not see any traction for a few years. But they did not give up. To draw advisers, they hired a sales staff in metros. Chennai based advisers Rajaraman Kumbeswaran and his partner A. Muthukumar who were looking for an online platform to cater to NRI clients are the first IFAs to empanel with FundsIndia. Today, they manage Rs. 180 crore AUA on the platform.
When they approached IFAs to use their platform, IFAs had their reservations. But all their fears were allayed once they and their clients started using the platform. To make sure their sub-brokers got enough visibility among their clients, the company started offering white labelled website and communication. According to Srikanth, the great thing about their platform is that investors and distributors may never be able to adjust with any other platform. This is because of the sheer simplicity and user friendly nature of their product which keeps them hooked, he says. Actively seeking feedback from IFAs made their platform robust which is helping them enroll 80-100 IFAs every month.
Slowly, advisers started channelizing a portion of their business through FundsIndia. As increasing number of IFAs started to use the platform, the word spread. Today, the platform has 2,200 IFAs on its platform advising Rs. 1,200 crore worth assets.
Chandrasekar and Srikanth kept improvising their platform based on adviser’s feedback. What also worked in their favor is that the duo came with computer science background which helped them develop the technology in-house.
Challenges galore
But scaling up a robo advisory firm is not easy. Being a push product, Srikanth admits that converting and gaining clients trust online is much harder and costlier as opposed to acquiring customers through the offline route. For instance, the firm spends Rs. 2,000-Rs. 2,500 to convert one client. Besides the cost of onboarding and logistics, a major part of this money is spent on digital advertisements to draw investors towards their platform. They want to bring down this cost to Rs. 1,500 per client.
Like FundsIndia, many other platforms offering online, most of them B2C, have sprung up. Given the high cost of acquiring a customer and the low revenue per client, it remains to be seen how their business models evolve.
The way ahead
While Srikanth and Chandrasekar are satisfied with their progress so far, they are not resting on their laurels. From the current Rs. 3,000 crore AUA, their aim is to grow their asset base to Rs. 10,000 crore in the next 18 months.
However, with the spurt of robo-advisory firms entering the market, the competition is this space is heating up. Media reports suggest that there are close to 40 robo-advisory firms already in India. But Srikanth is unfazed. He believes that the market is large enough for more players to focus on their segments based on their respective strengths.
This post initially appeared in the India Markets Observer 2017 where you can read the perspectives and views of other experts too. It is available to all for FREE. All you need is a minute to register.
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