Thaler may not have realized how much he has NUDGED the mutual fund industry in India!

I have been doing a round of meeting CEO of the mutual fund industry, and it has been a pleasure. This is a mid journey report – and I may do one more, but no promises yet.

Behavioral Design – design in such a way that people are made to act in a way that is good for them is something many of them are working on. This is good, and is likely to be good for the industry. I only hope that they work/behave in a way that the end customer (aka investor) makes money, the regulator is not unhappy, and everybody in the ecosystem plays his/her role correctly.

When you set up a new restaurant should you be worried about how McDonalds operates thousands of outlets in more than a hundred countries and make yourself miserable? I think not. Apollo Hospital does not consider small hospitals their competition, but there are brilliant small hospitals who are busy, thriving and having a long waiting list for beds.

Similarly a small mutual fund should not worry about size – in a restaurant we choose by taste, convenience, not by size. In a movie we choose by quality – not budget of the movie. Some amazing movies have been box office failures – we still remember the movies fondly, do we not.

Fund houses will do well to treat the IFA with respect (he will never ever articulate this), and I do think that creating new IFA cannot be just left to 2 companies from Surat! Amfi – has to go about increasing the size of the distribution. With falling margins if banks choose to concentrate on other products, there will be a crisis. The industry is growing well – however the potential is still far, far greater than what has been achieved. Over the next 5 years the industry size could easily DOUBLE – given the current momentum.

Automation – should it be FORCED (remember what online trading did to the brokerage industry?) at least in the bigger cities to start with is a question that they would answer for themselves. Before the advent of online trading (outcry system) the MAX daily turn over would be Rs. 230 crores a day. Now it is upwards of Rs. 100,000 crore. What numbers are we talking about? Of course, not exactly comparable, but most of the problems – like signature difference, wrongly filled form,..something missing – or only 12 digits of a bank account is filled – all such shit will vanish. Hello MFU (hello Ramesh) – your time has come. BSE, NSE will also be part of the support system, but the Registrars too have to gear up on the technology front.

Communication in the industry needs some input from some amazingly capable 18 year old if we are serious about the ‘catch them young’ crowd. Pictures. Instagrams. These will have to be the first point of engagement, not blogs by old foggies saying “start early, invest Rs. 40 a day” -this is for the millennial. You now have to deal with kids born AFTER 1998. See what they want.

We have a huge, huge senior citizen market which is also unaddressed – the death of the small IFA will mean that the weakest investor will now not be serviced. We need 2 NJs and Prudent in each state, not just 2 in the country – if we agree that the small guy needs an umbrella. Associations cannot be expected to do this. Amazing work being done by both NJ and Prudent, but one also has to see the work done by Funds India, Scripbox,…and many other smaller people. All of them are depending on scale and technology. These aggregators too have to communicate technology – and that will be a challenge.

If the industry has found out how important Thaler is, will we make products simpler and Nudge younger and older investors to buy simple products (90% of the market), and just change their behavior?

Will we use more pictures and calculators and not done to death ppt?

Will we speak in more languages than just in the queens English?

Will we talk to the IFA (and investor) instead of talking at them?

Will the industry stop incensing the regulator?

Will the regulator amputate the criminal and let the good guys run fast?

……….its an endless list. Sigh.