At a time when fintech companies are looking to diversify their revenue streams and become bigger players in the financial services industry, Sachin Bansal-owned Navi Mutual Fund has announced the launch of Navi Nifty 50 Index Fund, its first ever mutual fund (MF) product.
Billed as an open-ended equity scheme which will replicate the Nifty50 index, the Navi mutual fund is said to have the lowest cost compared to any other index schemes in the passive funds category. As a new fund, Navi will have a new fund offering (NFO) window, which will be open for subscriptions from July 03 to July 12.
The investment objective of the scheme is to achieve returns that are equivalent to the Nifty50 index by investing in stocks of companies comprising the NSE index. The 0.06% expense ratio proposed to be charged by Navi for the mutual fund is said to be the lowest in the index schemes category, as per the company. For index funds, the category average expense ratio is 0.25% and many existing index funds are charging expense ratios in the range of 0.15%-0.20%.
Commenting on the new fund, Saurabh Jain, MD and CEO, Navi’s AMC business, said, “All funds have professional portfolio managers. With an index fund, investors don’t need to pay more for getting the expertise to hand-pick stocks. The real benefit to the investor is brought by lowering the expense ratio while still providing the same quality professional portfolio management through index funds. Working with our partners and leveraging our technology background, Navi has lowered the cost to 0.06% for the direct plan offering. Our goal is to be able to keep providing investment opportunities to investors at the best possible cost.”
Navi Enters Fintech’s Mutual Funds Race
Last year, the Securities and Exchange Board of India (SEBI) relaxed the norms to allow fintech startups and other entities to enter the mutual fund (MF) business. SEBI waived the norms pertaining to MF entrants requiring five years of experience in the BFSI business, three years of profitability, and a net worth of INR 50 Cr.“To facilitate innovation and enhanced reach to more investors at a faster pace including tech-enabled solutions”, the regulator said in December last year.
“Sponsors that are not fulfilling profitability criteria at the time of making the application shall also be considered eligible to sponsor a mutual fund, subject to having a net worth of not less than INR 100 Cr for the purpose of contribution toward the net-worth of the asset management company (AMC),” SEBI had added.
These rule changes opened up the possibility of startups turning into fund houses, akin to banking majors. Wealth management unicorn Groww announced the acquisition of Indiabulls Asset Management Company Limited for INR 175 Cr. The acquisition is subject to SEBI approval, but Groww is looking to create its own mutual fund products that are targetted at millennial and Generation Z audiences.
Besides Groww, the likes of Paytm and PhonePe are also looking to become fund houses and launch their mutual funds products in the near future. PhonePe has registered PhonePe Wealth Services (a mutual fund distributor) to enter this category.
The scale of the AMC business is put into perspective when one considers that the total assets under management (AUM) of the Indian mutual fund industry as on April 30, 2021 stood at INR 32.38 Lakh Cr (over $440 Bn), as per the Association Of Mutual Funds In India. India’s investment tech market is estimated to reach a market size of $14.3 Bn by 2025, as per Inc42 Plus analysis. That’s why the entry of Groww and now NAVI into the AMC space is a big deal.
Experts believe the long-tail nature of the market plus the fact that customer base shifts with the performance of the AMCs, means that there is always room in the market for a new player. But this also makes it harder for AMCs to dominate the market.