Cracking the MF code

Cracking the MF code

Fintech & Financial Services

Through its algorithmic selection process, Scripbox has made investing in mutual funds a whole lot simpler for customers. While its current AUM is close to Rs. 140 crore, it aims to double this number over the next six to nine months

Ask any young investor about mutual funds and the top recall is perhaps the oft heard and repeated warning that it contains certain risk. Deciphering the jargon, pruning the fine print and assessing the risk; it seems like a task that few people want to invest their time or money in. To put things in perspective, the retail penetration of mutual funds is close to 3 per cent in India whereas it is closer to 40 per cent in mature markets. “Bringing about awareness on mutual funds being a much simpler investment tool in reality continues to be one of our biggest challenges,” says Ashok Kumar, CEO, Scripbox. The Bengaluru-based company helps people invest in mutual funds through an algorithmic approach created by its founders, Atul Singhal and Sanjiv Singhal.  “There is no human intervention to our technology as we have set more than 200 algorithmic rules based on which funds get picked. There is higher weightage on consistent performance over outperformance,” says Kumar while adding that the idea is to eliminate bias and let logic dictate choice.  Scripbox’s revenue is based on the standard commission it receives from the fund houses and even though certain distributors see greater benefits in pushing unit linked plans, it intends to stick to its wheelhouse.

At present, Scripbox’s curated basket comprises eight funds, four of which are equity-based, two that are debt-based and two more which are tax saving funds. This, from nearly 8,000 mutual fund options that currently exist in the market. Kumar admits that there was an initial perception that this number was too limited but the company stuck to its hypothesis that multiple choices just meant more confusion that invariably means further decision delay. “We studied algorithmic selection and portfolio selection and came to the conclusion that six was too much, two was too little and four seemed the optimal number in terms of portfolio theory,” he adds.  The company ensures an annual rebalancing wherein it rejigs the funds in its basket and eliminates the ones that may have dipped in performance. “We have a tax efficient rebalancing wherein existing funds go into new picks with our clients’ consent,” explains Kumar.


There is no human intervention to our technology as we have set more than 200 algorithmic rules based on wh ich funds get picked. There is higher weightage on consistent performance over outperformance.


Debunking the MF myth

Looking back to the beginning in 2012, right at the beta phase, the founders realised that an investor’s first point of discomfort was jargon. To set right the notion that investing in mutual funds was too complicated a task for the lay person, Scripbox took a content marketing approach of writing blogs to get people thinking. “Our blogs enabled us to communicate to the average Indian in language that was simple, just as conversational as over lunch or dinner,” says Kumar. The first few blogs focused on simple finance and decision making and once people were ready to take action, the Scripbox technology platform was a seamless click away.

Today, Scripbox’s assets under management (AUM) is about Rs. 140 crore and Kumar shares that nearly 80 per cent of this growth has come in the last fiscal. He attributes a large share of this growth to the awareness activities that the company has undertaken. “We amplified our frequency on the blogs, conducted some Bengaluru focused activities like roadshows at the city’s IT parks and through these, we were also able to establish our presence and alleviate certain fears associated with us being an ‘online company’,” shares Kumar.

Interestingly, nearly 65 per cent of the company’s customer base invests in SIPs. “For us, this is the best indication of affecting change in the mindset, especially in younger people, towards saving,” says Kumar. As he jests, mutual funds are not ‘sexy’, the gratification is nowhere close to instant and yet, swaying younger minds towards investing rather than spending is what the founders are passionate about. There are roadblocks such as escalating cost of reach as most players in the industry have gone digital and this no longer is a cheap medium but Scripbox plans to focus on winning consumers over with its simplifying of complex finances. Another question that does come up is the debate on equity versus debt. “Debt funds are even less understood than mutual funds but we do our best to keep things simple by telling customers that if you want to go long, equity is a better way to go and if you want to invest for a shorter time period, debt is a good option,” explains Kumar.

Growing the numbers

In August 2015, Scripbox received Series-A funding to the tune of Rs. 16 crore from Accel Partners and a group of other individual angel investors including MakeMyTrip’s Deep Kalra. “A majority of this investment went towards creating awareness and going forward, this will continue to be our path to growth,” says Kumar.

For Scripbox to go the next leg of the journey Kumar says educating the masses is imperative. “We tried out a few ideas such as workplace literacy and women centric events, both of which were big hits, so we will continue to pursue those avenues,” he says. The company is also looking for ways to build reach by going vernacular in different regions across India. “Post June, we aim to conduct below-the-line activation in the metropolitan cities to generate better product and brand awareness,” adds Kumar.  The company is confident of doubling its AUM over the next six to nine months, if not faster. “At Scripbox, we have a mission and that mission is to create a million millionaires,” says Kumar. While that is certainly ambitious, the company has the right ideas of using simplicity to clear the field that is teeming with information and competition, but lacking in terms of method to garner better customer reach.


Snapshot

Scripbox

Founders: Atul Singhal and Sanjiv Singhal

Year: 2012

City: Bengaluru

Investors: Accel Partners and other angel investors

USP: Selection of mutual funds to distribute based on algorithmic process that eliminates human bias

 

 

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