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A look at Asia’s online fund distribution

Both China and India lead in online distribution initiatives in Asia ex-Japan. However, the drivers for online distribution are different in both markets, according to a study published by Boston-headquartered Cerulli Associates.
A look at Asia's online fund distribution

In China, technology companies are leading the push for online distribution. Alibaba-owned Ant Financial’s Yuebao was the first fund available online to mainland investors in 2013. It has become the world’s largest money market fund with $251bn in assets, according to the report. Tencent, Baidu and more recently followed by offering funds online.

Online distribution has become an essential channel for asset managers selling in China. Today, online fund platforms account for about half of the total sales of China’s retail mutual funds, according to a report by Z-Ben Advisors (however, the volume of online sales is skewed due to the sale of money-market funds, which account for around half of the retail mutual fund market).

Besides domestic fund houses, players in the Hong Kong-China Mutual Recognition of Funds (MRF) scheme are also using online channels to distribute their funds in the mainland.

For example, JP Morgan Asset Management uses a combination of banks, brokerage firms, independent financial advisors and online channels to distribute its MRF products, Jasmine Baker, analyst at Shanghai-based consultancy firm Z-Ben Advisors, said previously. Hong Kong’s Zeal Asset Management also makes use of online distributors, such as Ant Wealth, WeChat, Tiantian and LuFax, to distribute its MRF fund in the mainland.

Schroders also expanded its list of Chinese distributors selling its MRF fund to include Ant Wealth and Tiantian, according to the Cerulli report. The fund has eight distributors in China.

Regulatory push in India

Unlike China, the push for digital distribution in India is led by regulation, according to the report. Its financial regulator, the Securities and Exchange Board of India (SEBI), has been periodically taking measures to reduce costs for end investors, which supports online modes of mutual fund distribution.

For example, SEBI launched in 2015 the MF Utility System (MFU), which is a “transaction aggregation portal” that enables investors to use a single account when investing in multiple funds managed by the various participating asset management firms, according to the platform’s website.

Foreign firms that have an on-the-ground presence or a joint venture in India participating in the platform include BNP Paribas Mutual Fund, Franklin Templeton Investments, Invesco Mutual Fund, Mirae Asset Mutual Fund, Principal Mutual Funds, DSP Blackrock Mutual Fund and ICICI Prudential Asset Management, the website shows.

There are 28 mutual fund firms participating in the platform. Together they account for 96% of India’s overall industry assets under management (AUM), according to the MFU.

As of the end of March 2017, AUM under the MF Utility totaled INR 570bn ($8.12bn), which was five times higher the AUM in March 2016, according to a separate statement. During that period, 76,000 investor account applications were received, which is a 250% increased compared to the previous year.

In total, India’s mutual fund industry stood at INR 22.41trn as of the end of January, according to data from the Association of Mutual Funds in India.

Besides the MFU, investors have other online channels to choose from, such as stock-exchange-based platforms, websites and apps of fund houses, distributors and registrar and transfer agents, according to the Cerulli report.

The development of online distribution is also backed by regulators in other markets, such as Hong Kong and Singapore, according to Leena Dagade, Singapore-based associate director at Cerulli Associates.

“Across key markets in Asia, there is regulatory backing for the adoption of fintech and the development of digital channels. Regulators are trying to create alternative distribution channels with the aim of offering more product choices from different managers to investors at low costs,” she said.

Part of the Mark Allen Group.