Key Highlights:

  • Fintech Startup ZFunds, connecting India’s small towns with mutual funds.
  • ZFunds began by connecting with independent distributors of mutual funds in the country and gradually brought on retired bankers, advisors, and certified accountants
  • The startup has around 20,000 customers and 3,200 agents across 458 districts

The Gurugram-based fintech startup ZFunds was launched in 2019 by Manish Kothari and Vidhi Tuteja. Formerly both used to work for Paisabazaar(a PolicyBazaar group company). Recently they were joined by a third co-founder and Chief Technology Officer (CTO) Yogesh Yadav.

In an interview with a media-tech company, Manish Kothari says “People in smaller towns want to take risks and invest in MFs. The only problem is availability. They need expert guidance to help them understand these products and guide them through the journey. The concept of DIY (do it yourself) doesn’t work here. You need to make these products to reach their door through a local person whom they trust,”.

Social Commerce:

ZFunds began by connecting with independent distributors of mutual funds in the country and gradually brought on retired bankers, advisors, and certified accountants by helping them to obtain the necessary certifications. Using WhatsApp groups, these sub-brokers market MF investments to the people within their communities. The co-founder Manish Kothari, reveals Almost 40-45 percent of customers have been acquired through WhatsApp.

The licensed agent makes suggestions and helps people to invest, based on the customer’s profile, corpus, and requirements. Through the ZFunds app, which works with all 42 Asset Management Companies (AMCs), the entire process-including onboarding, KYC compliance, order placement, payments, and portfolio tracking is carried out.

The entire process is paperless. Through the app, agents can manage their clients, portfolios, and their social media channels while the customers can even check their transactions, fund details, investment documents, and net corpus. Two different interfaces have been made for agents and customers.

The startup launched a daily mutual fund SIP (Systematic Investment Plan) recently, in collaboration with ICICI Prudential Mutual Fund, HDFC Mutual Fund, and Tata Mutual Fund.

“The SIP has also been a concept for urban salaried workers. Our concept was specifically designed for people living in small towns who are looking to invest and earn on a daily basis rather than getting a monthly income. The minimum amount of investment is Rs 100” says Manish Kothari.

Like other MF distribution entities, ZFunds earns commissions (around 1-1.25 percent) from the AMCs or the instrument issuers. According to the startup, nearly 60 percent of the commission earned is passed on to agents.

Currently, the startup has around 20,000 customers and 3,200 agents across 458 districts. The company has witnessed maximum demand from Uttar Pradesh, including districts like Varanasi, Lucknow, Basti, and Ghazipur, while there seems to be a growing transaction from states like West Bengal, Assam, Bihar, and Rajasthan.

The startup generated revenue of Rs 2.6 crores in FY22 and now has a monthly SIP book of Rs 4.5 crores and Assets Under Management (AUM) of more than 350 crores.ZFunds is profitable at a unit level, according to the co-founder, claiming that they register an average of 3,000 SIPs per day with 10-12 new sign-ups every day.

Connecting the supply side challenge:

According to AMFI’s 2021 data, there has been growth in investment participation from semi-urban regions, like Jhumri Telaiya, Tezpur, Gangtok, Vellore, and Srinagar. The share of industry AUM outside of the top 110 cities increased from 10.21 percent in June 2020 to 15.44 percent in June 2021, a 50 percent jump over one year.

The co-founder says.” Almost 90 percent of the startup’s daily SIP customers come from smaller regions. There has to be accessibility involved in financial transactions for these regions, which comes from our network of local agents.”

The majority of people in smaller regions prefer to keep their earnings in low liquidity products like fixed deposits, gold, insurance and real estate. Slowly, but steadily, the stance is changing, despite its extremely low volume.

In order to aware more people b=about the product, the company has launched two channels on Youtube—ZFunds for consumers and ZFundshala (for agents)—that have around 7,000 and 3,000 subscribers, respectively. Those channels are integrated into the app and curate educational videos on topics such as how to choose mutual funds, the risks involved, how to become a distributor, how to buy and sell SIPs, etc.

Market Competition:

Several banks like HDFC, SBI, and Axis remain the top distributors of mutual funds in the country followed by wealth management services groups like Prudent Corporate Advisory and Surat-based NJ India Invest. These firms even have similar sub-broking models where individual distributors have tie-ups with them to execute transactions and manage the business.

A number of small and medium-sized platforms have emerged in the space, such as ZFunds, Nivesh, AssetPlus, and WealthBucket, which target non-metropolitan users to sell mutual funds.

The startup has also been experiencing indirect competition from digital investment platforms like Groww, Kuvera, Coin by Zerodha, and Paytm Money. Although, they have a different target audience.

Future Goals:

The 45-member team plans to offer semi-urban affluents slightly more sophisticated investment products like bonds and cross-sell them with digital gold, insurance and Fixed Deposits (FDs).

Looking at the demand for its app, ZFunds plans to introduce regional languages on the app. Currently, the app has 10,000 downloads on the Play store.

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