Varun Gupta, a 29-year-old former IIT-Madras alumnus, was always interested in analytics. During his college days, he founded a startup that built a talent discovery platform for sports. The business did not take off because he did not know how to tie in the relationships with sports people, agencies and scouts.
After graduating, he worked for a couple of years in an analytics firm before setting up his own analytics company called Decision Point in 2012. When he was at this firm, he realised – based on his and his friends’ experiences – that there were no savings instruments in India that gave good returns. He took it upon himself to build an automated advisory platform that could plug in to some of the liquid mutual funds data and invest on behalf of customers. “The technology allows a customer to choose his own product based on data and not be dependent on a sales person,” says Varun.
Most financial products in India are high commission products and the charges are more than 30 percent of the invested premium. Liquid mutual funds are a viable product for most people who want to increase their returns on a weekly or monthly basis. He teamed up with an old friend Shailesh Mehta, who was former Wipro employee and IIT-Mumbai and IIM-Ahmedabad alumnus to start this automated financial platform.
FinoZen is one of the new breed of startups that operate under the term “RoboAdvisory”, where the platform is intelligent enough to suggest investments. It takes away the inefficiency of distribution systems and training sales staff. “Most of the sales people have targets and it harms the individual more than the brand of the company when it comes to financial investments,” says V Balakrishnan, co-founder of Exfinity Ventures. He says that 90 percent of the sales staff in India does not know how to sell a financial product based on the financial needs of the customer.
Varun founded FinoZen last year around September and launched the app in January. Since then, the app manages Rs 1.6 crore (assets under management) on the platform. The trigger, apart from personal experiences, was a hypothesis of Indian savings habits.
Indians love to save and their life is secured with life-insurance policies or depositing cash in a bank. Although India has a considerably high savings rate of 33 percent of household income, these savings are not invested in equity markets. The system of savings in India for long worked on a system of closely linked communities watching out for each other. But with the market economy displacing several people from these communities, especially in major Indian cities, savings need to be invested wisely to meet unforeseen life experiences and old age.
Most of the savings mechanisms in India give the consumer an annual return of 7 percent of the sum invested. Little wonder Indians invest in gold and property to meet unforeseen financial requirements. “Our target is to go after the current and savings account customers and tell them that this app works to increase their savings more than bank interest rates do,” says Varun.
The size of the total assets under management (AUM) in the Indian mutual fund industry is $202 billion. The insurance industry on an annual basis sees new business income top $20.5 billion. Even with all this growth, the insurance industry is still only 5 percent of the total GDP of the country.
The consumer must login and provide his/her Aadhaar details, and in two minutes, they can start choosing their weekly investment plans. The money is deposited through the app and the customer can start saving with as little as Rs 100. The customer can track the money on a daily basis and see the gains and losses from their investments. FinoZen is an exclusive platform for liquid mutual funds which invest money on daily basis in instruments like term deposits, commercial papers and certificates of deposits.
These being short term investments, they are churned very fast with no cap on the withdrawal period. The gains and losses are transparent, the customer being able to track them on the app and decide when to withdraw the cash. The money when withdrawn goes straight to the bank account. The app has been downloaded by more than a 1,000 individuals in six months. The company has tied up with Reliance Mutual Fund to sell their liquid investment funds. It is still too early to disclose revenues as the business is only seven months old.
The company has invested Rs 50 lakh to build the platform. FinoZen is in fund raising mode and is scouting for $2 million to scale the product.
It has competition in the form of Finomena, WealthTrust Direct Investment, Scripbox and Credex. These startups are similar in many ways and some of them even provide credit to entrepreneurs and use their apps as delivery mechanisms. The margin they make on an investment of Rs 1 crore is as low as 20 paise. This is a high volume business and the technology players expect the 100 million young Indians who use smartphones to come in for this form of investment over the next four years.
“If robo-advisory services are implemented correctly, the adoption will increase. Financial planning is a growing concern and if their solutions are able to integrate good design into all the workflows, then financial planning will become a success for the new generation in India,” says Pranav Pai, founder of 3One4 Capital.
Varun is on the right path to make money for both his customers and his company. Hopefully, people will take to the platform for real savings and plan their returns better.