Bharosa Club: In Talks with SEBI To Increase Mutual Funds Investments For First Timers

A relatively less known fact is that every Mutual Fund scheme has two distinct avatars – REGULAR & DIRECT. The two avatars are identical in every sense – they are the same fund to begin with, they follow the same philosophy, are managed by the same fund manager & invest in the same securities. The difference is only of commissions.

An investor who invests in a particular fund via an intermediary: a banking or trading platform or an advisor: is automatically assigned the Regular Avatar. On the other hand, an investor who invests directly with the fund house is assigned the Direct Avatar. While the two investors invest in the exact same fund, their returns are different.

The difference is because of expenses. Every fund pays a commission (0.6% - 1.5% in the case of Equity Funds) to the intermediary (agent, advisor, platform) for getting them business, and this gets factored into the price of a fund purchased through the regular route.

The fund house doesn’t have to pay a commission to anyone for an investor who invests direct, and hence the direct avatar doesn’t need to factor in those costs.

Bharosa Club is a SEBI RIA (Registered Investment Advisor), which aims to serve millions by providing affordable advice and execution; starting with mutual funds.

Rapid innovation has allowed Bharosa to offer a strong value proposition to investors across the spectrum - from first time & low value investors to HNIs. It currently serves over 9,500 members with Assets under Advisory of approx. Rs. 400 crore.

Bharosa is also in advanced talks with SEBI and AMFI with recommendations on how to increase trial in mutual funds for first time investors. To this end, Bharosa is soon launching an APP which is specifically designed for the 1st time investor.

Bharosa was founded on 22nd May, 2015 by Sanjay Bhargava, Prakash Pai & Anita Bhargava.

BWDISRUPT spoke to the three co-founders of Bharosa Club to know more about their businessmodel.

Excerpts from the interview:-

How was Bharosa Club started? What are some of its unique key features and services?
Bharosa Club’s journey began with Sanjay Bhargava; its founder, putting up a post on linkedin in early 2015, which talked about the need for a shared last mile company providing trusted advice. In that he said that financial services companies could learn a lot from FMCG companies, who serve everyone rather than a small segment of the population.

Prakash Pai, the other co-founder of Bharosa, saw this article and the two connected to exchange thoughts. Several discussions later, the idea of Bharosa was born. Prakash felt that they should put their money where their mouth is, and actually create a company which took great financial products to millions.

Bharosa started with Mutual Funds because of the large opportunity. The Mutual Fund industry has a penetration of between 1-2% in India, which pales in comparison to developed markets. This is sad because Equity Mutual Funds have been one of the biggest wealth creators over the last few decades.

There are 3 main reasons for low penetration:
(i) Miss-selling: More often than not, agents failed to align their advice with the investor’s goals or risk profile. This resulted in unsatisfactory outcomes & general distrust of the category with time.
(ii) Commissions: Commission oriented earnings meant that distributors had little to gain by reaching out to low value investors. As a result, mutual funds never really reached the masses, which resulted in a general lack of familiarity and understanding among the general public. That being said, a lot of work is being done by SEBI and AMFI in this regard recently.
(iii) Complexity: Unlike conventional investment opportunities like Fixed Deposits, the world of mutual funds is complex. With over a dozen categories and thousands of schemes to choose from, the job of an investor becomes difficult. Complexity led to avoidance.

How is Bharosa Club different from existing companies in the online MF space and robo-advisory platforms? What is its funding status?
Most major banks have online platforms which offer a single window access to mutual funds – ICICI, Kotak, HDFC etc. In addition there are platforms like FundsIndia & Scripbox which do the same. All these platforms earn via commissions.

For Equity mutual funds, commissions range from 0.6% - 1.5% every year. While this may appear insignificant; over long time horizons, the impact of commissions can be huge.

If a 30 year old invests Rs. 10,000 per month in equity mutual funds; assuming that he loses 0.8% to commission every year; over a 30 year period, he would lose close to 1.45 cr in commissions. This is assuming his investments grow at 15% annually compounded.

Wealth created through Regular plans (over 30 years) : 7.00 cr
Wealth created through Direct plans (over 30 years) : 8.46 cr

In other words, he could have made an extra 1.45 cr had he not paid commissions. Therefore, being commission free is a fundamental difference between Bharosa and most other players in the online space.

Four key differences:
• Vision: The basic difference between Bharosa and all other players lies in our vision which is to take the benefits of mutual funds to millions. Building scale hence is a key pillar for Bharosa. On the other hand, other companies seem to be concentrating only on existing mutual fund investors.

• Simplicity: Bharosa realizes that no two investors are the same. Investors differ in their goals, risk profile and investment horizon. Bharosa has created 4 distinct clusters of investors. In our latest guide we recommend specific funds and portfolio allocation across these 4 clusters. Investors can very easily identify with any one of the clusters and start investing in the recommended funds for that profile. Investors have the choice to invest in any other fund of their choosing as well.

• Innovation: Owing to the background of the founders, Bharosa’s DNA is rooted in Innovation. In just a short span of time, Bharosa has already launched a slew of innovative offerings:

o Free Portfolio Check: Any mutual fund investor can get a Free Portfolio Check with Bharosa. The Report looks at an investor’s portfolio across 5 key components : Asset Allocation, Commissions, Liquidity, Fund Choice & Diversification: and gives the investor a score and tips which help him in analysing his investing approach.
o Instant SIP: SIPs take weeks to set-up, change & cancel. With Bharosa this is possible instantly
o Market Linked Investing: Many experienced mutual fund investors want to take advantage of market fluctuations to maximize returns (buy low and sell high). Bharosa lets you pre-set your investment orders based on market PE levels. This not only removes emotion from investing but also helps avoid the need to constantly monitor the market. Our back tested results have shown an alpha of 3-7% which is a mouth-watering prospect for investors.
o Migration Wizard: Investors who want to exit from any of their funds, often have to make the laborious effort to identify units free of exit and tax loads. Bharosa’s Migration Wizard does that calculation at the click of a button and saves the investor precious time.
• Transparency: While many Robo Advisory firms earn via commissions, some are indeed commission free. Bharosa is taking transparency to a new level. Not only does Bharosa make recommendations on which funds to buy, we also share our fund selection process. This guide is publicly available and hence we can never be accused of bias.

Till now Bharosa has raised 6 crores from promoters, friends and family. It is raising 15 crores from institutional or strategic investors and expects to close this round by April 30, 2017.

Can you share the monetization model of Bharosa Club?
Unlike most of the industry players, Bharosa doesn’t earn by way of commissions. Instead we have a nominal flat fee model which is asset agnostic. In other words, whether you invest Rs. 1000 or Rs. 1 Lac, the fees will be the same. Bharosa also has a Free Plan which is targeted specifically for the 1st time investor. Bharosa’s most popular paid plan is priced at a mere Rs. 150/month.

Bharosa aims to create critical mass and then monetise. With plans of offering other financial products and services, Bharosa is looking at an average revenue per customer of Rs. 1000/year.

Also traction details seen till now, future plans, marketing plans, and the challenges faced by the company. The greatest immediate challenge for Bharosa is the low levels of penetration of mutual funds. This is also the greatest opportunity. Bharosa believes that innovation, simplicity and a focused acquisition strategy can help achieve its goals.

Given that Bharosa is looking at building scale, novel customer acquisition programs are in place, and are already showing results. The company is in advanced talks with SEBI and AMFI with recommendations on how to increase trial in mutual funds for first time investors. To this end, Bharosa is soon launching an APP which is specifically designed for the 1st time investor.

Bharosa is also undertaking an extensive Financial Wellness Program for Corporates, Institutions and Government Organizations.Bharosa has managed to grow its member base to close to 10,000 and is advising on an asset base of approximately Rs. 400 crores. It aims to have 100,000 investors on its platform by March 2018, making it a serious player in the advisory business.

What do you envisage the market size & opportunity to be?
Bharosa believes that over the next few years, 10 cr Indians will be able and willing to pay Rs.1000/year for advice and execution services for financial products – mutual funds, loans, insurance etc.