The quote describes it the best – we work hard to earn money but do not put it to the best use. Most people just put money in their savings account (or probably FDs at best) but hey, how many millionaires do you know who became wealthy by investing in a savings account?

So, how do I make my money grow?

The answer lies with investment advisors who charge a basic fee to manage your portfolio. Step into the digital world and these investment advisors are being replaced by robo-advisors, a class of financial adviser that manages your portfolio with minimal human intervention, based on mathematical rules or algorithms.

The extensive product scalability and minimal operations coupled with the fact that potentially everyone needs such a service, make this opportunity look attractive from a distance.

I have run and shut down a retail investment startup, seen development work on such platforms during my stint at Goldman Sachs and met multiple startups in the sector to reach the conclusion that there are many roadblocks yet to be addressed, the biggest one being distribution.

This article is an attempt to share my learnings after witnessing several such plays:

Let’s begin with briefly understanding the scope and market dynamics –

There are 3 facilitators for financial market investments –

As per ValueResearchOnline, across the gamut of options, the financial investment facilitator market stands at ~2-3B USD by 2020.  This number itself is not big enough to account for all the excitement so you may ask –

Why is the opportunity interesting?

  1. FD, gold & real estate returns are spiraling down

Our economy is evolving, and the interest rate on FDs and returns on gold and real estate are spiraling down. Also, the ability for consumers to invest smaller amounts easily with the promise of security against theft & fraud, etc. are major factors facilitating the flow of money into the financial markets. This is validated by a healthy 18% per annum growth rate in mutual fund assets under management (AUM)s according to ICRA, an Indian independent and professional investment information and credit rating agency.

  1. Huge latent/untapped demand in the market

Indians invest a lot more in traditional investments like gold, real estate, and bank deposits compared to financial instruments like stocks, bonds, and mutual funds. I believe, in order to bring entirely new segments to financial market investments, automated advisory and smoother execution may not be sufficient. We need to disrupt how financial products are distributed. If channelized properly, these new forms of distribution could drive the growth rate beyond the estimated 18%.

So where is the opportunity?

 While much of India’s wealth is in the hands of promoters and inheritors, their financial market participation is half and 1/15th respectively, than that of working professionals

  1. Monopolize the distribution market in your favor – The distribution of investment products (mutual funds, FD & CD, stocks etc.) is a highly fragmented market, primarily because of limited geographical/demographic outreach. NJ Invest (the top MF distributor) earned Rs~326 cr. in commissions, which is only ~7% of total industry commissions. There is an opportunity for startups to go beyond the vanilla feet-on-the-street + online model, with a product vision to reach out to the masses and command >30% of the distribution market.
  2. Tap the Untapped – While much of the wealth in India is in the hands of promoters and inheritors, these groups are largely absent from the financial markets. I believe there is an opportunity to build tools/channels to cater to this huge untapped segment. The ratio of equity to real estate investments for a working professional is 0.3, but the same ratio stands at 0.17 for a promoter and 0.02 for an inheritor.

My take:

In a crowded market with limited revenue potential, innovation and disruption are required in the distribution layer.  Startups have the opportunity to use technology to reach millions of potential investors who cannot be tapped through offline means. They can serve these segments profitably only if they are able to lower their cost of acquisition.

Here are some examples of go-to-market approaches which could work:

Content outreach

People often have queries like: how much rent can they afford, which credit card to go for, how much should they save for a new house, etc. Could you power a content strategy which builds on the basic financial queries and not just the investment decisions? Adding a technology layer to make this content more interactive, authentic and reliable is also a strong value proposition. Think Q&A, people sharing experiences,  personal finance disaster stories, interviews, etc.- what has been able to achieve in the USA.

Tax planning 

Nobody wants to give their money to the government. Maybe you could build tools to help people file tax easily and give personalized suggestions around investments, insurance purchase, donations,  health and house rent allowance, loans, additional income, etc. and how it would impact their tax liabilities.

Reaching out to corporate employees 

The ratio of equity to real estate investments is highest for a working professional,  who have the intent to invest in the financial markets. An active outreach strategy via salary management platforms, personal budgeting tools, or even stationing advisors in business parks could lower the customer acquisition cost. Zenefits, for instance, leveraged their free HR platform to build a health insurance distribution network and Wealthfront actively reached out to Silicon Valley tech employees for their initial traction.

Reaching out to SME owners and entrepreneurs

India has a huge and prosperous audience of SME promoters. It can be cost-effective to acquire them by partnering with accounting, invoicing & other software partnerships, or tie-ups with their CAs, banks and other service providers.

Collaborating with wealth planners 

We have a huge segment of people (inheritors, SME owners, traders, etc.) who are not yet internet savvy and prefer in-person advice. I believe an active online-to-offline strategy to cater to this affluent segment by facilitating the existing financial planners would be pivotal for doing a great business. For inspiration on this, check how NJ Invest works with wealth planners.

Once you crack the distribution layer, there is a huge opportunity to deliver better returns through personalized and automated investment advice.

I would love to understand your strategy of optimizing the distribution layer – new innovative channels and successful execution over the known channels. If you are running such a venture, shoot me a mail on