Paytm, after launching the Payments Bank is now trying to enter the mutual fund space. Founder Vijay Shekhar Sharma has reportedly applied to the RBI for a license to set up a money market fund.
A money market fund is a type of mutual fund characterised as one with low-risk, low-return on investment. It usually attracts investors willing to invest for a short life cycle of less than one year. These kinds of market funds usually have no loads, that is, the fees charged by mutual funds on entry and exit to the fund.
As stated by a source to ET, “The rate of interest is not immediately known but the market fund will offer better returns than the interest rates banks offer on savings accounts currently.”
SBI, LIC, ICICI, Indiabulls, UTI are some of the traditional names dominating the money market fund segment. If approved, Paytm will probably be the first digital payments company to get entry into this space.
Paytm has also started gold trading on its platform in April 2017. “The goal is to offer complete flexibility in deciding the amount they want to invest and enable consumers to develop the habit of saving regularly in digital gold for long-term wealth creation,” Sharma had stated.
An email sent to Paytm did not elicit any response at the time of publication.
Paytm And A Market Fund: What’s The Catch?
Paytm Payments Bank is a mobile-first bank and deals majorly in digital transactions. With its own money market fund, the bank can move the surplus digital cash to the market fund and pay interest to the users.
Also, Paytm can, at any point of time, maintain a Net Asset Value (NAV) of $1 per share on the market fund. For a mutual fund, this is the price at which shares are bought and sold at the end of each trading day – so a win-win for both the investor and Paytm.
With a 250 Mn user base, this will also help Paytm increase the reliance of its users on the mobile app and build trust over the company. As of now, Payments Bank is working on an invite-only basis but has plans to open 31 branches and 3,000 customer service points in a year.
Earlier, Alibaba had also floated a similar fund in China via its financial affiliate ANT Financial. It is currently valued at $167 Bn in assets.
Paytm: Future Battle Preparations
Paytm has emerged as a pioneering name in the fintech space. Started as a digital wallet in 2010, the company now stands as a fully operational payments bank. And among its peers such as Oxigen, MobiKwik, Phonepe, PayZapp – Paytm is certainly more popular in the B2C segment.
Recently, it added SoftBank to its investor list, grabbing in $1.4 Mn funds at a valuation of over $7 Bn. Also, it further intends to invest $1.6 Bn in the next five years period to further expand the bank’s wealth management in the insurance, and lending businesses.
However, Amazon is another contender leaping ahead and infusing billions to strengthen its digital wallet business in the country. Amazon Pay recently got a $10.5 Mn push from its parent company Amazon Online Distribution Services. Also, Amazon Pay further intends to partner with the Indian government to help scale its digital payments vertical in India.
Understanding the fierceness of the battle in digital payments, Paytm has also started testing the waters in other potential areas. For instance, Paytm acquired event ticketing venture Inside.in with $5.2 Mn investment earlier this week. The move aims to compete more aggressively against market leader BookMyShow. Prior to this, it had partnered with Gurugram-based PVR Cinemas to bring PVR’s movie tickets to Paytm’s ecommerce platform in March 2016.
Just this month, Alibaba Pictures, the entertainment unit of China’s Alibaba Group, (one of Paytm’s major investors), acquired a majority stake in Chennai-based TicketNew for an undisclosed amount.
Also, Paytm Ecommerce is another pillar which Sharma is banking upon in the times to come. Paytm Ecommerce was spun off into a separate entity in April 2016.
Paytm’s entry into money market fund can become an added incentive. With TVCs like ‘Mutual Fund… Sahi hai,’ the common consumer is further inclined towards investing in this space. As per data available on IBEF, the assets under management (AUM) of the mutual fund (MF) industry grew 45% to $268.35 Bn during March 2016 to February 2017. Also, the mutual fund asset base in India increased by $55.65 Bn to reach a total corpus of around $255 Bn in 2016, which is the highest growth recorded in the last seven years. What other trends will Paytm set in the fintech space, will be seen in times to come.