Siddhartha Ahluwalia 0:58

Hi, this is Siddhartha Ahluwalia. Welcome to The Neon Show. I’m your host and also managing partner of Neon Fund.

Neon Fund is considered by Economic Times as the second best AI fund in the venture capital category from India. Today I have with me Vishal Jain, who leads Zerodha Fund House, Zerodha’s new asset management company. Welcome Vishal to the podcast.

So excited to have you.

Vishal Jain 1:20

Thanks for inviting me, Siddhartha. Pleasure being on your show.

Siddhartha Ahluwalia 1:24

Vishal, you know, Zerodha is a household name in India, right? Especially, you know, the personalities Nikhil and Nitin are, right? Everybody watches them.

Zerodha Asset Management Company is a new entity that you lead and that the group has built. And it’s, you joined them three years ago and the funds launched publicly one year ago, right? So want to focus more today’s podcast on the India market, right?

And keep it as a discussion on, you know, how is the India’s participation in this entire category of mutual funds increasing, you know, who are the people who are opting for these mutual funds, right? Which people are participating directly in the stock market? How is, you know, how do people prioritize investing directly versus going for mutual funds?

Let’s start, you know, by the history of mutual funds in India and how many mutual funds are there today in India?

Vishal Jain 2:16

Yeah. So I think, see, look, the history of mutual funds can be kind of split into maybe four or five different phases. I think the initial phase was, say, maybe between 1960s and the 1990s when we had a single asset management company which was called as a Unit Trust of India, the UTI as it’s called today.

Somewhere I think in 1998 or something, 1988 or around that time is when the government opened up mutual funds for some public sector banks as well. So you had a couple of public sector banks kind of setting up mutual funds, you know, in India. I think somewhere in 1993 or 1994 is when the market opened up for international players.

I think 1992 or 1993 was also when SEBI was incorporated, got set up and then regulations started coming into the market. So somewhere in the middle of the 90s or so, you know, you saw a lot of these domestic as well as some foreign, you know, asset management companies that came and set up shop in India. And since then, we’ve now got about, well, I think about 44 or 45 mutual funds in India.

And currently, you know, we manage about 67 to 68 lakh crores, you know, across maybe about 1500 to 2000 schemes that are there in the market. Currently approximate in terms of number of people investing in mutual funds is about 5 crore, 5.1 crore or so at this point of time. Those are the number of people who are holding unique pan folios as we call it in the mutual fund industry.

The mutual fund industry has gone through a lot of, I would say, change in the last, you know, two to two and a half decades or so. If you look at the time in the middle of the 90s when the new asset management companies started coming in, you will remember that, you know, one after another, there were quite a bit of global events that happened, you know, right from the Korean crisis to Y2K to Iraq war and things like that. So a lot of influence at that point of time, you know, came in and volatility in the markets, you know, resulted in traction being kind of slow in the initial part of the first about, you know, 5 to 10 years of the industry.

The focus had been in most cases, you know, on the institutional side because retail investors getting into equity was not such an easy game. If you looked at India historically, I mean, we have been a socialist economy. We have primarily been an economy which has been led by a lot of public sector companies and culturally if you saw us, we were investing in fixed deposits, gold and things like that.

Siddhartha Ahluwalia 5:20

Real estate.

Vishal Jain 5:20

Right. Real estate. And therefore, I think, you know, we didn’t have a natural tendency towards investing in products like mutual funds at that point of time.

We also have to remember that any kind of asset management business is all about trust and therefore you need to be in there for a couple of years for people to start trusting the entire process and the products that you have. So I think the initial phase was when a lot of focus came into debt products and debt products, I think, on the shorter end of the curve, which means, you know, products which are possibly about, which had a maturity of 3 months to 6 months, I mean, less than 1 year or so. A lot of retail, I mean, sorry, not retail, a lot of institutional participation started coming in there.

Retail investors started coming into the market once, you know, the SIP kind of started becoming very popular in terms of, in terms of a simple way, small ticket amounts to start investing, you know, month after month. So that, I think, started off maybe from the middle of the 2000s or so and now it’s become, you know, a way for people to invest. So it’s become a popular term, SIP in a sense has become popular not only in India but even globally, you know, keeping in mind that today approximately about 25,000 crores of SIPs are happening month on month in the industry.

So retail investors have kind of taken on to SIPs now and SIPs are primarily happening on the equity side. So you will find that a lot of people now believe in the India growth story, are investing through, you know, equity funds in India. So that’s a very heartening development that has happened.

One of the things that India also, I would say, was in the forefront was a product that, you know, I believe in a lot and have been involved in and have been associated, you know, since the time of launch which have been ETFs and index funds. ETFs, the first bunch of ETFs, I think, were launched in the US maybe by the middle of the 90s or so. We launched the first ETF in our erstwhile.

Siddhartha Ahluwalia 7:35

Just for our audience, what are ETFs for people who are coming to learn more about?

Vishal Jain 7:39

So ETFs are basically mutual fund units, you know, in a very simple sense but trade at a real-time price on the stock exchange.

Siddhartha Ahluwalia 7:48

Okay.

Vishal Jain 7:48

Right.

So there are three different structures in a mutual fund. Earlier, you had something called as a close-ended scheme. A close-ended scheme was basically a scheme where an asset management company came out to the public, you know, with a product which it invited funds, had a certain philosophy whether it was investing in equity or debt and had a certain maturity which means that that whatever, if the product was for 5 years or 10 years, after the 5 or 10 years, the money would come back to you in terms of whatever the NAV was. But the issue with that kind of a structure was that if you had to get out in between, that kind of became problematic and therefore, then those units got listed on the stock exchange but even if they were listed on the stock exchange, they were never trading at fair value. So you would find that they would be trading at a discount simply because of the fact that the guy who is going out to the stock exchange is basically the seller who wants to get out.

Siddhartha Ahluwalia 8:44

Yeah.

Vishal Jain 8:45

Right. So these units would eventually trade at a huge discount in the stock exchange and therefore, if somebody wanted to get out in between, it wasn’t the best product for you to kind of use. The next phase of products which came out was the open-ended funds globally where you could get in and get out at a closing NAV of the scheme and those funds are now, you know, very popular across the world and in India as well.

And the third structure, which is what we term as actually the innovation that has happened in the mutual fund industry, which is the ETFs, which is the exchange-traded funds where you can actually buy and sell real-time on the stock exchange all throughout the, you know, trading hours that are there. So you can actually get in and get out, you know, just like a stock in an exchange-traded fund but it’s backed by an entire basket of, you know, scripts that are there, you know, underlying that particular index. So the first ETF got launched in India in 2001.

So in that sense, India was in the forefront of technology of, you know, keeping in mind that such kind of products had just got launched only 6-7 years before we actually got that to India. Again, the initial phase of exchange-traded funds were kind of, they were slow to pick up but somewhere in the middle of, I think, 2015 is when again institutional participation started and EPFO started investing money into ETFs and…

Siddhartha Ahluwalia 10:14

What is EPFO?

Vishal Jain 10:15

EPFO is the employee provident fund where, you know, whatever salary, you know, gets, our salary gets cut, goes to the EPFO for managing. That organization which is run by the government now puts in nearly about 15% of their incremental corpus into ETFs. So a large flow of, you know, money, assets are coming from the EPFO.

Since 2018 or so, we found a good amount of traction coming into index fund from retail investors and HNIs and during COVID time and post COVID, because of the sharp spurt in DMAT accounts and the kind of volatility that was there in the markets, we have seen a huge take towards ETFs as well.

Siddhartha Ahluwalia 11:02

And why did, you know, COVID resulted in more participation in mutual fund and ETFs?

Vishal Jain 11:08

Simply because of the fact that, I mean, two or three things. One is that I think people were home and therefore, I think trading activity in a sense increased. It became easy for people to open DMAT accounts because most of it was kind of being done online electronically.

Also markets, if you remember, had, you know, fallen nearly 25-30%. And generally when, say, broad indices fall at that level, you generally find, you know, a lot of new investors who are kind of fence-sitters in the market coming in and starting to invest, right? So I think that happened and you saw a huge expansion in the number of people investing in ETFs at that point of time.

And one of the reasons why ETF became a kind of first port of call is when you have an event, something like a COVID that happens, you don’t know which stock or sector is going to get affected or is going to do well.

Siddhartha Ahluwalia 12:02

You just buy the index.

Vishal Jain 12:04

Yeah.

But it’s like a, you know, I keep telling people it’s like a, you know, today if you go to a shop and you want to buy something and you’re able to get it at 25-30% discount, you generally just tend to, you know, buy it because you’re getting it at a discount. So at that point of time, a lot of people who were fence-sitters thought that, look, I was buying at 100 rupees, I was buying at 100 rupees, but now I’m getting at 75 bucks, right? So a lot of people kind of got into the market at that point of time and, you know, ETFs kind of became a first…

Siddhartha Ahluwalia 12:38

And do you think the markets are down right now at a similar level or not so much?

Vishal Jain 12:42

Very difficult to say, Siddhartha, because, see, generally when you invest, it’s better to, it depends on what you’re investing for, right? Typically, you should have a longer-term outlook towards any kind of investment because it’s very difficult to, you know, tell where the market is going to go in the short term. And India being a growth economy, I think it makes sense to think long-term than to, you know, try and predict.

Siddhartha Ahluwalia 13:05

I was just asking from the point of view that in 2020 March, the markets fell by 25%. Right now also there is some volatility in the markets, the markets are down, but the overall Indian macro globally is very high, right? So it’s a good point of time exactly like 2020 for folks to enter more ETFs, more mutual funds.

Vishal Jain 13:24

Definitely. And it’s already happening. So, you know, keeping in mind that there is a correction in the market and keeping in mind, as you said, that, you know, the correction has been more due to events which, you know, to an extent have been, you know, India related, but a lot global related.

I mean, it does make sense for people to, I mean, if they’re doing their SIPs, to kind of step up their SIPs and start investing a little more, you know, in, say, mutual funds, keeping in mind that the next four to five years, India is going to keep growing here.

Siddhartha Ahluwalia 14:02

Yeah. And, you know, just before we discuss more into, you know, what’s going on in India, we’d love to know, how do you build your own portfolio personally?

Vishal Jain 14:10

I mean, all throughout my life, I mean, I’ve banked a lot on ETFs. So typically, I tend to split my portfolio in something called as a core and satellite. Core is something which is what you term as a major part of your portfolio, which is the fact that you want to invest in the equity market.

And why do you want to invest in the equity market? Because you believe in the India growth story and you want to beat inflation, right? So I usually take most of my core exposure through low cost diversified ETFs, which could be in the large cap segment, mid cap segments.

Siddhartha Ahluwalia 14:45

Or you would buy something like top 50.

Vishal Jain 14:48

Yeah, something like a top 100 or a mid-cap 150, mix my portfolio, you know, with these ETFs. I also do have, I usually have gold in my portfolio, because if you look at gold as an asset class, and I take exposure through gold ETFs.

If you look at gold as an asset class, it’s kind of has a negative to low correlation with the equity markets. And the day you include gold into your portfolio, it kind of cushions your portfolio to an extent because if there is any untoward event that happens in the global economy or in the domestic economy, gold is something that kind of shoots up at that point of time and kind of saves your portfolio.

Siddhartha Ahluwalia 15:27

And gold has been growing, let’s say, approximately more than 10% year on year.

Vishal Jain 15:32

Yeah, so the returns have been decent. But nonetheless, I think it’s more important for you to diversify your portfolio across asset classes. Satellite portion of my portfolio could be sometimes, you know, I can look at doing maybe stocks or any kind of other products, which I believe can at that point of time, you know, may give a little higher return than say, a broad based, you know, plain vanilla index.

So that’s how I usually split my portfolio.

Siddhartha Ahluwalia 16:00

And what about real estate in terms of the portfolio?

Vishal Jain 16:03

I mean, real estate, fortunately or unfortunately for all of us becomes a very large part, you know, of our portfolio, but it’s more for consumption than I’d say for investment.

Siddhartha Ahluwalia 16:16

Yeah, understood. And, you know, if you can tell historically, how has the retail participation in stock markets and mutual funds increased in India over a period of decades?

Vishal Jain 16:28

I mean, retail participation obviously has shot up manifold over the years. And I think that’s been led more by, you know, the fact that there is easy access for you to open accounts and to access the stock market. I think that trend kind of started off maybe in the mid 90s when NSE came about, and electronic trading kind of started.

And therefore, it led to, you know, far more transparency and ease of trading, then you kind of calling up a broker, placing an order, you didn’t know what price it was happening at, you got some contract note, which came in the evening, you didn’t even know what, you know, so it was at that point of time, I mean, pre I think 19, mid 1990s, it was very opaque. And I think the transparency led to a lot more investors, you know, coming into the market. And that has kept increasing, you know, over the past, you know, few years, I mean, I don’t know the latest numbers, but I think Demat accounts now are at 13 or 14 crores or something like that.

Siddhartha Ahluwalia 17:30

Okay.

Vishal Jain 17:30

Right. So participation has been quite healthy from retail investors.

On the mutual fund side, again, retail investors coming into mutual funds has been a little slow, but is now kind of gaining pace.

Siddhartha Ahluwalia 17:44

There are 13 to 14 crores, which is like 130 million retail investors in India out of the 150, you know, let’s say 1.5 billion population. Right. 1500 million population, which is almost like 10%.

And out of that only 5 crore or 50 million have mutual funds, which is one third of the retail. Why do you think so? It’s like the education, though there are so many ads on mutual funds Sahi hai and all this,if mutual funds are less exciting for retail investors, or people directly like to do stocks, what do you think?

You know, one third is quite a low number.

Vishal Jain 18:27

Yeah. So I think it’s a lot, I think what you’re saying is, you know, a combination of a lot of factors that are there. But if you look at, you know, what is happening, I think we have to look things in perspective as well.

I think there is a lot of growth kind of happening in the last couple of years. So the industry is kind of adding nearly about a crore new investors every year into mutual funds. So that traction is kind of happening now.

Siddhartha Ahluwalia 18:55

And how much is the industry adding in terms of direct exposure to stock market every year?

Vishal Jain 19:02

Direct industry adding in terms of direct exposure?

Siddhartha Ahluwalia 19:04

Yeah, let’s say, there are 13 crore people who have a stock brokerage account. So how much of that and that is growing every year?

Vishal Jain 19:12

I mean, that is difficult to say. But on the mutual fund side, I’m saying that on the mutual fund side, there are something like about 1 crore new investors who are taking to mutual funds every year.

Siddhartha Ahluwalia 19:24

Almost 20% every year.

Vishal Jain 19:25

Yeah. So if you look at, I mean, again, if you look at India, historically, culturally, we always, you know, were kind of tending towards fixed deposits, towards real estate. And I think that is slowly, slowly changing.

And I think over the years, because of the fact that, you know, mutual funds have given a decent amount of returns, because the markets also have done well, because as a country and as an economy, also, we’ve done well. I think that faith is coming into investors. And I think that is what is leading to, you know, overall growth.

And I believe that as we go ahead, with ease with, you know, you being able to open accounts much more easily with you being able to invest much more easily through a lot of these digital and electronic platforms that are there, you know, with education, and financial literacy increasing, I think this number will kind of see that hockey stick curve in the next couple of years, where a lot more people will start coming into, you know, financial products like mutual funds in a big way, you know, in the coming years.

Siddhartha Ahluwalia 20:29

Do you think we are not very far away when we will see roughly 20 crore, 15 to 20 crore people having a mutual fund?

Vishal Jain 20:36

I mean, I mean, for me, it’s actually a personal aspiration. And that’s one of the things that, you know, also led me on to, you know, kind of be part of this venture. One of the reasons being that there is a huge population out there that still needs to be tapped.

Because if you look at, you know, any kind of numbers, you know, in the economy, there are about 15 crore guys who’ve kind of linked their Aadhaars with PAN. Right? So there are a huge number of people out there who are there to be tapped.

And, you know, our belief is that creating the right kind of products, making products simple, you know, making the journey much better for investors will lead to more and more people kind of coming into mutual funds and kind of using financial products to achieve their, you know, life goals. Yeah.

Siddhartha Ahluwalia 21:37

And one thing that I wanted to ask is the penetration of food delivery OTT. Is it increasing in directly in proportion to the increase of mutual fund investors in India? Or there is no correlation between them?

Vishal Jain 21:51

I mean, I would say it’s difficult to compare, Siddhartha. Remember one thing, OTT is instant gratification. Right?

Whereas any kind of investment that you do, you need to make a long-term commitment and it’s got its own bit of risk that is there associated with it. Right? So not the right, you know, I think to compare in terms of should you compare OTT with, you know, growth in OTT with say growth in mutual funds.

But I think it’s important as, you know, leaders for us to understand the kind of journey and the kind of investor behavior that has led to this sharp, you know, increase in OTT users, you know, over the years. And that’s something that we have to learn from and see how we can use those learnings to ensure that more and more people are kind of able to enter the stock markets. I mean, enter the mutual funds.

Yeah.

Siddhartha Ahluwalia 22:54

And one thing is that there are so many fund houses, right? And the number of fund houses are growing. You mentioned 44 right now.

Is there a space for everyone to grow like the market is growing so fast?

Vishal Jain 23:09

I think so, Siddhartha, because the number of people that are out there to be tapped is huge. And the more people, you know, who come into the market in terms of asset management companies, the more we’ll be able to reach out to more and more people, you know, as an industry. So I think the space is still there for a lot more players to come in.

I think, again, as I said, my personal aspiration being that we should be able to increase the width of the number of the people that we’re kind of tapping. And as long as you have more and more, you know, AMCs coming, trying to ensure that, you know, we’re able to reach out to more and more people. I think that’s a win-win for everyone, I think.

Siddhartha Ahluwalia 23:51

But there’s another argument that only the top 1% of the India is growing, which is leading to, you know, most of these 10-minute delivery apps, focusing on the tier 1 consumer in India. Like the tier 3 in India is getting digitized, but not growing in fast of, you know, their income, their wealth. Sure.

Vishal Jain 24:12

But I think, I mean, we need to look at the country, say, in the next 10 years, 20 years. There are a lot of data points that are kind of eye-opening. And I try and learn a lot from these data points.

I mean, one of the things that I also keep talking about is, is these Jan Dhan accounts that, you know, that the government has opened. So, these are basically free accounts that the government has opened for nearly, I mean, at this point of time, I understand that something like 52-53 crore accounts have been opened all across India. And a lot of these guys have been guys from the hinterland, you know, I would tend to think.

It is surprising to note that on an aggregate something like there is about 2.5 lakh crore being saved in these accounts, you know, across these, you know, 52-53 crore accounts, right. And the amount that is, you know, kind of lying as balance in these bank accounts is increasing year after year, right. So, it just goes to show that, you know, the day you kind of introduce a financial product to people and they kind of figure out a way to start saving money and find that look the money is also growing in that particular place.

I think people kind of start using it. So, it is a matter of, one is the industry reaching out to these people and also we need to understand that India is such a large country that there are so many more countries inside India, right. Whether it may be every state being different, you know, culturally or whatever you may say.

But even when we look at kind of in terms of per capita income, I understand that there was a report which came out by Blume Ventures, right, where they spoke about India 1, India 2 and India 3, where India 1 is approximately about, I think, you know, 12 crore people or 120 million people or so and their per capita income looks like a Mexico, right. And you have, you know, an India 2, which has got, I think, some 30-35, you know, 30-35 crore people or so, 350 million people or so in that and that kind of has a per capita income of about an Indonesian, you know, in that sense. So, when you look at it, I mean, whatever number you look at, there are about 400-500 people, 400-500 million people who we believe, you know, financial products can be introduced to and I think we need to first reach out to those bunch of people and then see how we can kind of then spread that word across, you know, in the country.

Siddhartha Ahluwalia 27:06

So, I believe anybody who has a stockbroking account, only these are the people who would have a mutual fund account. It’s not like people have a mutual fund and, you know, they are not using, let’s say, any stockbroking account.

Vishal Jain 27:21

It’s not necessary.

I mean, any person who has a stockbroking account, you know, as a person generally would have a Demat account, but any mutual fund can be opened even without a Demat account.

Siddhartha Ahluwalia 27:33

I agree with you. What I am saying, usually the tendency is to first start trading on stocks and then go to mutual fund or you have seen independent behavior also.

Vishal Jain 27:42

There is independent behavior as well. Therefore, any product that we launch, right, we always launch it kind of in both platforms where, you know, it would be like, for example, our gold ETF is an ETF which is listed and trades on the stock exchange, but we also have a gold fund of funds. So, in case you don’t have a Demat account or a broking account, you can invest in a gold-backed mutual fund unit, you know, through a gold fund.

Siddhartha Ahluwalia 28:08

Okay.

But still, in India, people don’t understand buying a gold ETF versus buying physical gold. They still prefer physical gold. Why is that over a gold ETF?

Vishal Jain 28:17

I mean, again, you know, Siddhartha, it is cultural.

Siddhartha Ahluwalia 28:21

But the historical difference in returns?

Vishal Jain 28:24

No, I mean, a gold ETF, in my opinion, would be far more efficient because when you look at the physicality of gold, right, there are so many pain points, right, from the quality of the gold to purity to you pay making charges and there is no transparency in terms of pricing of gold.

You’ll go to five different shops, you’ll get five different prices, right. So, that’s not the case with, say, a regulated product like a gold ETF, right, where, you know, the AMC is disseminating a real-time NAV through which you can see what is the kind of fair value of that product. And based on the fair value of that product, you know what you’re buying and selling at, right.

So, it’s a far more transparent product. If you look at what is happening, say, in the last year or so, since the previous budget in, I think it was July 24, where gold ETF taxation was brought on par with equity taxation, right. There’s been a huge jump in number of investors now moving towards gold ETFs over the last year or so and I believe that trend will keep, you know, increasing as we move ahead.

Siddhartha Ahluwalia 29:32

Got it.

What is the participation of women in mutual funds?

Vishal Jain 29:37

So, at this point of time, I think it’s about 21% or so. So, approximately about 21% of the assets under management on the retail side are, I think, owned by women.

Siddhartha Ahluwalia 29:49

And let’s say, if you have to divide by age the participation of these 5 crore mutual fund holders, what would be the rough participation age wise?

Vishal Jain 30:00

Yeah, I think the largest, you know, population would be between 35 to 55, I would tend to think.

Siddhartha Ahluwalia 30:06

Okay. And where are these every year 1 crore new investors in mutual fund coming from? Are they coming from, say, tier 1 India, tier 2 India, tier 3 India?

Vishal Jain 30:16

So, it’s coming from across.

But I would tend to think that it’s coming now more from the, you know, younger age group between 25 to 35. But because of the fact that in the last decade or so, there has been a concerted effort by the industry to target tier 2 and tier 3 cities, there is a decent chunk of, you know, folios and AUM coming from there now.

Siddhartha Ahluwalia 30:44

And would you have this data on the 5 crore mutual fund holders, their geographic splits across North, South, East, West, which are the states which are maximum?

Vishal Jain 30:55

So, I think nearly, I think maybe about 50-60% of that comes from Mumbai.

Siddhartha Ahluwalia 31:02

Okay, 50-60% of that comes from Mumbai.

Vishal Jain 31:02

From Mumbai.

Siddhartha Ahluwalia 31:03

Like two and a half crores.

Vishal Jain 31:05

Yeah, so a lot of it, I mean, Mumbai is a large base for not only for institutions, but also for HNIs and retail. I think the second largest is Delhi, which would be about, maybe about 15-20%.

The third would be Bangalore, which would be between 8-10% and then the rest of it is the rest of the country. So these three centers, you know, would account for nearly about 80-85% of all flows that come in.

Siddhartha Ahluwalia 31:37

And Mumbai is because being the financial capital of the country.

Vishal Jain 31:40

That’s right, that’s right. So a lot of this data also is tilted towards Mumbai because a lot of institutional money that comes in, it comes in through Mumbai because most of the large financial institutions are there as well.

Siddhartha Ahluwalia 31:52

But retail has no link to the institutional money coming in, right?

Vishal Jain 31:54

That’s right, that’s right. So you are asking me where the split of retail money is?

Siddhartha Ahluwalia 32:00

Yeah, the split of these 5 crore retail mutual fund holders.

Vishal Jain 32:04

I don’t have that data with me, Siddhartha, really.

Siddhartha Ahluwalia 32:07

But I assume, as you are right, like most of it comes from between Maharashtra and Gujarat.

Vishal Jain 32:10

Yeah, yeah. A large part of it would be Maharashtra, Gujarat and Karnataka in that sense. Yeah.

Siddhartha Ahluwalia 32:16

And you mentioned a very interesting fact that, you know, 15 crore people or 150 million people have their PAN linked with Aadhaar. Is this number recently gone up? Like, because to open a mutual fund or Demat account, you definitely need a PAN.

You can’t do it without a PAN card. Somebody from village who doesn’t have a PAN cannot participate in this industry.

Vishal Jain 32:41

Yeah.

So I don’t know if the, you know, if that number has gone up recently. But I think that there was a, you know, rule, right? There was a diktat by the regulators in the government saying that you need to kind of link your PAN with Aadhaar.

And I think that’s when the data came out that there are approximately about 50-51 crore people who’ve actually linked their PANs with Aadhaar. So that’s the number of people who actually have PAN numbers in the country.

Siddhartha Ahluwalia 33:10

But this is very fascinating data on how, you know, India behaves in terms of financial products, right? I think most of it, I assume, would be behavior driven in the last 10 years. Right.

Since, you know, opening a online Demat account became much easier. UPI got started because of Jio, the spread of mobile internet in hinterlands became very popular.

Vishal Jain 33:41

No, definitely. I think Aadhaar, UPI, I think these have been trigger points for the Indian economy. And now also, you know, getting your EKYC done online, right?

I mean, all these, you know, two or three things have led to a huge amount of traction coming in and ease, basically, for investors to kind of start investing in any kind of financial products. So, definitely, the last decade has seen a huge jump in the number of people, you know, using financial products.

Siddhartha Ahluwalia 34:14

And this is just one decade old. I can’t imagine what this, if this phenomena continues over three, four decades. No, definitely.

Vishal Jain 34:20

I think the next, you know, decade or two is, we’re going to see a huge jump and we’re going to see that hockey stick curve, where you’ll see a huge number of people kind of entering the markets as well as, you know, using financial products to achieve their goals. I think one of the big changes, one of the things that is going to change the way you invest as an investor, as you move ahead is going to be AI, right? The fact that, you know, if AI is able to kind of converse or help, you know, us converse in say a vernacular medium, or be able to kind of be kind of customize conversations, I think that’s going to lead to a huge jump in not only education, or the way you deal with customers, or the scale at which you can deal with customers is going to kind of, you know, gallop as you move ahead in the coming years. And I think that itself will lead to a lot more new people, you know, coming into financial products in the next decade or two.

Siddhartha Ahluwalia 35:26

So what I imagine in the next 10-15 years, AI will make the user interface so simple that you wouldn’t have to use so many apps across so many ecosystems, which involve a lot of learning curve for, let’s say, people sitting in like the corners of India. And once it becomes vernacular, like, for example, if you, you know, type in chat, GPT almost today speaks like a human and understands you like a human, even better than a human. Once that understanding and vernacularity goes to the hinterlands of India

Vishal Jain 35:58

No, and I think, I totally agree with you, because for a country like ours, now that’s needed. I mean, how do you reach out to 50 crore more people?

Siddhartha Ahluwalia 36:06

Yeah.

Vishal Jain 36:06

Right. We have our own set of challenges simply because of the scale that we’re talking of.

Siddhartha Ahluwalia 36:11

So I think, first, the mobile penetration is there. Second is the mobile internet access is there. The third is access to online EKYC, PAN, all those there. The fourth biggest interface is going to be AI will become the user interface to these users.

Vishal Jain 36:33

No, I completely agree with you.

Siddhartha Ahluwalia 36:34

Understanding them, their context.

Vishal Jain 36:36

Yeah. And that’s one thing that is going to help us grow very fast.

Siddhartha Ahluwalia 36:40

Well, at Zerodha, the AMC, do you have a tech team working on anything, which is core AI right now?

Vishal Jain 36:48

I mean, we are sporadically using AI at this point of time for a lot of things that we’re doing. We’re possibly the only AMC where, well, 50% of our staff is just, you know, engineers.

Siddhartha Ahluwalia 37:02

How big is the team?

Vishal Jain 37:03

We’re about 35 people right now.

Siddhartha Ahluwalia 37:05

Only 35 people managing 5000 crores.

Vishal Jain 37:07

That’s right.

And we’re a completely digital and tech based AMC.

Siddhartha Ahluwalia 37:12

And 18 people on the tech side.

Vishal Jain 37:13

That’s right. That’s right. So we have a huge tech team.

Siddhartha Ahluwalia 37:16

What do they do? Like, because you are not launching digital products.

Vishal Jain 37:20

So we’re building a backbone within the organization, which a tech backbone, you know, through which whatever it may be, whether it’s fund management or operations or customer service is all done in, you know, in-house, you know, by the team. And so a lot of products and features are being built in-house, you know, to ensure that whether it is customer service, there is a kind of standardized, I would say, interface or communication that is going out to investors.

And also from the fund management side, right? The way we see the organization is that we’re trying to, well, give to customers a cost effective product, right? And for me to give investors the cost benefit until I don’t build infrastructure behind it, which is cost effective, I won’t be able to pass on those benefits to the end investor, right?

And therefore, we’re building that tech backbone such that as we build scale, right, we’re not incrementally adding too much cost within the organization so that we’re able to ensure that each and every product that we launch is kind of cost effective for the end investor.

Siddhartha Ahluwalia 38:33

One thing that I, you know, often think about is that how do you explain to, you know, people listening on a podcast, the various products, very simply, sitting inside Zerodha AMC by their risk profile as well as their IRRs?

Vishal Jain 38:51

Again, not an easy conversation to have, Siddhartha, keeping in mind that that you have so many different asset classes.

Siddhartha Ahluwalia 38:59

If you take a stab at it, how would you do it?

Vishal Jain 39:02

I mean, for me, the first thing is you want to invest in the India growth story, right?

And the best way for you to do it is through equity, right? The reason why we’ve chosen the passive route as an organization is because it’s very easy to understand, right?

Siddhartha Ahluwalia 39:20

What do you mean difference between active and passive?

Vishal Jain 39:22

I mean, an active, basically an active fund is a fund where you have a fund manager. And the fund manager basically based, well, you believe that he has some skill or some expertise or some knowledge through which he’s able to outperform the market.

Siddhartha Ahluwalia 39:38

He’s able to change assets actively.

Vishal Jain 39:41

Assets or if it’s, you know, within say equity mutual fund, he’s able to move across sectors and stocks, you know, based on information and knowledge or his gut feel in that sense. Whereas a passive product is based on an index, right? Where if you have like say the top 100 index, all you’re doing is tracking that fund, right?

So it becomes very simple. If I came and told you that look, you know, Siddhartha, if you want to invest in the India growth story, this is the top 100 fund. I don’t need to tell you anything more than that.

Siddhartha Ahluwalia 40:13

Thank you so much, Vishal. This has been very informative.

Vishal Jain 40:16

Thanks for inviting me, Siddhartha. Pleasure to be here.

Siddhartha Ahluwalia 40:18

Been a pleasure to discuss, you know, the history of mutual funds with you.

How is India participation increasing and what is India growth story like? One thing is that besides being emotional, what are the data points that you feel bullish about India for the next 25 years, personally or professionally?

Vishal Jain 40:38

I mean, I’m very excited about, you know, the level of participation that is, that I see will happen in the coming years in mutual funds. If you look at, you know, simple data, you know, where you track assets under management versus say GDP of a country. When you look at developed markets, I mean, not right for us to compare with developed markets right now, but I’m saying that to me seems to be the logical path that India will move towards in the next two to three decades.

Today, if you look at the US economy, nearly, you know, there is a one is to one ratio in terms of assets that they manage versus the size of the economy. As I understand, the assets under management in the US is approximately about 22 trillion or so. And that approximately is the size of the economy.

Siddhartha Ahluwalia 41:30

28 trillion.

Vishal Jain 41:31

Yeah. So, you know, that’s…

Siddhartha Ahluwalia 41:33

And what’s the case with India?

Vishal Jain 41:35

In India, it’s just 17% at this point of time. We have an economy which is approximately about 4 trillion or so, as I understand, and about 800 billion is the AUM that we manage.

Siddhartha Ahluwalia 41:46

For?

Vishal Jain 41:47

Is the entire mutual fund assets that we manage, right, as an industry.

Siddhartha Ahluwalia 41:53

You’re saying it can catch up by 5 million?

Vishal Jain 41:55

Imagine in the next, I mean, by, I guess, in the next, well, maybe 10 years, you’d possibly double your economy.

So you’d be at a 10 trillion dollar economy. Right. And even I’m saying if by that time you’re able to hit a 35 to 40% number in terms of assets under management, you’re still talking about, you know, growing three to four times from here in the next, you know, decade or so.

So to me, a lot more is there to come. And I hope more and more investors start using, you know, these financial products, especially mutual funds, you know, to achieve their financial goals. Yeah.

Siddhartha Ahluwalia 42:31

Yeah. But don’t you think usually people are earning 13 to 14% in mutual funds on an average, on the best case scenario. There are products where people are earning 20, 21% also.

Vishal Jain 42:44

I mean, Siddhartha, look, no return comes without its own bit of risk, right? So, I mean, I think you need to, all of us need to be kind of sane about, you know, things like this. Today, if say, the stock market is giving you 12, 13% return, the day you try and aim for a 20 to 23% return, you’re actually trying to be rash.

And then it’s, you know, it’s just, I mean, people have to be aware that they’re taking that additional risk in the markets. Yeah.

Siddhartha Ahluwalia 43:14

Thank you so much, Vishal, again. It’s been a pleasure.

Vishal Jain 43:17

Same here. Thanks a lot for inviting me, Siddhartha.