Innovative Finance: Shaping The Future of Asset Management

The mutual fund industry is on a growth spree. The overall AUM of the MF Industry grew siX times in 10 years hitting a whopping ₹58.91 trillion as on May 31, 2024. The number of folios stood at 186 million. Growth in investment via Systematic Investment Plan is also on an uptrend on its way to Rs 30,000 crore in a month. What do these numbers tell you? The growing confidence of Indian households in financial assets, especially mutual funds. This is an easy explanation.

There is a lot of data that asset management companies can decipher and put to action. The finance department has to evolve and share the responsibility. Their job is no longer restricted to traditional tasks such as accounting, budgeting and financial statement preparation.

With the changing business environment and regulatory landscape due to the spread of social media, Artificial Intelligence, investor awareness and global competition, they have a pivotal responsibility to convert raw data into actionable insights to be of help in decision making. Take, for instance, the finance team can glean through the data to figure out cost- cutting measures in widening the SIP net in tier-2 and tier-3 cities.

Changing regulatory landscape

The Sebi came out with Skin in the game policy in 2021 which stipulated that key employees of AMCs will be investing in their own schemes so that their interests are aligned with that of unitholders of mutual fund schemes. It happened during the second wave of Covid-19 when most employees were working from home. Setting up such a system was a herculean task from the operational point of view. The finance team by developing an excel automation system helped in maintaining such data for each key employee. It continues till date.

In another instance, SEBI came out with Risk Management Circular for Mutual Funds in 2022 which provided a set of principles or standards, which inter alia comprise the policies, procedures, risk management functions and roles & responsibilities of the management, the Board of AMC and the Board of Trustees. The Circular included Finance, Legal & Tax risk management also. The Finance team built internal control around the same so that there are no breaches with respect to same.

Similarly, now with the cyber security framework and Digital Data Protection Act 2023, it is time the finance team goes through to make sure cyber security measures are well placed to protect Financial & Investor related data. Even though services in the Asset Management Industry is outsourced (e.g. RTAs store investors data), the AMCs are accountable for their protection.

Among added responsibilities, the most important one continues to be statutory & tax compliance. The taxation landscape has transformed since July 2017 when the GST was implemented. Income Tax rules are revised every other year. For example, there is no longer any provision of long-term capital gains in debt mutual funds or no input credit is allowed if the GST paid is not visible on the GST Portal. Complying with changing rules requires an adaptable back-end system to respond to changes in real time.

The evolving dual role

The Chief Financial Officer should well be called a Chief Data Officer. With an increase in business volumes where reams of fresh information is coming about every day, the expectation from the finance is to be on toes and translate the day to day numeric and business data into action points which can be implemented in the business. A CFO has to make a balance between number crunching and taking strategic decisions. The industry is moving towards digital enhancements using automation, AI/ML etc.

Data analysis has rightfully become a key factor in decision making. Investors seek personalised investment solutions with the advent of robo advisors. A balance has to be made between personalised advice and data protection. This requires automation of routine processes for better compliance and generating reports on investor demand. We have included various digital transformation tools in our finance department in the recent past such as upgrading the accounting system to Oracle Fusion, in-house integrated Reimbursement Software, creating Finance Dashboards using Power BI, Automated
tax reconciliations and Effective MIS, etc to achieve the same.

Along with above, attracting the right talent and retaining them is as important as anything when it comes to innovative finance. The work environment should be such that it fosters a culture of innovation and develops leaders. A team in the right mindset and being on the same page is a must to breed innovation. Evolving skills & competencies that meet the changing digital landscape is essential for future of asset management.

The data is dynamic. This makes the role of finance even more dynamic. The onus is not just to manage numbers but also all stakeholders of the company. It is time that we embrace the change and innovate ourselves to adapt to the dual role of managing day-to- day finance and gleaning through the data to shape the future of the company.

Views expressed by Amit Malpani, Chief Financial Officer, Edelweiss Asset Management Limited (EAML)