Moneysights, a financial services startup, has raised $270K from Blume Ventures & InMobi founder Naveen Tewari in February 2011, the company has announced; it was angel funded by Prasad Duvvuri. Co-founded by former InMobi employees Mukesh Kalra & Santosh Navlani, the start-up is eying the online mutual funds distribution market. While the founders have to previous background in the mutual funds business, MoneySights is registered with the AMFI, and uses algorithms to make mutual fund recommendations, based on a users risk profile.

MoneySights came out of an invite-only phase around 20 days ago. In a statement, the company says that they’ve undergone rapid iterations in the past few months – from trying a B2B, subscription-driven model to a free for consumer, transaction-oriented model. The funds will be utilized by MoneySights to grow its team, and for online marketing. Navlani tells us, via email, that the company has so far signed up with 9 AMCs (companies that issue mutual funds), and 3 are in pipeline. He declined to share any business targets for the next three months or the year.

Market Opportunity & Target Market:

The company claims, pointing towards a growth opportunity – that only 5% of the Mutual Funds are bought online, and more importantly. MoneySights looks to targets retail individuals with lower ticket sizes – of less than Rs 5000 per month, who brokers/advisors aren’t interested in, and especially those investors who aren’t financially savvy, and finds existing channels “complex, boring & stressful”.

Navlani told MediaNama in an email: “There are some 4000+ MF schemes in 13 categories and 43 AMCs. Most websites just go & rate MFs but people need to take decisions which are suitable to them & not buy just the best rated fund. For e.g. an ICICI Prudential Discovery Fund or an IDFC Small & Mid-cap Equity may be best performing equity funds, but are they suitable to me – there is no answer to this.”

Most brokers have a transactional relationship with their customers, and MoneySights will look to offer a simplified management experience for users, as well as ongoing pro-active advice to help reduce the risk – essentially focus on both pre-buying, buying & post-buying experience for financial products.

Business Model & Changes In the Market

There has been a recent lowering of sales-commissions, which has put the offline distribution model at a disadvantage.

MoneySights doesn’t charge the investors a fee, but receives upfront commissions of 0.4% to 0.75%, and trail commissions of upto 0.5 to 0.75% per annum. Navlani believes that this business isn’t economically viable in offline world with this commission structure.

How they make recommendations

Navlani says that the reasons that retail investors don’t get appropriate advice from Independent Financial Advisors is that it is not possible to do manual data crunching. “Laying down asset allocation plan scientifically requires data of Equity Benchmarks performance for past years as well as performance of other asset classes that needs to be part of asset allocation plan. We source Mutual Fund raw data from CRISIL on which we run our algorithm to ensure all the conditions of eligibility, performance, diversification is met before the recommendations go out. ”

The recommendation engine first arrives at the a user’s asset allocation plan (debt vs equity allocation) based on his/her risk profile, following which a set of Mutual Funds is chosen, ensuring diversification across sectors, stocks & market capitalization. “The percentage is arrived at using Efficient Frontier – i.e. the line of best fit – it chooses a point i.e. break-up between Equity & debt that gives higher return but minimizes risk to a minimum).” There is no manual interference, and is only data driven – i.e. past performance on relative basis. All funds have equal chance to qualify as long as the satisfy the qualification criteria. MoneySights also doesn’t recommend or rate a Mutual Funds scheme that has been in the market for less than three years. “Also alongwith this criteria, the scheme has to have a minimum Asset Under Management value as well as better downside protection capability in the event of a market downturn,” Navlani adds.

Navlani also points towards another key problem in the market – that of trust. SEBI had banned entry loads to curb mis-selling. Also Read: Does your adviser tell how much he makes off you?

Challenge

A challenge we think MoneySights will face, is that so far, it is primarily focusing on the mutual funds market, and trying to address that specific need. There are personal finance sites and stock market portfolio trackers that can serve as competition, by looking to upsell mutual funds to existing customers. Moneysights could look at expanding the distribution of its product beyond its own website.

Note: Perhaps not directly related, but over the last few years, online aggregators of insurance have come under the scanner of the RBI. Online Mutual fund retailers would do well to keep an eye out for SEBI, in case they decide to