Founded in 2012, Scripbox is an online platform that helps people invest in mutual funds. The company has garnered Rs.100 crore of assets under management in its three years of operations. This Bengaluru-based start-up offers its services free of cost. Investors are told to invest in funds chosen by an algorithm created by the founders of Scripbox, Atul Singhal and Sanjiv Singhal. Mint spoke to its co-founder, Sanjiv Singhal, and chief executive officer Ashok Kumar, on the evolution of the firm, retail investor trends and how they manage to keep costs low.
How has Scripbox evolved over the years?
Sanjiv Singhal: I think the core promise of Scripbox and the business has not changed. There are too many investment choices, where as knowledge about them is little, and at the same time decision making is important. This is compounded by the history of people getting bad advice and rampant misselling. Finance is complex, but it doesn’t have to be communicated as complex.
We asked ourselves if we can find a solution which can get around all of this. Scripbox was created to say this is a simple jargon-free product that anybody can adopt. Scripbox is like a box, we curate the best mutual funds (MFs) for you. The Scripbox approach removes all the biases and gives you logically selected investments.
Ashok Kumar: MFs are highly regulated retail products that can give good returns. Success of our journey lies in the fact that 68% of our customers are first time MF investors, which shows that what we are trying to do is working. We don’t push people to join. We have 100,000 people at various stages of sign up. We let people take their time, read our blog and understand for themselves that this is right for them. So, there are less people leaving Scripbox.
In this phase of volatile markets, what are the trends seen by you among retail investors?
Singhal: An adviser’s job is not just to recommend products but also to help people make sense of market movements. There is a lot of content that we write on what customers should do in different situations. They also write to us and give us their responses.
We don’t see large withdrawals. In fact, during the large volatility period in August, we saw a large amount of inflows. People saw that as an opportunity to invest.
Personally, I’m not happy with it because if people were waiting for that opportunity, means they were not invested. At least they recognise volatility as an opportunity and this we have been able to communicate.
As many as 70% of our customers invest every month. They also increase their investment every year. All this is automated. So if you want to increase your SIP (systematic investment plan) by 10%, you just have to click a button.
Which segment has higher investments—equity or debt?
Kumar: We have been able to attract new investors to equity. But debt is often not understood by new investors. Once they start investing in equities and understand it is for the long-term, they might look at debt for short-term goals, which they can withdraw in 3 years. We added debt funds about a year ago.
Singhal: It doesn’t matter if it is an equity or debt product. Ultimately, it has to align with what the customer wants. Our research shows after 7-10 years, risk of losing money in equities goes away even though equities are volatile. There is a high possibility of you getting 14% or higher returns.
How are the funds chosen? Is there a human element involved?
Singhal: There is no human element, and we avoid distributor bias (that is our commission) via this. But more importantly, we want to avoid those human biases that we all have. By using a rule-based algorithm that has been back tested, we avoid all this. Also, we keep looking at our algorithm itself to see if we can keep improving it. We went through 17 different iterations before picking the algorithm we use at present and it is the one with the best outcome.
How does the algorithm track changes to the fund?
Singhal: Officially we have a once a calendar year review process irrespective of whether there are any changes that affect the funds. During the year we do watch for changes to the fund such as changes in fund mandate. If it adversely affects the fund, then we would change that. And we have rules to say what action needs to be taken.
Kumar: Once a year, we rebalance. So when we change funds, new money will go into the newer funds and old money, with the consent of the investor, will be withdrawn at periodic intervals after 12 months, so that the tax part is taken care of. Also, if the goal of the customer is reached and she wants to withdraw, we tell them to withdraw in a particular sequence so that exit loads are less. Others charge fees for such advice. We don’t.
How do you decide on the number of funds?
Singhal: It is based on research. There are risks associated with choosing a single fund; anything could go wrong. But how many funds do you add?
We analysed this, and found that after four funds the incremental benefit of adding a fund to your portfolio goes down. Also, managing the funds becomes difficult for you. So that’s the balance that we struck. It’s largely based on data, but it is also a judgment call.
Do you see more investments under SIP or lump sum?
Singhal: It is 70% under SIPs. Most of our customers invest within the first week. Whatever surplus they have they will come in and invest once in a while.
Kumar: The average young 25-plus individual spends Rs.1,000-5,000 every weekend. We tell our customers all you need to do is that just one weekend, control spending and invest. That’s why SIP amount at Scripbox is a lot higher.
How do you survive only on commissions?
Singhal: At Scripbox, we are focused on maintaining low costs. We are aligned to helping our customers grow their wealth. When customers’ wealth grows, our revenues will naturally grow.
Kumar: We don’t negotiate. We don’t let asset management companies (AMCs) influence us. There are no tie-ups. We just take the rack rate commission that is handed out by AMCs. Internet does the magic.
Today I have customers from Manipur, Sholapur and so on. If I have to collect a cheque from them, there are costs involved. The Internet cuts these costs. Word of mouth is our biggest strength. So our marketing costs are also low.
What is the demographics on the kind of customers you have at Scripbox?
Singhal: They are mostly young earners below the age of 35. The age is moving down as we go. We started at a median age of 35, and now we are at a median age of 33. The youngest person who signed up was actually a student who was 20. People who start early really benefit a great deal. But unfortunately most of those who have signed up with us are men, though we have a healthy proportion of women (about 16-17%).
