The ONDC mutual fund pipeline has arrived. Will it take over the industry?

Mint

4 days ago

A small set of fintechs and ONDC (Open Network for Digital Commerce) have come up with an audacious plan to revolutionise investing in mutual funds for India's masses. The initial pipeline has been built out and is operational. The full plan, still at the discussion stage among fintechs, mutual funds and ONDC, is breathtaking in its scope since it would involve a change to Sebi's (Securities and Exchange Board of India) regulations on the distribution of mutual funds. At the heart of this plan is the system created by a fintech company called Cybrilla.
Cybrilla, which has a license from Sebi as a Registrar and Transfer Agent, has built a system where the distributor and mutual fund can directly interface, bypassing legacy platforms. According to a fintech executive familiar with the matter, this brings down the cost per transaction from the current ₹2-7 range to just ₹0.75. The newer tech rails also give distributors more visibility on issues like transaction failures or delays. Eight mutual funds have entered the ONDC system, including the large players.
A new route of investing in MFs
'Think of us as a digital branch of the mutual funds. We will be time-stamping the transactions at the back-end, and with the help of our APIs, which are now plugged into the ONDC ecosystem, we will enable the last-mile distributor to connect with mutual funds directly. We will use Aadhar-based KYC for onboarding new investors. The system will bring down costs, which will enable mutual funds to facilitate low-ticket systematic investment plans (SIPs)," said Anchal Jajodia, co-founder of Cybrilla. APIs are application programming interfaces, and KYC is know your customer.Also read | What changed for India's mutual fund industry in FY25. Here are the top trends
API enables two separate software programmes to talk to each other. 'ONDC, like UPI, creates a standardised language for all participants; what is technically called a protocol. As a result, different apps and platforms can work together smoothly, like speaking the same language in a digital marketplace," explains Hrushikesh Mehta, senior vice president - financial services, ONDC.
ONDC was launched by the Department for Promotion of Industry and Internal Trade (DPIIT), which is under the commerce ministry, in 2022. The core idea behind launching ONDC was to decentralise the e-commerce segment, enabling local sellers—small business owners or small shop owners—to be discovered by buyers without the need to be on a platform.
The Association of Mutual Funds in India (Amfi) in its Vision Paper 2025 has already envisioned 'scaling models like ONDC for greater impact". High-traffic kiosks staffed by trained advisors could explain mutual fund products in regional languages while offering real-time onboarding with mobile technology. Kirana shop owners could be equipped with digital tools to onboard customers, explain products and facilitate small-ticket SIPs, replicating the success of India's Common Service Centres for government services," Amfi said in its vision document.
A new category of distributors
'The core proposition of ONDC is to make local kirana stores a point of acceptance for mutual fund investors," said Jajodia of Cybrilla.
However, this may require relaxing the regulatory requirements for distributing mutual funds or limiting the products that such distributors can offer or both. Also read | How online bond platforms work—and why premature exits are tricky
'Local kirana store owners can be given an algo-based system that does the basic risk-profiling of the investor as required by the regulations and suggests a suitable product to the investor," said the fintech executive.
'There can be a new category of distributors," a mutual fund executive said and shared a proposal that has been put forth before the regulatory body to create a light regulation for such distributors, which does away with requirements such as passing the NISM VA. The National Institute of Securities Markets conducts the NISM VA exam, which is a requirement for getting an MF distributor licence.'Instead, there could be a short, bite-sized course on explaining mutual funds to these first-time distributors," the mutual fund executive said.
Before a new set of ONDC-based distributors is created to widen the reach of mutual funds in small cities and towns, fintech platforms are taking the lead.
For example, Bachatt has launched a low-ticket daily SIP product, which allows investors to save and invest a minimum of ₹51 in mutual funds daily.Also read | You can now gift securities online. Here's how.
'We are currently offering only one fund—ICICI Ultra Short Term Fund. The cost-efficiency of ONDC helps to offer a low-ticket product. Later, we may even consider cross-selling credit and other products as investors would need different financial products at different life stages," said Anugrah Jain, co-founder and chief executive officer of Bachatt, which aims to give regulated savings products to small shopkeepers, food stall owners or mid-sized organised businessmen, through mutual funds.
'Over time, we plan to add more mutual fund products, but initially we want to offer simple debt products with the least risk," Jain added.
According to Jain, Bachatt currently has 15,000 investors with an average daily SIP of ₹105.
What mutual funds say
'The eventual goal is to even enable daily wage earners, small business owners, and local entrepreneurs to do low-cost mutual fund SIPs. Their cash flow cycles are very different from those of regular salaried-drawing investors in the cities. There is potential to widen the market size itself by taking mutual funds to the underserved," said Arpanarghya Saha, chief digital officer at Nippon India Mutual Fund.
According to data from Amfi, 82% of mutual fund assets are concentrated in the top 30 cities (data as of 30 April 2025) or T30 cities, as these are known in the industry. The remaining 18% is in smaller cities and towns.
'We need to look at the customer lifetime value. As long as assets grow and investors stay invested—buying the product for the right reasons and aligned with the right goals—these assets will naturally increase, since they are all market-linked products. Investment returns will, by default, increase the asset size. Over time, economies of scale will help sustain these products. However, the associated costs may not seem feasible in the initial stages," said Boniface Noronha, senior vice-president & head-digital business, Axis Mutual Fund. Also read | How stock market investors and traders can use liquid ETFs to manage cash
Some of the initial costs would include the folio creation charge, which is charged by the Registrar and Transfer Agent, and the KYC PAN check, which is charged by KYC registration agencies.
These mutual funds have already onboarded on ONDC—Axis Mutual Fund, UTI Mutual Fund, HDFC Mutual Fund, Quant Mutual Fund, ICICI Mutual Fund, Aditya Birla Sun Life Mutual Fund, Nippon India Mutual Fund and 360One Mutual Fund. According to industry sources, more mutual funds are planning to be onboarded on ONDC.
According to Ganesh Ram, managing director and chief executive officer of MF Utilities (MFU), established systems still have a significant role to play in deepening MF penetration. "MFU is a special vehicle created by mutual funds which absorbs the KYC cost and payment gateways charges, folio maintenance and non-financial transactions. Hence, focusing on transaction charge comparison may not be appropriate."
He added that the prevailing payment gateway charges have also come down, which is approximately ₹2 for UPI mandate registration and ₹0.5-0.75 per transaction (per quarter). 'In all payment modes, it's only net banking that's relatively expensive," he said.
An email query sent to BSE Star MF did not elicit any comment at the time of publishing.
Ironing out teething issues
Vishrant Suresh, founder of Asset Plus, a mutual fund platform for distributors, says ONDC's reliability should improve. 'We have been testing the ONDC pipeline with a few hundred transactions each month. Initially, the transaction rate failures were relatively high, as it was a new system. However, the framework is evolving, and we expect the reliability to reach industry norms very soon," he told Mint. Another mutual fund executive, who declined to be named, said that the initial momentum may be more due to a regulatory push than genuine interest from mutual funds. A number of fintechs have signed on, like Appreciate and Bachatt. It is likely that failure rates will go down as the system matures further and the cost savings are attractive to mutual funds. Legacy systems have their own issues.
A large number of transaction failures on election results day on 4 June 2024 was a wake-up call to players relying on legacy rails. Investors trying to 'buy the election results dip' that day ended up getting the next day's NAV (net asset value) after the market rose due to transaction processing delays. The system just couldn't handle the load.
However, the proposals advanced by the fintechs and AMCs associated with the ONDC rails go much further. Their next aim is payment gateways (aggregators), which take a cut out of each transaction ( ₹2-3 for SIP mandates).
There are two possible solutions. The first one is to partner with a bank that wants to break out into this space, according to the first fintech executive.
The second is more audacious. It envisages the use of RBI's Central Bank Digital Currency or CBDC. The CBDC is currently operational, and customers of large banks like HDFC Bank can download wallets and load them with e-rupee.
However, usage at the retail level is minimal since a CBDC can only be transferred to another CBDC wallet. However, if the system is adopted by mutual funds and investors create wallets—the collection of money becomes drastically cheaper.