ET Money’s acquisition by 360 ONE: Should you be worried or excited?

The acquisition of ET Money by 360 ONE WAM Ltd raises some questions for users and investors of the Times Group-owned direct mutual fund investment platform—the largest corporate effort in the past decade to provide investment advisory to retail investors.

While there is potential for synergies, it is unclear where 360 ONE (formerly IIFL Wealth) sees ET Money in the grander scheme of things.

For example, a customer of Genius, ET Money’s paid advisory service under the registered investment advisor (RIA) licence, cannot also be a distribution customer of 360 ONE.

The Securities and Exchange Board of India prohibits the provision of both advisory and distribution to the same client.

Also, ET Money may be incentivised to prioritise 360 ONE’s products such as its mutual fund and broking over those of its rivals.

ET Money’s chief executive Mukesh Kalra and chief operating officer Santosh Navlani reject this notion, saying Sebi’s rules prohibit cross-selling of products or preferential treatment to group companies.

The platform’s vision and team will stay the same, they said, pointing to potential synergies. ET Money’s retail users would get access to 360 ONE’s expertise in products tailored for ultra-high-net-worth investors, they said. ET Money may also leverage 360 ONE’s related businesses, such as broking.

A brief history of ET Money

ET Money was launched in 2015, initially offering regular, commission-based mutual funds. After Sebi allowed direct mutual funds platforms to secure an RIA licence, and Paytm Money was launched as a direct platform in 2017, ET Money pivoted to direct plans of mutual funds.

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In early 2022, ET Money launched Genius, which now has 76,000 subscribers paying ₹249 every month. The rest of the platform remains free for transactions.

In 2023, Sebi introduced a circular asking RIA platforms with transaction-only clients to move to so-called execution-only platform (EOP) status. This was to ensure that the spirit of the RIA licence was adhered to, which is giving advice and not transaction processing. Thus, ET Money took a category EOP 1 licence for its non-Genius customers, a userbase of around 900,000.

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Also, as India’s youth have pivoted to YouTube and Instagram for investment advice, ET Money built its own content, with great success. ET Money’s YouTube channel has 440,000 followers and frequently gets hundreds of thousands of views for its videos.

“We fully committed ourselves to organic growth via differentiated content across platforms (X, Youtube, Instagram). Our views-to-followers ratios are possibly the best in the industry, resulting in millions of views of our content,” said Navlani.

“Today, we are able to attribute two in three new investor acquisitions to organic channels, with roughly equal contribution from content and referrals resulting from word-of-mouth.”

Loss-making, but pricey

Some teething troubles have emerged, however. Mutual funds are reluctant to onboard EOPs because EOP charges have to paid by them and not the end-customer. These charges have to paid from an asset management company’s profits, and not from the scheme account—the investor’s pocket, in other words.

Quant Mutual Fund, one of India’s largest mutual funds, resisted the onboarding, and ET Money stopped accepting fresh inflows into Quant Mutual Fund.

The Association of Mutual Funds in India (Amfi) has capped transaction costs for EOPs at ₹2 per transaction. But some AMCs saw even this amount as too much.

Despite Genius's growth and the shift to EOP, ET Money is not yet profitable, nearly a decade after its launch.

According to CEO Kalra and COO Navlani, this is because of the long gestation period for financial services businesses that earn regular income, or annuity-like income. Normally, it takes 15-16 years for such businesses to breakeven, Kalra said.

Despite ET Money being a loss-making company, the ₹366-crore deal price 360 ONE WAM is paying for the platform is pegged at 13 times its sales, according to Kotak Institutional Equities.

That’s pricier than other listed investment platforms such as Prudent Corporate Advisory (9 times sales) or global platforms such as Hargreaves Landsdown (7 times sales).

A second chance for 360 ONE

In 2023, a split in the Times Group (Bennet Coleman and Co. Ltd) meant fewer resources for ET Money.

Karan Bhagat, founder and CEO of 360 ONE, had been considering the acquisition of ET Money since 2019. Given the initial success of Genius, he became more convinced of ET Money’s concept and made an offer.

His previous attempt to launch an investment advisory—IIFL One—saw some changes. The person in charge, Sandeep Jethwani, went on to found Dezerv, a rival wealth management platform focused on HNIs (ticket sizes of ₹50 lakh and above). However the business was rebranded after IIFL Wealth became 360ONE WAM as 360 ONE Plus. "The AUM of 360 ONE Plus (earlier IIFL ONE) has grown to ₹72,240 crore (~$9bn) at a CAGR of 42.1% since launch and is one of the leading advisory platforms for UHNI clients in the country," said a spokesperson for 360 ONE.

The person in charge, Sandeep Jethwani, went on to found Dezerv, a rival wealth management platform focused on HNIs (ticket sizes of ₹50 lakh and above).

The ET Money acquisition gives Bhagat a second chance at investment advisory, this time centred around retail rather than wealthy individuals.

What lies in the future?

ET Money’s founding team of Mukesh Kalra and Santosh Navlani has seemingly cracked the most challenging problem in India’s financial sector—how to sell advisory to a market hooked to distributors and commissions.

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They haven’t yet reached profitability, but with a relatively lean team (190 members) and low fixed costs, a path to profitability is visible. They have leveraged technology and content to build a substantial user base for their advisory service—76,000 paying members of Genius.

The future hinges on what 360 ONE has in mind. Will it allocate capital to this platform and let it retain its independence, or will it seek to push customers towards more lucrative higher-margin distribution businesses? That, only time will tell. For now, customers should stay put.