Fund houses will have to tap non-metro markets to grow

As per the country head of Bharti AXA, Vikaas M Sachdeva, stock exchanges are a good alternate distribution models for mutual funds. He also says that mobile phone technology will turn out to be a decent distribution avenue going forward. In an interview to FE’s Saikat Neogi, he said by simplifying the communication and conversion process, a higher retail penetration in MFs can take place. Excerpts:

Do you think a retail consumer is really aware of all the charges that he pays to buy and keep mutual funds?

Information about costs of investing in mutual funds is widely available through various sources like Websites, distributors and online platforms. The Scheme Information document provides every detail with respect to the fund and the costs of running it. Most of the investors today have a fair idea about the cost structure in mutual funds, particularly in larger centres. However, their decision to invest is seldom based on the cost structure of the funds.

How do you think the online platform will help fund houses to reduce costs and benefit investors in the long run?

Online platforms are technology driven and hence the cost of servicing, operations and manpower would go down significantly in the long run. This would mainly service the “Do-it-yourself” customer who compares and invests on the basis of information available on the internet. While the online platforms offer many positives like ease of access, availability, transaction convenience and availability of data at the click of a button, the ‘do-it-yourself’ concept may not go well with retail investors. As behavioural finance states that for an investment purchase decision to be made, the average person requires the ‘reassurance’ of an influencer. The role that the platform can play as an influencer is limited. Hence, the quality of investment advice and financial planning a distributor brings to the table might not be present in this avenue.

What are the other alternative distribution models fund houses should be looking at after the ban on entry load?

Of late, stock exchanges are an alternate distribution models, apart from the online/offline models available currently. It is possible for potential investors to buy into a mutual fund at the prevailing NAV by just calling his stock broker or on the online platform. Although spoken about quite frequently, mobile phone technology has not become as fast or as user friendly as one would like it to be, but this is something which will turn out to be a decent distribution avenue going forward. But these technologies and their acceptance along with acceptance of mutual fund as an investment vehicle is a time consuming activity. Having said this, the flip side is also true. It is imperative for the distributor to continuously look favourably at mutual funds as an investment vehicle. We are still not at the tipping point in this country that there is a mass conversion into mutual funds because of brand pull, financial literacy or sheer convenience and hence, a sizeable dependence is still on the distributor.

Do you think there should be a standardisation of products and the number of schemes should come down so that an investor does not get baffled?

The key word is “simplification” rather than standardisation of products. By simplifying the communication and the conversion process, a higher retail penetration is perceived. Standardisation of the products might not be the best solution as it would result in stifling innovation. Since most of the investments for funds houses come from metros, how can fund houses tap the other markets to grow their asset under management. Traditionally, India is a high ‘saving’ nation. Private savings potential as given in the Morgan Stanley research is over 23%, although most of the money comes from the top 10-12 markets. However, a per our internal calculations, mutual fund penetration is hovering at around 5% mark. Even the seemingly large numbers that seem to be coming in from the top cities doesn’t match with the potential that the industry can absorb. MF penetration has to grow manifold for the industry to achieve higher reach. With respect to the other markets, the informed investor will still be able to invest through many sources like online platforms, but investing as a habit is not inculcated in the average Indian yet. It requires a large force to reach out to the hinterlands and hence the requirement of the financial advisor gets significant.

Source: http://www.indianexpress.com/news/fund-houses-will-have-to-tap-nonmetro-markets-to-grow/676902/0