Niche marketing helps funds beat downturn

When the going gets tough, the tough gets going. Post the ban on entry load, many mutual fund players have realigned their business strategy to focus on their ‘niche’ segments. It was in August 2009 that the market regulator imposed a ban on the entry load and ever since the sales of equity schemes–the bread and butter of mutual fund industry— have been falling. Not to mention the poor equity markets giving little headroom to launch new fund offering (NFO). However two years later, the ‘niche’ positioning that many fund houses had adopted to market their products is helping them survive the downturn.

Some of the fund houses such as Goldman Sachs (formerly known as Benchmark MF), Motilal Oswal and more recently launched India Infoline MF are now focusing on ‘passively’ managed products. Passively managed funds could be exchange traded funds, index funds or quant funds which as the name suggests are passively managed as against ‘active’ funds which usually has a fund manager actively picking stocks for his funds. Focusing on passive funds is less capital-intensive for a fund house, and often the preferred way for a new player to start operations in the country.

Edelweiss MF, for instance, wants to capture the share of big ticket size investors like high net worth individuals (HNIs) and mid net worth individual (MNIs) by concentrating on quant-based funds.

Vikaas M Sachdeva, CEO of Edelweiss Mutual Fund, says, “We have now branded ourselves as a quant fund house. In fact, our MIP(Monthly Income Plan) is also a quant MIP on the equity part. We have two kinds of funds, long-only funds and an absolute return fund. As the latter is a fairly new concept, we are targeting private banks, top 100 distributors in each territory and engaging them in a dialogue.” He says the fund house is not targeting large assets but expects at least 500 new converts every year, who will eventually sell their funds.

For big five fund houses such as Reliance MF, HDFC MF, Birla Sun Life MF and SBI MF, the focus is clearly to go the ‘retail’ way by pushing for systematic investment plan (SIPs) in the semi-urban as well as rural areas. “It's not only about equity assets, but about building quality assets,” says Sundeep Sikka, CEO of Reliance MF. “We are happy to get more number of small-ticket size investors through SIP compared to lump-sum investments. We are trying to build-up a long-term, sustainable business model.”

Industry players feels that top fund houses can grow their business by targeting investors from tier- II and III cities as they have the financial strength to make huge investments and acquire new customers. Manoj Kumar Vijai, partner, KPMG India, says, “Definitely these are the main focus of the big fund houses as there is immense growth potential in the semi-urban and rural areas. Fund houses are also getting positive response from smaller markets as there is a huge untapped potential for financial investments there.” Most top fund houses promote products through small distributors and even give them proper training in selling products. SIP investors invest in small amounts in a scheme (some fund houses even allow subscription of as less as R100 per month) on a regular basis which in turn brings a lot of discipline in financial investing.

According to market participants, the ban on entry load precipitated the promotion of SIPs by fund houses, which were seeking regular inflows into their funds. However, as against the pre-entry load regime, when commissions worth 2.25-2.5% of investments were paid by investors, now the fund houses themselves are paying for it.

If larger fund houses are spending money on expanding their retail base, other fund players such as IDBI Mutual and Peerless Mutual Fund are expanding their equity product bouquet even in this downturn. Debasish Mallick, MD and COO of IDBI Mutual Fund, says, “Currently we have only two equity index funds. In order to get more retail clients we want to increase our product portfolio and we are also planning to enter active funds in the months to come.”

For Akshay Gupta, CEO and MD at Peerless Fund Management, launching equity products at this juncture also helps build a ‘track record’. “It is also a good time to invest into equity funds. Investors who enter equity funds at this time could see their NAV rise when the equity market conditions improve” he says.

Source: http://www.financialexpress.com/news/niche-marketing-helps-funds-beat-downturn/857845/0