Boom­ing busi­ness for mu­tual funds in B15 cities

SEBI’s special ini­tia­tives and AMFI ef­fec­tive mar­ket­ing strate­gies make the mu­tual fund busi­ness thrive in In­dia

Banking Frontiers - - Contents - Ravi@glo­cal­in­fo­mart.com

SEBI’s special ini­tia­tives and AMFI ef­fec­tive mar­ket­ing strate­gies make the mu­tual fund busi­ness thrive in In­dia

Are mu­tual funds the right in­vest­ment op­tion? This ques­tion al­ways comes in the mind among In­dian in­vestors. To change the think­ing of the in­vestors, As­so­ci­a­tion of Mu­tual fund in In­dia (AMFI) re­cently launched ‘Mu­tual Fund sahi hain’ cam­paign to cre­ate trust among the in­vestors in­vest­ing in mu­tual funds.

The mu­tual fund in­dus­try is go­ing through a very ex­cit­ing growth phase in the last 3 years in In­dia. First launched in 1992, there are around 42 en­ti­ties of­fer­ing in­vest­ment op­tions in mu­tual funds in In­dia. The sec­tor man­aged as­sets worth `19.52 tril­lion at the end of 30 June 2017, which is a growth of 36% from `14.41 tril­lion man­aged by the in­dus­try by June-end 2016.

SIP + TECH­NOL­OGY= RISE

Ac­cord­ing to data from the Se­cu­ri­ties and Ex­change Board of In­dia (SEBI), the num­ber of fo­lios rose to a record 58,230,384 at the end of June 2017, ris­ing from 48,924,391 in June 2016, a gain of 9.3 mil­lion. The num­ber of in­vestor ac­counts stood at 554 mil­lion at the end of March 2017.

There is grow­ing par­tic­i­pa­tion of re­tail in­vestors through sys­tem­atic in­vest­ment plans (SIP), in­flux of pen­sion money and adop­tion of tech­nol­ogy by the players. In ad­di­tion, there is in­creased re­al­iza­tion among the in­vest­ing pub­lic that mu­tual funds are an ideal in­vest­ment op­tion for wealth cre­ation, which has led to rise in the mu­tual fund busi­ness.

PO­TEN­TIAL MAR­KETS

The in­crease in in­vestor ed­u­ca­tion pro­grams has re­sulted in in­creas­ing in­vestor aware­ness and many first-time in­vestors from small towns are today in­vest­ing in mu­tual funds. Con­tri­bu­tion from small towns to the mu­tual funds as­set base surged 46% to `3.5 tril­lion by June-end 2017 due to ini­tia­tives taken by SEBI and AMFI.

As per AMFI data, mu­tual funds’ as­sets un­der man­age­ment (AUM) from B15 lo­ca­tions - small towns be­yond top 15 (T15) cities - grew from `2.42 tril­lion in June-end 2016 to `3.54 tril­lion at the end of June 2017. B15 are the lo­ca­tions be­yond top 15 (T15) cities namely - New Delhi (in­clud­ing NCR), Mumbai (in­clud­ing Thane and Navi Mumbai), Kolkata, Chennai, Bengaluru, Ahmed­abad, Bar­oda, Chandigarh, Hyderabad, Jaipur, Kan­pur, Lucknow, Pan­jim, Pune and Su­rat. About 54% of the as­sets from B15 lo­ca­tions is in equity schemes, while the same is 31% for T15 as­sets.

Says Rad­hika Gupta, CEO, Edel­weiss AMC, speaks about the fo­cus mar­kets of the com­pany: “Cur­rently we are fo­cus­ing on the tier 1 cities of In­dia. There has been rapid growth from B15 towns. They con­trib­ute 17% to the to­tal in­dus­try AUM.”

Ka­mal Manocha, CEO, Bharosa Ad­vi­sor, shares de­tails of cus­tomer dis­tri­bu­tion of the com­pany: “A ma­jor­ity of our busi­ness comes from the ma­jor ur­ban cities of In­dia such as New Delhi, Mumbai, Ban­ga­lore, etc. The metro cities con­trib­ute close to 70% to our busi­ness, while the rest 30% comes from the non-metro cities of In­dia.”

Ashutosh Bish­noi, MD & CEO, Mahin­dra AMC, the 42nd player to en­ter the mu­tual fund mar­ket, says: “We mainly fo­cus on small towns and vil­lages as ru­ral In­dia is our tar­get mer­ket. A huge por­tion of the in­cre­men­tal money be­ing brought in the mar­ket is via in­di­vid­ual dis­trib­u­tors. As on 30 June 2017 AMFI data shows the to­tal num­ber of cus­tomer ac­counts is 2.88 crore and those from B15 cities is 2.78 crore. The trend clearly shows that B15 cities will con­trib­ute more in­vestors go­ing for­ward. We are at an in­flec­tion point where the hockey stick curve has be­gun to lift up. All the years of ed­u­cat­ing and build­ing con­fi­dence is be­gin­ning to pay off and we are wit­ness­ing a rapid rise.”

FUNDS ARE EMO­TIONAL

In­dian re­tail in­vestors have re­lied more on emo­tions while in­vest­ing in equity mu­tual funds. Past re­turns were the only in­di­ca­tor used in mak­ing in­vest­ment de­ci­sions. They mostly in­vest in ris­ing mar­kets and fear makes them sell in a fall­ing mar­ket.

Ka­mal Manocha is of the view that there should be more cus­tomer ed­u­ca­tion ini­tia­tives and aware­ness cam­paigns to make re­tail in­vestors re­al­ize the mer­its of us­ing sci­en­tific and data based tools for in­vest­ments and to keep emo­tions away.

Ac­cord­ing to Rad­hika Gupta, in­vestors are now seek­ing more log­i­cal pro­cesses for mak­ing in­vest­ment de­ci­sions. For ex­am­ple, she says in 2016 when mar­kets were down, flows in mu­tual fund in­dus­try in­creased. “Re­tail in­vestors have started un­der­stand­ing the logic of buy­ing low for long term wealth cre­ation,” she says.

There are very few re­tail in­vestors who in­vest on the ba­sis of ac­tual logic like in­vest­ing when val­u­a­tions are low, keep­ing a con­trar­ian ap­proach based on val­u­a­tion fun­da­men­tals for long term wealth cre­ation. Ajit Narasimhan, cat­e­gory head - Sav­ings and In­vest­ments at BankBazaar.com, speaks on the need for tech­ni­cal knowl­edge while in­vest­ing in mu­tual funds: “In the ini­tial years, mu­tual fund in­vest­ment de­ci­sions were emo­tional. Nowa­days, cus­tomers gen­er­ally take ad­vice from ex­perts be­fore in­vest­ing in mu­tual funds, as it re­quires tech­ni­cal knowl­edge for it.”

FUNDS MAR­KET­ING

Mu­tual funds are fo­cus­ing on ed­u­cat­ing the in­vestors on the dy­namic equity al­lo­ca­tion

fund cat­e­gory. They use var­i­ous medi­ums to talk about mul­ti­ple con­cepts on build­ing cat­e­gory aware­ness. They also use digital and mobile to pop­u­late the con­tent.

Says Rad­hika Gupta on the use of digital mar­ket­ing by mu­tual funds: “In­vestors today need quick and sim­ple in­for­ma­tion about in­vest­ment op­tions. We are fo­cus­ing on mak­ing the process of in­vest­ment seam­less and quick by mak­ing it paperless, ef­fi­cient, easy and real-time. Digital will help the in­dus­try to en­hance dis­tri­bu­tion reach. In­dus­try-wide digital plat­forms like stock ex­changes fa­cil­i­tates eas­ier dis­tri­bu­tion.”

Bharosa Ad­vi­sors of­fers free port­fo­lio check-up as one of the client ac­qui­si­tion tools. It has done free port­fo­lio checks for more than `5 bil­lion of as­sets. The com­pany has also used PR and digital mar­ket­ing cam­paigns to spread aware­ness about in­vest­ing in funds.

Dhaval Ka­pa­dia, direc­tor and port­fo­lio spe­cial­ist, Morn­ingstar In­vest­ment Ad­viser In­dia, says the com­pany mainly uses web­sites and digital mar­ket­ing to reach out to cus­tomers. It also or­ga­nizes half-day ad­vi­sory fo­rums in medium and small cities like Nag­pur, Lucknow, In­dore, Nag­pur and Bhopal.

PEN­E­TRA­TION LEVEL

Mu­tual fund pen­e­tra­tion in In­dia, as mea­sured by AUM to GDP ra­tio, is an unim­pres­sive 10% com­pared with the global av­er­age of 54%. Even some of the emerg­ing economies like Brazil and South Africa are way ahead. But the stage seems set for a quan­tum leap for the coun­try. Till the time the in­dus­try runs on a per­cent­age com­mis­sion based rev­enue model, the fo­cus will re­main on high ticket cus­tomers and/or re­peated in­vest­ments (SIPs).

In­dia has a lot of ground to cover when it comes to the pen­e­tra­tion and us­age of mu­tual funds vis-à-vis other emerg­ing coun­tries. How­ever, that also means that there is a lot of un­tapped po­ten­tial in the coun­try and presents a huge scope for the in­dus­try. It also needs to build right per­cep­tion about the prod­ucts for mass level adop­tion to hap­pen.

Ka­mal Manocha feels there is need for bold and cor­rec­tive de­ci­sions on the part of reg­u­la­tors: “The reg­u­la­tors need to take steps to curb mis-sell­ing, com­mis­sion-ori­ented ad­vice and other such preva­lent mal­prac­tices. SEBI is try­ing to take a lot of steps to clearly de­mar­cate be­tween dis­trib­u­tors and ad­vi­sors, which in my opinion is a wel­come move, as it would build right per­cep­tion about the prod­uct,” says he.

Dhaval Ka­pa­dia shares de­tails about the mu­tual fund sce­nario in the US: ”In the US, 65% of first time mu­tual fund buy­ers come through their em­ployee re­tire­ment sav­ings plans such as 41k plans. There are also special re­tire­ment plans in­tro­duced by mu­tual funds here.”

RE­TAIL & HNI SEG­MENT

Re­tail in­vestor ac­counts - de­fined by fo­lios in equity, equity-linked sav­ing schemes (ELSS) and bal­anced cat­e­gories - grew by over 7.7 mil­lion. About 26% of as­sets held by in­di­vid­ual in­vestors is from B15 cities and 10% of in­sti­tu­tional as­sets come from such places. On the other hand, in­sti­tu­tional as­sets are con­cen­trated in T15 lo­ca­tions, ac­count­ing for a lit­tle over 90% of the to­tal. Fur­ther, about 9% of the re­tail in­vestors chose to in­vest di­rectly, while over 17% of HNI as­sets were in­vested di­rectly. About 41.1% of the as­sets of the mu­tual fund in­dus­try came di­rectly. A large pro­por­tion of di­rect in­vest­ments were in non-equity ori­ented schemes where in­sti­tu­tional in­vestors dom­i­nate.

The in­dus­try has been suc­cess­ful in im­prov­ing the share of re­tail and HNIs in the to­tal AUM from 43% in March 2009 to 51% in March 2016. In­vestors are also opt­ing for sim­ple means to in­vest in mu­tual funds, which is ev­i­dent from the fact that SIP in­flows in June 2017 were 44% higher com­pared to the cor­re­spond­ing month of last year and 20% more than one-year av­er­age. The in­dus­try has also been in­vest­ing a lot in ed­u­cat­ing new in­vestors on the benefits of mu­tual funds through in­no­va­tive means.

Re­tail and HNI seg­ments will con­tinue to grow at a fast pace. Real es­tate re­turns are dwin­dling and hence, HNIs will con­tinue to move from phys­i­cal as­sets to fi­nan­cial as­sets. While on the other hand, lower interest rates of­fered by tra­di­tional in­vest­ment av­enues will en­cour­age re­tail in­vestors to shift to mu­tual funds.

Says Rad­hika Gupta: “The vin­tage of in­vest­ments in equity funds has also in­creased, which only shows the con­vic­tion in­vestors have in mu­tual funds un­like in the past. This also demon­strates that a large per­cent­age of in­vestors are sat­is­fied with the re­turns which mu­tual funds as an in­vest­ment op­tion pro­vide. Also, re­tail in­vestors are largely in­vest­ing through the SIP route that en­tails reg­u­lar in­vest­ments and bet­ter in­vest­ment ex­pe­ri­ence in the long term.”

MOD­ELS FOR FU­TURE

If a fee-based model is adopted and ad­vi­sory be­comes an ac­cepted norm, there is a dis­tinct pos­si­bil­ity of a change in the per­cep­tion of In­dian in­vestors for mu­tual funds. Any pos­i­tive change in per­cep­tion will au­to­mat­i­cally lead to an in­crease in pen­e­tra­tion by bring­ing in more re­tail in­vestors. More­over, the in­flow of these new in­vestors will be linked to a rise in mar­kets.

Ajit Narasimhan

Ashutosh Bish­noi

Dhaval Ka­pa­dia

Rad­hika Gupta

Ka­mal Manocha

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