Cracking the MF code in rural India
Mahindra MF looks to build on its parent’s network across 300k villages, but there are hurdles galore
Somewhere close to Jalandhar, the chief executive of a fund house is trying to explain the patriarch of a wealthy Punjabi joint family the concept of mutual funds (MF). At first, this 50year old mistakes the CEO for a share dalal or an agent of sorts. The asset management company (AMC) CEO quickly changes tack. “Imagine you are investing in the business of Maruti, Pepsi or ITC...’’ The CEO lets him ponder over that for a moment. “How is that possible? Why would these big guys need my money?” He is puzzled and excited at the same time. As an organised contract farmer who caters to several consumer companies, he has latched onto the return potential of the investment.
The conversation above gives a glimpse of the challenge the 42-player MF industry is grappling with. “Even wealthy families in rural India are unaware of mutual funds. The conversations are likely to be more challenging when AMCs try to reach out to dailywage earners or landless farm labourers,” says Ashutosh Bishnoi, managing director and CEO of Mahindra MF. As of now, most fund houses are not engaging the second category given their little or zero investing capacity.
Mahindra MF, which began operations in July 2016, was set up to cater to the investment needs of the existing clients of Mahindra Finance. The non-banking financial company, along with its subsidiaries, is present in over 300,000 villages. Mahindra MF has an advantage as it can leverage the large presence of its parent company but it realises that prising open the market will not be as easy, unless the fund house starts thinking differently. The issue is simple — while people’s inflows are not certain, the outflows are fixed. “Unlike top cities, where the starting discussion point would be systematic investment plans, in the rural markets the conversation begins with systematic withdrawal plans.”
Bishnoi shares what made him arrive at this conclusion. “There is unpredictability to their earnings. Almost all of it comes from farm or related activities. However, their expenses are fixed.”
Bishnoi, who has extensive experience in consumer marketing, says that to grow in the smaller markets, the key is to speak their language, use relatable examples and not confuse them with jargons such as ‘large cap’ and ‘small cap’.
He shares how Mahindra MF’s strategy to switch from English to Hindi while making presentations has helped in these areas. However, a shortage of independent financial advisors (IFAs), who typically hand-hold the first-time investors, remains a big missing piece in the puzzle. “Our official mandate is to reach out to rural and semi-urban markets. Around 400 people across the 1,350 branches of Mahindra Finance have recently received certification to distribute MF products. But they cannot move the needle alone. We want each of them to create distributor networks and also support these distributors,” Bishnoi says.
The industry apex body, Association of Mutual Funds in India (Amfi), is pushing a campaign Mutual Fund Sahi Hai, to help increase awareness of mutual fund products, while individual AMCs are trying to get more people to see the business potential of becoming distributors. Amfi has even put posters of the Mutual Fund Sahi Hai advertisement on longdistance trains with the aim to drive home the message in smaller markets.
A Balasubramanian, chairman of Amfi and CEO of Aditya Birla Sun Life MF, says his firm is reaching out to insurance agents to make them consider distributing mutual fund products. “Earlier we held the Big15 initiative for the B15 (beyond top 15 cities) market to highlight benefits of mutual fund distribution. This year, we will hold a Big30 initiative for the B30 market.”
However, there is some disconnect between the product-mix that the AMCs think will drive the next leg of growth and the product preference in the rural and semi-urban markets. Many players are of the view that over a three-year period, fixed-income schemes are better than fixed deposits. But most fixed deposit investors in smaller markets have little interest in debt schemes. Junagadh based Amit Charadva, one of largest independent financial advisors in the city, who by his own admission, has a 20 per cent market share in the ~9.2 billion (Amfi data) AUM market of Junagadh, offers a different view. “Customers don’t understand the interest rate cycles. Neither do clients understand the various debt schemes. Even we don’t. So, we don’t recommend them,” Charadva says.
Another issue with debt schemes is the return expectations. “Investors are not okay with even a slight dip in the NAV (net asset value) of their debt schemes. They prefer to stick to fixed deposits. So mutual fund investing is largely equity investing for them. They are okay with some volatility in their equity exposure,” Charadva points out.
Charadva touches upon the additional work that a distributor needs to do in smaller markets to fulfil KYC norms as not everyone can be expected to hold a PAN card in these markets. “We not only help them do their risk-profiling and recommend suitable mutual fund products, but also provide them assistance in procuring PAN cards and other required documents,” Charadva says.