MFS in B15 cities
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.
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.”
DIGITAL EMPOWERS 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.
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, commiss ionoriented 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 GROWTH
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