Bank channels underutilised for MF distribution: SEBI

With several districts having high banking penetration among households, such districts ought to be a prime target for further growth of mutual funds

February 21, 2014 11:23 IST | India Infoline News Service
With below poverty households finally coming to own bank accounts, fund houses could use pre-existing bank channels to offer investment opportunities when these people finally start earning saving, according to a SEBI (Securities and Exchange Board of India) report released on 20 February 2014.
“Bank channels are currently being underutilised for mutual fund distribution. With several districts having high banking penetration among households, such districts ought to be a prime target for further growth of the mutual fund industry,” the study said.
The report, part of the Development Research Group Study, under the title "Penetration of Mutual Funds in India: Opportunities and Challenges", is co-authored by Prof Rajesh Chakrabarti, Sarat Malik, Sudhakar Khairnar and Aadhaar Verma.
“AMCs should therefore start to focus on their bank distribution channels and build robust information systems in order to take advantage of these upcoming opportunities,” the report added.
The study also said, “Demographic and social development factors such as adult literacy or bank penetration (savings account) do not show any strong correlation with mutual fund penetration.”
“This lack of strong correlation is a strong indicator that banks are not being utilised as effective delivery channels,” the study said.
The AUM are unevenly distributed across the country. Presence of MFs is heavily skewed in favour of 60 districts, out of which a lion’s share originates from Mumbai.
The study argues that lack of penetration may be due to low demand of MF from the public outside the top 15 cities (T-15). This may be due to low level of financial literacy, cultural attitudes towards savings and investments, etc.
The study also says, “Commissions offered to mutual fund agents appear to be significantly less attractive than those for other financial products (particularly insurance). Mutual fund agents outside T-15 cities cannot rely exclusively on the sale of mutual funds as an income source and the products compete for the ‘push’ given to them by the agents. Low commissions could also be a reason for the difficulty in finding talent.”
While the study acknowledges that good talent is hard to find and AMCs face difficulty in recruiting the right distributors and agents in small towns and villages, it points to a large pool of ‘business correspondents’ which numbered 1.95 lakh on March 31, 2013.
“This could be a talent pool waiting to be tapped to address the shortage of mutual fund agents in the nation,” it said.

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