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MFs require big push in tier-II & tier-III cities

In smaller cities, the awareness about MF schemes is less

August 02, 2012 4:26 IST | India Infoline News Service
Over 65% of AUM (assets under management) of fund houses came from just five cities in India, the Association of Mutual Funds in India (AMFI) data indicated in June. The five metro cities included Mumbai, New Delhi, Bengaluru, Kolkata and Chennai which contributed Rs. 46.5 million AUM. The data indicated that fund houses in India have failed to reach investors in smaller cities or rural areas. 

Pankaaj Maalde, head-financial planning, ApnaPaisa.com, “The MF industry has failed to increase its network all over India and hence tier-II and tier-III cities are not investing in MFs. Recently, I have witnessed closing down of some branches of the top AMCs (asset management companies) in Mumbai.” 


Keyur Shah, director, Vantage Institute of Financial Markets, said, “Giving higher incentive is not a solution to the problem. Later on, the same semi-urban distributor’s commission will compared with a life insurance agent. Further there may be comparison on how MFs commissions can match the commission of life insurance products. It is important to promote financial literacy among consumers. IFAs need to change their approach from product-based to goal-based and provide wider advisory services and for that IFA needs to undergo for additional professional global certifications like CFP/CWM/CPFA, etc.”


Suresh Sadagopan, founder, Ladder7 Financial Advisories, said, “The crux of the matter is investor education and awareness. There is no awareness beyond top towns and cities. Awareness needs to be created in rural and semi-rural areas. If SEBI & AMFI does that it will be a great help for distributors, who will automatically get business.”  

 

Mr Sadagopan added, “This story will continue as long as SEBI keeps the distribution business unviable. Currently, a lot of distributors are finding it unviable and many have moved out. Distributors should be allowed to earn a decent living out of the profession, for them to take on the mantle of educating clients in the hinterland. Business viability for the AMCs and distributors is at the heart of the problem afflicting the industry.”

According to Vivek Chaurasia, senior research analyst, PersonalFN, “The weakness seen in the markets in the recent past have played a hurdle for equity mutual funds to prove themselves as a great saving instrument. It is not easy for mutual funds to stand along bank FDs (fixed deposits), post office deposits and insurance plans that lead as a primary saving product in rural and semi-rural regions. MFs still require a big push especially in tier-II and tier-III cities—which are currently dominated by banks, post offices and big insurers.”

Bhavin Shah, managing director, Sapphire Wealth, elaborated, “Fund houses need to give incentives to distributors for selling MF schemes beyond cities in the country. Some additional incentive will go a long way in promoting the industry to expand in rural areas.”

Due to infrastructure constraints, AMCs are finding it difficult to penetrate in rural areas. In smaller cities, the awareness about MF schemes is less. There have been cases of mis-selling due to which people in smaller cities and rural areas are unwilling to invest in MFs.

The average ticket size of investment in these cities is around Rs. 50,000 and a distributor has to travel around 50km to reach investors. Thus, it becomes difficult to sell MF schemes. Giving incentive to distributors is necessary as the cost of doing business is high in rural areas, added Mr Shah.

AMCs need to find a way to directly promote MF schemes in these regions and even if they do it by incentivizing the distributors, then they need to make it sure that the investors are not misguided by the distributors to buy into any product for high incentives. One way to increase their reach via banks and post offices which have a strong network in these regions and can easily reach the people residing in rural regions, but before that all bank and post office employees who get involved in selling the mutual fund product should become NISM certified mutual fund advisors, Mr Chaurasia highlighted.

“The MF industry must take some lessons from insurance industry. Life insurers are present in most parts in India. Private life insurers came after 2001, but their growth in rural areas is higher compared to MFs,” Mr Maalde pointed out. 

Mr Chaurasia said, “AMCs should finance investor education and awareness in rural and semi-rural regions. Investor education should be a primary focus of fund houses to increase their reach in these regions. This will help individual’s understand the importance of investment and various investment avenues and even the pros & cons of the product that they are investing in. AMCs also need to compulsorily educate distributors so that they are capable to sell the right product based on their investment objective.”

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