Traditionally in India, domestic investors have had a bias towards real estate and gold, when it came to making an investment. However, during the last decade, growing financial awareness has resulted in an overall increase in household financial savings, with mutual funds also being considered an investment and saving option. Yet, mutual funds still are not the preferred instruments and have a lot of catching up to do – as the share of mutual funds in financial savings remains abysmally low at 2.9 percent.
Mutual Fund industry in India has not achieved its rightful position in the basket of options that an investor has; therein lies the growth opportunity for the industry. In the last one year, the Industry has been able to tap into domestic savings and surpluses across demographics and regions. With India all set to grow beyond its T15 cities into Tier 2-3-4 centres, there is an opportunity for the industry.
The sector has to be given the credit of identifying the key demand drivers for growth like favourable economic and demographic factors, under-penetrated market with a scope of increasing penetration and insurance density (per capita insurance premium), expanding distribution reach with insurers using multiple channels to reach out to customers, private life insurers offering specialised products and unit-linked schemes coupled with quality customer service and penetration into untapped markets (Tier 2-3 and rural).
Having realised this, the Association of Mutual Funds in India (AMFI), the trade association of mutual funds in India, launched a media and communication campaign in 2017, as a part of the investor awareness outreach program. The “Mutual Sahi Hai” campaign aimed to position mutual funds as a preferred investment option for potential investors – and industry insider believe it has done the industry good – as Mutual funds added 32 lakh investors in 1 year due to the ad campaign.
Now with all the building blocks in place, the industry still has a long-way to go to reach its desired state and that calls for them to look at all the growth levers. It, therefore, needs to look at two important aspects that will define the quantity and quality of investors in the industry.
- Expanding into newer markets and geographies within India: from April 1 SEBI has expanded the scope of T15 to T30 cities and B-15 to B-30. This means that more inflows would need to come from smaller towns for mutual fund houses to be able to charge this 30 basis points expense ratio. In the race to decrease cost and improve productivity, digitisation is going to pay the most vital role and should be coupled with product innovation as complex products are counterproductive to boost direct sales.
- SEBI Capping Total Expense Ratio will make MF cheaper for investors but for Intermediaries, it would mean better margins only if the investor stayed invested for long. Individuals in Urban cities understand MF as an investment option, as they get better Investment advisor (Employee or Distributor) to guide them but in cities beyond B-15, it lacks. Mark Twain once said that “Its easier to fool people than to convince them that they have been fooled” – asking people to invest their hard earned money once may not require skill but MF is a long-term game and it requires a skilled workforce to understand the complexities servicing a long-term investment product.
SEBI is pushing more on direct investment instead of going via intermediaries especially in the B-15 cities, so while focusing on the above aspects, they would need to focus on one key enabler and growth driver – which is investing in trained and skilled human resources. The industry needs people as investment advisors and evangelist and they also need people to penetrate the untapped markets. Distribution channels seem to play a major role in fund penetration and facilitating these rather than trying to boost demand through financial literacy may be a more effective way of achieving better fund penetration.
The entire industry runs only on about 15000 people of which 50 percent of people are with the Top 5 MF companies. This does impact sales and market coverage – it is just not optimum. Also, the industry has not adequately invested in skilling and training of its own people or its financial intermediaries.
Today, large numbers of intermediaries are employed in the mutual fund distribution as a mutual fund distributor or advisor. The majority of the sale in the mutual fund business is driven by these intermediaries and thus they are very important participant in the industry. Given their critical role in the industry, they are required to clear NISM certification. But this is not enough; core employees of the mutual fund companies and the intermediaries need to be better trained in all aspects of the industry. The Industry on its part has to partner with industry bodies, academia to drive the continuous skilling and training agenda for people engaged in the business. It is important for companies to invest in repair and prepare of its human resource eco-system, so as to enable and empower them.
Mutual fund industries in India cannot achieve their growth potential, if they don’t do SIP (Systematic Investment in People) in building their human resources capabilities – so imperative for them is to have a stronger focus on skilling and training initiatives – that helps to instate confidence in investors and make them a long-term investor in true sense.
Views expressed in this article are personal opinion of Amit Vadera, Head of BFSI and Government Vertical, Teamlease.