MFs put branch expansion on fast track

Mutual funds are in a hurry to expand their branch networks after the market regulator proposed to scrap the entry load. Since internet is yet to penetrate remote areas, mutual fund houses are looking at large scale branch expansion to reach out to investors, said industry executives.

Reliance Mutual Fund, the largest fund house in terms of assets under management, is planning to double its branch network from the existing 300 in the next few months.

UTI Mutual Fund, the third largest fund house in the country, is adding 150 branches within one year. HDFC Mutual Fund is targeting 75 branches by the year-end.

However, some industry watchers doubt whether expansion of branches is an appropriate option as it affects the financial health of funds. Executives of fund houses said that selling schemes through distribution houses is the best option.

Jaideep Bhattacharya, chief marketing officer, UTI Mutual Fund, says: "There is space for all three channels, online medium, distribution and the branches. We want to give choices to our investors. As far as distribution business is concerned, it is going to be an integral part of the system. We are also working closely with distribution houses to enhance penetration. Applications received directly are only 0.02 per cent of the total. So the mutual fund industry has a long way to go and distribution houses will have to play a major role in that."

Distributors such as Dawnay Day AV and India Infoline are, however, not perturbed by the proposal. Harshad Apte, vice president (strategies), India Infoline, said that it was not going to affect the company in a big way. "We reach our clients through 585 branches which no mutual fund can match."

Arpit Agarwal, MD and group CEO, Dawnay Day AV Financial Services, said that the Sebi move would push distributors to offer value-added services, rather than plain selling.

An independent advisor who did not wish to be named said that the move is not going to affect corporate distribution channels but it is certainly going to affect the smaller agents.

He pointed out that whatever commission they get, is only after deducting service tax which is not by a great margin. So they will have to suffer if such a thing takes place.