Over the 37 years that have passed since the first mutual fund was launched in India, the mutual fund (MF) industry has acquired an increasingly significant role in the personal financial arena.
The last seven years have marked a watershed in the industry's history. The number of MFs has increased to 35 and, funds under management have increased manifold to around Rs.1,00,000 Crore.
The MF investor now has a greater choice than ever before, not only with more management groups to choose from, but also with a far wider choice of schemes on offer.
The Indian MF industry has been able to meet the individual requirements of the investor by developing a wide variety of funds such as growth funds, income funds, balanced funds, specialty funds such as sector funds, index funds and money market funds etc.
However, the growth of the industry has been quite erratic. Time and again, the industry has suffered on account of issues like mismatch between reality and expectations, wrong positioning and lack of awareness about the concept of mutual funds.
Therefore, a significant majority of investors in the country has remained unaware or is not fully aware of the utility of this very important investment vehicle.
Besides, lack of a focused effort on the part of mutual funds as well as distributors to increase the investor base has not helped the cause of the industry. As a result, the mobilisations from the wholesale segment dwarf collections from the retail segment.
But there is no denying the fact that retail investors will take hold in the near future. Investors who have got used to assured returns will re-examine their investment strategies and seek more flexible and higher yielding investment products like MFs than the previously favoured instruments offering administered rate of returns. The recent cut in the small savings rate will hasten the process.
As the MF industry continues its effort to achieve a consistent growth, funds with a strong brand will be in a better position to market their products compared to the competition.
Corporate image would really matter when prospects start looking at the products; rank them on the basis of image, performance, service and costs.
For any MF to become a significant player, it will be necessary to maintain a perfect synergy as far as these four variables are concerned.
While MFs will have to ensure good performance and management of money consistently to ensure their growth, the key issue facing the industry is whether performance alone will ensure good mobilisations.
Needless to say that apart from the performance, the industry needs to work diligently on certain other aspects of business like increasing its reach, making investing simple, improving standard of client servicing as well as quality of advice to the prospects.
The MF industry, on its part, has already initiated steps to improve the quality of distributors. Realising that distributors have a major role to play in projecting mutual fund as a long-term investment vehicle, the (AMFI has already initiated Mutual Fund Testing Programme, which is a very positive step in the right direction.
Distributors too will have to make efforts to understand products and their suitability to varied investor profiles. Even today, to many investors, making an investment seems pretty mysterious. The distributors will have to make an attempt to demystify the investing process for their clients.
Banks have always been an integral part of the MF industry. Initially their role was to facilitate investments from the investing public by accepting applications, facilitating dividend and redemption payments etc.
However, they are now emerging as a very effective and quality distribution channel for the industry. Many banks, including all the major foreign banks, currently sell third party funds to their clients.
These banks, realising their edge over other distributors, on account of their extensive relationships with retail as well as corporate clients, have got into distribution of MF products.
While in recent times banks have contributed significantly to the growth of the industry, they can still do a lot in this regard. With the growing popularity of open-ended schemes, banks have an important role to play in further improving service delivery mechanisms.
Moreover, they are best equipped to provide an ideal vehicle to mutual funds for reaching out to investors in smaller towns.As regards investor servicing, there is a newfound desire of MFs to excel in this aspect.
In fact, the new breed of MFs has brought about a definite change not only in terms of providing excellent service but also in changing the attitude towards service.
Needless to say that the registrars handling open-ended schemes have played a major role in this. By taking advantage of technology, they have made prompt and professional service a priority. These registrars have an important role to play in enabling MFs to come closer to investors through their Investor Service Centres.
Clearly, going forward mutual funds have a lot of hard work to do. No doubt, the road ahead is tough, but it is not a dead end.
Hemant Rustagi : Head- Business Development & Marketing, ING Investment Management
(The views expressed are personal)
