It is astonishing that 43 years after Unit Trust of India started US64 and 14 years after the first private mutual funds were permitted, less than 2 per cent of the working population has invested in them according to an Invest India survey. No doubt, few workers save anything at all. Even the most popular financial investment, namely postal savings accounts, attracted only 17 per cent of workers. Banks, which were nationalized 36 years ago with the aim of spreading banking to the common people, have reached even fewer — 14 per cent. And surprisingly, after the campaign that the Reserve Bank of India has waged against them for 60 years, chit funds still attract 12 per cent of workers, and community-based savings attract 7 per cent. So these relatively small-scale investment institutions continue to be as popular as banks.

The failure of banks to achieve greater penetration may be explicable since the government owns most banks and the RBI protects them from competition by restricting the number of branches private banks can open. But the poor penetration of mutual funds is not so easy to explain. The Securities and Exchange Board of India has been more liberal with mutual fund licences than the RBI with banking licences; till now, 32 banks and financial institutions have set up mutual funds. There are no restrictions on them opening branches or selling through other institutions. And in fact, a few public sector mutual funds have attempted to use post offices to market themselves. The penetration of mutual funds is so low that even many urban dwellers who would have easy access appear not to have bought them. Stocks and shares scare many. But fixed-interest mutual funds give higher returns than bank deposits because their margins are much lower. This advantage may actually work against mutual funds. A bank makes so much more out of banking that it would do its best to prevent the marketing of mutual funds. This is borne out by the fact that virtually no branch of a bank markets its own mutual funds. Mutual funds need an alternative marketing channel. Asset managers like ICICI and Kotak have started direct marketing, but only in cities, and only their own mutual funds.

There is, therefore, an opportunity for unattached sellers of mutual funds. Big business houses such as Reliance and Bharti are about to invest on a large scale in shopping malls. Instead of thinking of clothes, shoes and suitcases, they should think of services, especially financial services. Instead of 128 varieties of coffee, they should think of mutual fund cafeterias, where investors can consult a financial adviser over a coffee and reshuffle their investments while having a pedicure. The common Indian saver awaits better service than the neighbourhood LIC agent offers.