a widespread distribution network is a sine qua non for attracting retail investors and the distributors have to be certified by the Association of Mutual Funds in India. While it may be possible to develop such a force in the metros and urban areas, the task would be difficult in the semi-urban/rural areas.
For one thing, the distribution network will be interested in larger corpus mobilisation and higher income which may not be the case in smaller places. There is also less of investor-education required in bigger places. Hence, retailing in smaller places would be a challenge but sufficient untapped potential exists there which ought to be channelised to the mutual funds industry, not only from business point of view but also in terms of equity of opportunities for these investors.
There is yet another angle to this issue as these investors (and many investors in the bigger places also) require advice in financial planning, which task also would fall on the distribution agent. In short, the assignment would not be confined to pure selling but would involve counselling and extension also.
Quite a bit of confidence and awareness have to be necessarily built in the minds of these potential investors.
The branches of banks established in these areas could ideally serve as distribution cum sales outfits for mutual funds products. For one, they are locally established and quite a number of mutual fund products are improved versions of bank products. The branch staff also command a lot of respect and credibility as investment advisers. For the banks also, these provide additional income without any infrastructure additions. But the challenges are many. For one, the mutual fund products could be viewed as competing and not additional products by the branch staff. The other issue is that while banking products are generally “bought”, mutual fund and insurance products need “to be sold and marketed”.
These would require a good level of skill and knowledge and a change in the mindset, which could be effected only by the bank managements and the mutual funds industry acting in concert. Yet another problem the branches could face later on would be gaps in the aftersales services including dividend payments and redemption for which they might be blamed by the investors, in case there are lapses. This would require a lot of coordination with the mutual funds and the bank branches. A definite working arrangement needs to be in place to smoothen these issues.
The efforts of marketing and distribution to attract once again largescale retail investors to the mutual fund scenario would, therefore, appear to be challenging. But with coordinated efforts of the mutual fund industry, the distributors and the banks (or even the post offices in some areas) could make the task easier. If the efforts succeed, the rewards would be commensurate for the industry.
(The author is MD, SBI Mutual Fund. The views expressed in this article are his own)