Launched in April 2007, Reliance Money has, within a short span of one year, emerged as a major player in stock broking and distribution of financial products. Sudip Bandyopadhyay, director and chief executive officer, Reliance Money, tells our correspondent that unit linked insurance plans are not for investors with a time horizon of less than 10 years. If a customer wants insurance, he might as well buy a term plan.

Do you see a drift away from bank deposits finally?
Over the last few years, people have realised that traditional investments are not good enough. Most in our parents? generation put their money in bank deposits, RBI Bonds, Post Office savings instruments, and so on. These products today give just 8-9 per cent return, which is sometimes taxable, so you end up with 5.5-6 per cent. With inflation at 12 per cent, they understand that something else needs to be done. So, demand for market-related financial products is coming from those quarters as well. My mother, for instance, asks me which mutual funds she should put her money into. A few years ago, she would not have thought of those options. Today there is a compulsion to invest in those instruments.
Like any other advanced country, people in India will also have to move from fixed, assured-return products to market-linked products. This is the right time for providers of financial products and services to create awareness and develop the culture of investing in market-linked products.
In India, we save 34 per cent of our GDP. About 50 per cent of this saving is in the form of financial assets. Of this 55 per cent goes into bank deposits. That?s a criminal waste. People think they will lose their money in the share markets. But with inflation above 12 per cent and savings accounts yielding 3.5 per cent returns, you are losing money every day.

Mis-selling is rampant in distribution of financial products.
I fully agree. But that?s a structural problem. When you are ill, you would not go to a Glaxo or a Pfizer salesman for medicine. You would go to a doctor, who is usually neutral towards these pharmaceutical companies. But in the financial sector, in most cases customers do not interact with someone neutral, but with salespersons of different product manufacturers.
Now, all these salespersons are one-product guys. They have to sell that one product. They are, by definition, biased. They cannot look at the customer?s needs. That is the unique strength of our company. We can be neutral towards different product manufacturers.

But isn?t there a tendency to push products of companies that offer higher commissions?
The whole point behind creating this elaborate infrastructure is not to sell one product to each customer and run, but to sell him multiple products. If I sell you a product that is unsuitable, you will soon realise that I have done a con job on you. If I have set up shops in 5,000 towns, I will not stand to gain by selling you just one product. I need repeat sales from you.
The neutrality also comes because the commissions on most similar types of products are the same. So why should it matter to me whose product you buy?
If you come and ask us, we should be able to give you the right advice. But if you already have a view, come and ask us for that particular product, we will give you that too. Why is SBI MF the largest-selling fund from Reliance Money? Because people know SBI, regard it as a trusted brand, and ask us for it.

How aggressively do you sell a high-cost product like Ulip?
I tell investors to invest in a ulip only if he has a time horizon of more than 10 years. But if your time horizon is less, stay away from Ulips as they have high front-ended charges. Similarly, if your primary need is insurance, buy a term plan.

How is the model for your brokerage business different?
In the case of other brokerage houses, you are charged about 0.85 per cent as brokerage. So if you buy Rs one lakh worth of shares and then sell them, you would lose Rs 1,700 on brokerage charges alone. In our case, we don?t charge you on a per transaction basis; instead we charge you a fixed fee. Small customers can pay Rs 500 and do trading of up to Rs five lakh over one year. Bigger traders can pay Rs 2,500 and trade up to Rs six crore over one year. There are multiple slabs. Pick the one that suits you best. In terms of percentage, your cost would come as low as 0.001 per cent.

Does this amount to predatory pricing?
No, it?s not that. The market is huge and we are barely scratching the surface. We have a population of about 110 crore. About 33-34 crore people have bank accounts. The mutual fund industry has about 1.6 crore accounts. In the broking industry, we have barely 65-70 lakh demat accounts. About 50-60 per cent of these would be inactive. So far the broking industry has concentrated largely on the metros.

Is it getting broadbased now?
Just about 30 per cent of our brokerage revenues come from tier-2 and smaller cities. Given our low charges, the big traders came in one their own, because it gives them immense cost advantage. The tougher challenge is to convince the small-town guys in tier-3 cities and beyond.
Pricing and accessibility will help achieve higher penetration of financial products, just as in the case of mobile telephony.

Is there a growing trend of customers investing in stock markets abroad?
We are the first and only company that provides investors the opportunity to invest abroad. Last week, we began offering our investors the facility to invest in Hong Kong. We are getting a very good response. People are keen to invest in China, and all the leading Chinese companies are listed on the Hong Kong stock exchange.
As you know, individuals are permitted by RBI invest up to $200,000 abroad annually. We have about 2,000 customers at present. About 50 per cent of them trade regularly.

How are you different from the other players who offer portfolio management service (PMS) and wealth management?
We allow customers to avail of PMS with the minimum threshold amount of Rs five lakh. We are the only company that provides Shariah-compliant PMS as well. We also offer a unique fee structure. We don?t charge a fee on returns up to eight per cent, since you can get such returns by investing in a fixed-return product also. Thereafter, we have different fee slabs for returns between 8 and 20 per cent, and for 20 per cent and above. This way the interest of the customer and the company are fully aligned: only if we perform do we charge a fee. Under wealth management, in addition to normal services, we provide the entire gamut of tax-related services. We also offer estate planning, art advisory, and real estate services (buy, sell, lease).

Does gold retailing make sense, especially with most banks already doing it?
The innovation in this business was to introduce 0.5 gm and 1 gm gold coins. Customers buy them easily because a half gram gold coin costs just Rs 500-600, while a 1 gm gold coin costs just Rs 1,000-1,100. There is huge demand for these coins in the gifting segment. Every week we get three or four large orders from corporates. A lot of banks have also got into this business. But the disadvantage with banks is that they do not buy back gold coins, whereas we do.