The Indian mutual fund industry is now in an evangelising mode, with little indication of whether its plan will succeed. Fund houses have been asked by the Association of Mutual Funds in India (Amfi) to conduct at least five education camps every month?mainly in B- and C-class towns. While this initiative helps concept selling, it can?t guarantee retail participation. It?s likely that retail investors in these towns might hear but not listen. Over the next one year, 2,400 investor camps would be conducted by 40 mutual funds reaching around 2.5 lakh investors. If the recent drop in equity folio numbers is any indication, mutual funds need to do a lot of catching up. In the month of July alone, they lost 38,000 equity investors, which works out to 4.4 lakh a year.
The mutual fund industry needs to do much more than concept selling. Over the last three years, the industry managed to improve penetration beyond the top-10 cities by only 7%. According to data from Boston Consulting Group, share of mutual fund assets in top-10 cities has fallen from 81% in December 2006 to 74% as of today. Funds houses often complain that the economics of going beyond the top cities is not good?given that they have to invest in infrastructure and a sales force to maintain service standards and processes across the country. Yet, the private life insurance business, which started eight years after that of mutual funds, has managed a vast footprint. The life insurance industry has ten times the number of offices that mutual funds have.
One important reason why insurers have more reach across towns is the Irda regulations, which mandate the minimum policies to be sold in rural areas for each of the initial five years of operations. And the threshold keeps increasing gradually over the years. In the first financial year, at least 7% of policies should come from the rural areas. Another 9% (of new policies sold) in the second year, 12% in the third year, 14% in the fourth year and 16% in the fifth year.
The mutual fund industry could contemplate a similar structure. Of course, care needs to be taken that folios and not assets should be the target criterion.
muthukumar.k@expressindia.com