Mutual Fund companies need to focus on areas beyond Metros and Tier 1 cities

“Mutual funds’ share in the country’s financial savings is still about 6% and AuM penetration as percentage of GDP is at half or one third of other developed countries”, states the AMFI report.

To achieve the 100 trillion AuM growth mark India will need to multiply its investor base by 5 times to reach 10 crore investors. The potential the Indian market has is indeed colossal, but there are a few barriers that are preventing the success and growth of the market. These are:

• The vastness of the land and industry’s wherewithal to reach every potential investor.
• Decline in the gross household savings rate  — 37.8% in March 2008 to 30.5% in March 2018.
• Lack of inclusion of the middle income group due to complexities in product comprehension.

Do you believe an additional 4 lakh ARNs is the only solution to gain this feat? We have to address these problems with constructive and practical solutions.

Banks

Let’s begin with banks. The average number of bank branches in T2, T3 and the rest of India undeniably and vastly exceeds the average number of ARNs. AMCs could operate on a hub-and-spoke model in co-operation with the widespread reach of bank branches, payment banks and other direct channels. The goal here is to equip these employees with a better understanding of Mutual Funds, its potential to maximise savings and (most crucially) the benefits in its earning potential when compared to insurance policies. To influence, educate and shift seasoned investors from traditional instruments like fixed deposits to Mutual Funds (MF) products may take a while, but with the right support this change is possible.

IFAs

Additionally, the potential of the IFAs are acutely under-utilised with reference to their access to the widespread population. Furnished with in-depth intelligence, up-to-date information and seamless backend support,this would mitigate risks involved and better equip IFAs to service existing clients,while comfortably acquiring new customers simultaneously. As already discussed, there lie the issues of cut in equity fund’s ER and dissolution of the upfront commissions, challenging newly joined IFAs to balance their operating expenses. Some may discuss the need for AMFI to disburse business loans to newly appointed IFAs at lower interest rates, but would that suffice? It wouldn’t. We must arm our IFAs with significant knowledge and support to spread awareness to the untapped Tier 2 and beyond markets, only then will their true potential be unleashed.

This approach could address the barrier of reach across the country and include the middle income investors which are currently untapped. The right support from the industry will definitely lead to a rise in the number of IFAs and in-turn ARNs in the future, taking us to the inevitable 100 trillion AuM goal. With enhancements in technology, like adopting the best mutual fund distributor software in India and best mutual fund software for IFA, we can generate gains in this industry.