Dynamics Of Mutual Fund Distribution

DYNAMICS OF MUTUAL FUND DISTRIBUTION

Hanish Dhillon ISBS – Marketing

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Contents Introduction

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Executive Summary

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Challenges & Issues

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Voice of Customer

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Findings and Conclusion

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Recommendation

Introduction q q Witnessed significant growth q Vulnerable to Global Economic turbulence q Opportune time for the Industry to create a road map for the Investors q Adopt Innovative strategies q

Executive Summary q

Change in total Investment Scenario

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Offer tailor made products to its customers

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Identify the underlying strengths and weaknesses

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Maintain relationships with the distribution bases

Challenges and Issues q

Low customer awareness levels & financial literacy

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AMC’s have shown limited focus on retail penetration and building retail AUM

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Limited distribution Channels and Investor servicing

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Mainly product led and not Customer focused

q

Limited flexibility in terms of fees & pricing structure

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AMC’s have exhibited limited interest in engagement with customers post sale

Objectives of the Project q

Understanding the different ratios & portfolios so as to tell the Banks about these terms, by this, managing the relationship with the Banks.

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To understand the different investment options provided by HDFC mutual funds through its mutual fund schemes.

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To know the investors’ expectations on mutual funds offered by & hence to improve upon the same.

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Find out there preference parameters for selling a particular fund.

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Voice of Customer q 

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Research Methodology To understand the voice of Indian Investors, I conducted an investor survey (100 respondents) across Pune region . As a part of the survey I facilitated Interviews with a large representative sample of population from diverse back grounds to understand their perspective on Investment in mutual funds.

Data sources Research is totally based on Primary Data as collected via interviews and Secondary data can be used only for referral purposes as it is collected through journals and web sites.

Sampling Size The sample size of my project is limited to 100 only. All whom were Investors. However there were few non- investors but have obtained their views of not doing so.

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Sampling Procedure The sample is selected in a random way, irrespective of them being investor or not or availing the services or not. It was collected personal visits to the known persons and unknown, by formal and informal talks and through filling up the questionnaire prepared. The data has been analyzed by using the measures of central tendencies like mean, median, mode. The group has been selected and the analysis has been done on the basis statistical tools available.

Sample Design Data has been presented with the help of bar graph, pie charts, line graphs etc.

Have you ever invested/ or interested to invest in Mutual Funds?  

YES NO

100 0

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YES NO

Findings 

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What is the most important reason for not investing in mutual funds? (Only for the participants who do not or are not investing.) Lack of Knowledge about Mutual Funds. Enjoy Investing in other financial instruments. Its benefits are not that lucrative or better than other instruments. No trust over the schemes. No trust over the Fund manager or AMC. Current Market scenario. Complicated product features. KYC mandate over investment of 50,000.

In which type of fund have you invested your money?                       

Equity Debt Balanced ELSS Gilt

18 23 29 30 0

Findings q

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Respondents in the Current market scenario have Invested mostly in Balanced schemes which give leverage to their investments and have switched their investments to balances or debt schemes in the recession period because it helps them to accumulate more Units as the NAV’s are low. Respondents who have invested in Tax saving schemes have a Lock in period of 3 years so they still are continuing to invest in Recession period as it gives them leeway in terms of saving Tax over a period of time.

Preferred Investment period?                       

Less 1 to 3 to More

than 1 Year 3 years 5 years than 5 years

2 42 41 15

Findings q

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It was found out that most Respondents have either invested for a time spam of 1 to 3 years or more than 5 years. Investment period purely and solely depends on the Investment Objective and the Schemes thus chosen. Respondents who have invested in Equity diversified funds have invested for a time spam of 1-3 years and Debt schemes customer usually invest for a period of 3 to 5 years and ELSS customers have to invest in a lock in period of 3 years so they opt for 3 year Investment strategy.

AMC in which Money is invested?                       

Kotak Reliance HDFC SBI DSP Black Rock DSP M Lynch ICICI Religare IDFC

6 8 36 16 5 6 15 6 2

Findings q

It was found out that Respondents have not invested in a particular AMC or their Portfolio is managed by single AMC. They have simultaneously invested in two AMC’s and the ones which are popular are HDFC and ICICI and the others have got place in the reckoning.

Which according to you are the factors important while investing in Mutual Funds? Risk factor 8  

Returns 

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Tax savings

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Performance if the particular Fund 

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NAV

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AMC

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Safety

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Ratings of a particular fund

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Portfolio of the Fund

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Profile of the Fund Manager

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Findings q

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Different Investors have different needs for Investment purposes. However people if Investing in Equity Instruments would look for better returns in a short spam of time as it carries equal risk. And other factors which are considerate with the investment purposes would be Performance or Rating of a Particular Fund and Fund manager also plays a important role as generally people invest in funds keeping in mind the profile of the Fund Manager and for Instance Prashant Jain who is a pass out of IIT and has done is MBA from IIM having over 14 years of experience in Equity research market has lot of funds in his Kitty to manage.

Preferred Channels through which Investments are made?                       

Directly Through Broker / Sub Distributor through BrokerAMC

27 40 33

Findings q

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It was found out that most Investors usually invest through Brokers or Distributors because they get the advantage of having statements on timely basis and also switching or redeeming of funds becomes an ease as they are just a phone call away. They can easily review they portfolio and seek Investment recommendation in order to suffice their short term needs and also to manage their assets. However all of this comes with a charge which is usually known as Commission charged in the form of Entry Load which is usually between 0-2.5% for retail customers and there are few who manage their own portfolio and invest directly through the AMC’s and the entry load or the commission charge is weaved off for those Investors.

Have you invested in the current Recession period?                       

YES NO

38 62

Findings q

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It was observed that people are not investing the current market scenario as it is hard of them to believe that the market is facing a U shaped recovery mode where in the positivity will be reflected in the Market over the period of time as per the new Changes and Amendments bought in by the new UPA Govt. However Existing customers have also redeemed or switched their funds as they lost a lot of money in the year 2008. However there are some Investors who are positive about the Market and have Switched to Balanced funds because that helps them fetch more units as the NAV is low and have Invested money in the NFO’s that were out in the market for e.g. Reliance Infrastructure fund and DSP Black Rock World Energy Fund.

Type of Funds in which money is invested during the recession Period?                       

Equity Debt Balanced Tax Saving Diversified Schemes

84 60 28

Findings q

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It is observed that most of the Investors during the recession period have taken a step back in terms of Investments in Mutual Funds as the share market saw an Impeccable down fall last year and had lost a lot of money last year. However what is more promising is the confidence amongst these Investors who are betting on an attitude that shows a sign of recovery for the market right now and have kept their fingers crossed in terms of Promises by the Congress. So either balanced schemes are the one’s for a safe bet right now or else tax saving schemes have always given investors a leeway under Section 80©.

Other Financial Instruments that are a safe bet right now?                       

Bank’ s’ sFD ’ s NBFC PPF NSC ULIP

14 17 19 21 29

Findings q

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Bank FD’s are one of the means for the different banks to get NTB’s and helps investors to park their money for a spam of 1-2 years in attractive FD’s thus offered. However after maturity is the main Game Plan through which Banks anticipate to invest the same in the Equity markets after they take a respectable position. It scores better than equities at all fronts but lags badly in the parameter of utmost important i.e.; it scores low on returns. ULIP schemes have sustainably taken a peek in the recession period where in they not only provide leverage to one’s investment in debt and equity market but also insurance for a life time.

Research Findings and conclusions q

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At the survey conducted upon approx 100 people, most of them are already mutual fund investors or are interested to invest in future and the remaining are not interested in it. So there is enough scope for the advisors to convert those leads into potential investors through their offerings and services. Now, when people were asked about the reason for not investing in mutual funds, then most of the people held their ignorance responsible for that. They lacked knowledge and information about the mutual funds. Whereas just few people enjoyed investing in other option. For few people, the benefits arousing from these investments were not enough to drive them for investment in MFs and few of them expressed no trust over the fund managers’ decision. Again the financial advisors can tap upon these people by educating them about mutual funds.

Research Findings and conclusions Out of the people who already have invested in mutual funds/ are interested to q

invest, only few have sound knowledge of MFs, and few have a sound knowledge of the mutual funds and its operations and thereby prefer to Invest it directly through the AMC’s and maintain their own Portfolio’s. However it is important to realize that a lot of investors are aware of the schemes and the operations of the Indian Market but prefer a Financial Advisor to cater to their Investment Objectives as they are well versed with the markets and are qualified advisors to recommend them on Investment strategies with minimal Commission co- responding to the portfolio managed. q

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The other financial instruments that are a lucrative option for the Investors in the recession are ULIP plans, NSC’s, Bank FD’s however are not in the same reckoning of Mutual funds in terms of returns.

Recommendations q

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While a significant portion of Customers are aware of and also invest in mutual funds, there was a diverse set of views obtained, both negative and positive. This warrants a need to Immediately tackle some of the negative perceptions And capitalize on the positive ones. The most vital problem spotted is of ignorance. Ignorance is no longer bliss. The advisors may try to highlight some of the value added benefits of MFs such as tax benefit, rupee cost averaging, and systematic transfer plan, rebalancing etc. These benefits are not offered by other options single handedly.

Recommendations q

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Bring about innovations in Distribution channels and penetrate into tier 2 and tier 3 towns in order to increase customer base. Favorable demographics like urbanization and a relatively young population having an increased risk appetite, are likely to save more and seek to invest a higher proportion of those savings in market-linked instruments such as mutual funds. Market deepening and widening is key factor for growth with the objective of increased retail penetration and participation in mutual funds.

THANK YOU

Hanish Dhillon ISBS – Marketing