Evolving Distribution Strategies
Reaching out to Retail Investors
Success in the Indian Mutual Fund Industry, in the midst of all the growth that is evident, will depend upon strong distribution network and transparent approach towards trust building and client servicing at retail level will soon assume greater importance.
he Indian mutual fund industry has been growing at a rapid pace. Particularly over the last 4 four years the growth has been phenomenal, thanks to a booming capital market and favorable tax regime. This era of exponential growth has seen changes, refinements, innovations etc in products, practices and channel development of the AMCs. The ultimate beneficiary has been the growing and prospering investors. The distribution channels that have evolved in India are: Independent Financial Advisors (IFA), the big distribution
firms, banks and direct selling, including online selling of mutual funds. The various factors which influence the success of distribution channel are trust, customer servicing, including multiple and accessible service points, good infrastructure, including IT support, the comfort factor & exclusivity. An efficient and effective distribution network is as important as any other consumer industry. The customer base is huge here too. The industry since its inception has been trying hard to attract retail investors by taking well-
56 | FINANCIAL PLANNING JOURNAL | APRIL - JUNE 2008
Managing Director & CEO, SBI Funds Management Pvt. Ltd
calibrated steps. It has entered into previously untapped markets. There is more stress on product innovation. Three years ago, there were very few options before the high net worth individual (HNI), leave alone normal investors. Now, all investors can invest in real estate, private equity and even stocks and mutual funds abroad. The minimum investment amounts can be really small.
MF Industry - Distribution Abroad
There have been dramatic changes in the manner in which mutual funds are sold abroad. Before 1980, most funds were vended through a broker, who provided advice, assistance and ongoing service to the buyer. The unit holder paid for these distribution services through a front-end sales charge when he bought the fund. Funds sold through finance professionals such as brokers have since adopted alternatives to the front-end sales charge. The alternative payment methods typically include a fee based on assets that may also be in combination with a front-end or back-end sales charge. In many cases, funds offer several different share classes, all of which invest in the same underlying portfolio of assets, but each share class may offer shareholders different methods of paying for broker services. With the expansion in distribution channels, many fund sponsors have moved from single-channel distribution strategies in favor of multi-channel distribution. The changes in fund distribution have been accompanied by a significant decrease in the average cost of distribution services incurred by mutual fund buyers. The decline in distribution costs reflects a variety of developments, including competition between funds, expansion of the 401(k) plan market and other markets with low distribution costs, and increased availability of lower-cost advice to investors. Presently funds are sold abroad through five principal distribution channels: 1. Direct channel, 2. Advice channel, 3. Retirement plan channel, 4. Supermarket channel, 5. Institutional channel. The first four channels primarily serve individual investors. In the direct channel, investors carry out transactions directly with mutual funds. In the advice, retirement plan and supermarket channels, individual investors use third parties or intermediaries that conduct transactions with mutual funds on their behalf. The most important feature of
the advice channel is the provision of investment advice and ongoing...