Two key ingredients for penetration of any financial products are – Awareness and Access. Awareness ensures that people, in general, know about the product and its features that can take care of their specific needs. Access ensures people interested in serving some of their financial needs, through a particular product, can execute the transaction promptly. The absence of both or any one of the two ingredients will result in the masses not being able to adopt the product.
In the case of mutual funds, till a few years back, both ingredients were missing, which resulted in extremely low penetration beyond the top 15 cities. About 85 per cent of the assets under management were contributed by these cities. However, things started changing on the Awareness side with many industry initiatives. The regulator, Securities, and Exchange Board of India mandated mutual funds to set aside some corpus for conducting investor awareness programs. Then we had the ‘Mutual Fund Sahi Hai’ campaign by the Association of Mutual Funds of India (AMFI) during cricket matches, which became a talking point. Media, in general, has also covered the benefits of mutual funds in a variety of ways. All these have helped build awareness but still lot of ground needs to be covered.
However, Access remains severely constrained even now. Most of the traditional financial services firms have focused on selling to high-value customers in bigger cities, as the costs of reaching out to masses in smaller towns are higher compared to expected returns. Even the number of distributors that provide mutual funds as product options remain much lower compared to other products.
As per an industry estimate, there are about 1,00,000 registered mutual funds distributors, of which only 60-70 per cent are active. Compare this to an estimated 20 lakh agents selling insurance. Bank branches, which play important role in providing access to financial products, are also not too enthused selling mutual funds and focus more on the traditional deposit products or insurance. Recently, online platforms have enabled access to some extent as anyone sitting anywhere can carry out the transaction. However, a very small percentage of our population can go online and complete the process of investing, that too in smaller towns.
So, if you meet someone living in a small town, in all probability, he/she may not be aware of the benefits of investing in mutual funds. Even if they know about mutual funds and want to invest, they will likely not be sure how to go about completing the process. Research on consumer products shows that too many options and delays in transaction fulfilment can lead to buyers deferring the purchase. The same applies to financial products like mutual funds.
by Anurag Garg, CEO and Founder, Nivesh.com