Ashutosh Bishnoi, MD & CEO, Mahindra Mutual Fund, in a free-wheeling conversation with RupeeIQ talks about the opportunities and the challenges of getting investors in small towns to invest in mutual funds
Smaller towns are increasingly participating in the Great Indian Mutual Fund Story. As a fund house, Mahindra Mutual Fund was started with the express objective of going into smaller towns. Otherwise, it makes no difference when you are the 40th player. Mahindra Mutual Fund’s MD & CEO Ashutosh Bishnoi in a free-wheeling conversation with RupeeIQ’s Kumar Shankar Roy talks about the opportunities and the challenges of getting investors from small towns to invest in mutual funds. With over three decades of 34 years experience in the consumer marketing and financial service businesses in India, Bishnoi understood that what works in urban cities may flop elsewhere. Early into the journey, Mahindra has found a partner in Manulife, which is bringing capital as well as expertise into the business that aims to take mutual funds to a billion people. Read on to know more.
We started the AMC with a very clear objective that we want to go to smaller towns. Wherever there is a Mahindra footprint, we wanted to go there. It has been an interesting journey since inception. One of the insights that we have come across is that in the small towns there are IFAs (independent financial advisors) only who are the carriers of mutual fund product. There is nobody else. There are no banks, no national distributors, etc. Many of the IFAs, who were selling FDs or life insurance, are now also selling MFs. For us, the 95% of our retail money has come through 11,000 IFAs.
The other thing is because we have chased smaller towns, we get money from 400 cities. It is not B-30. Now, we are running into a roadblock. Because beyond the 400, there are no IFAs. How do you go further beyond it? We are doing a lot of thinking on it about how to create a network for the locations beyond the 400.
The choice of the products is driven by IFAs. Our experience shows that investors in smaller towns invest in equity MFs. It is not very different compared to other locations. One thing we have seen is that if the prominent persons of the town invest, more people tend to follow them. This is probably because those persons are influencers. We have 165,000 folios and unique folios are 145,000. The number of unique folios is higher. Compare that to the MF industry, unique is 2 crore out of roughly 8 crore. This is because chances are high that we are going into first-time investors.
It was by design. In fact, I can even tell you that a lot of my own team was not initially happy because they had never seen it. The reason behind naming the mutual funds in that way was very simple: we have to sell them in smaller towns and they are not comfortable in English. People in smaller towns speak English only when they are forced. They are a little embarrassed about it since they think they don’t know the language well enough. The English language is actually a divider over there. Sometimes, they even consider people who speak English as somebody who is pompous. I didn’t want to be that guy, because people would stop listening only. The second thing is that we cannot make an emotional pitch in any alien language. So, we have to speak their language.
Our mutual fund products are not allowed to be translated. FMCG businesses have been very clever about marketing. Lux soap is ‘Filmy Sitaron Ka Saundarya Sabun’. We don’t even know what is the English translation of that tagline. But, it works.
Having said this, we had to do some tweaking as we went along because in South India there is a problem. They don’t accept Hindi as much. So, we created a hybrid: Unnati Emerging Business Yojana.
We had announced this at the end of June 2019. We have signed the agreement whereby 49% of our company will be owned by Manulife. As Mahindra, we are very keen to bring investment products to our customers but we have to recognise that the core expertise of Mahindra as a house is automotive. If you wish to build a really large business, you must draw upon the tried and tested core expertise of the business. You can say I will get a team together. It is better to have very deep expertise available to you on a sustained basis. Investors are changing, markets are changing. Asset classes are growing, the Indian MF industry is already into commodities and I expect at some point in time currencies will walk into our fold. So, we felt that we need to have the expertise and we spoke amongst ourselves and Mr. Mahindra (Anand Mahindra). We all felt that we bring expertise at an early stage.
Mahindra is a strong brand and so we wanted a strong partner. We carried out a search. It took us almost a year and a half to find a partner. One of our requirements was that the partner must have deep experience in multiple product categories. Manulife has expertise in bullion, real estate, life insurance etc. Plus, we have a good cultural fit with Manulife. They were looking to be in India for almost 5-7 years. They wanted somebody who would have a great brand and would go into deeper markets in India. They are already in Asia. Manulife sells five-dollar ticket size mutual funds in Indonesia.
Now that we have a partner, we want to study what strategy they have taken to these kinds of markets: did they use passives or brought in simple products. Manulife has different experiences from different markets such as Vietnam and Indonesia. I am very mindful of the fact that many of our potential customers don’t want to get into details. The more detail they get into, the more complicated it gets. It is not just about passives. They have done quite a few interesting things. For example, they took a Singapore REIT (Real Estate Investment Trust) and one domestic equity fund into one sleeve in one of the geographies. They sold it as a packaged mutual fund product. I think gold is underplayed in India. Gold is a large investment category for Indians. Somehow as an industry, I think we are not able to tap into the gold market successfully.
In passive products, there are some problems. While we take investments as low as Rs 500 or Rs 1,000, a passive product is essentially about replicating an index. Unless you can copy the index properly, tracking error develops. In a passive product, unless the money comes in in significant quantity, one (the fund house) keeps on accumulating cash and then does the investments. This gives the fund a tracking error. Plus, the margin is too wafer-thin and so distributors may not be that interested in selling a passive fund. If I run an ETF for 50 basis points, there is hardly much to give to distributors given that there is an expense for running the ETF, the fund-house also gets something. Distributors will not take that product for millions of people for 25 basis points, assume I give them 25 bps.
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