For many years now, the classic argument in favour of more investors choosing mutual funds as an investment vehicle has been simple. Low penetration, increased level of financial savings, decline in availability of traditional government savings products, increased investor awareness, and fund performance is the heady cocktail expected to lead to a quantum leap in the number of people choosing to buy mutual funds.
Every bull market cycle leads to predictions that the quantum leap is now going to happen. But unfortunately everyone discovers post the cycle that the leap has only been incremental, and much of the increased penetration has been amongst existing investors.
Will this cycle be any different? If the answer is to be yes, what can the distributor community do differently to make sure that there indeed is a quantum leap in investor numbers this time around?
Whilst there are no easy solutions, I thought I would list a few, which at first reading may seem basic, but may work more than the complicated solutions that seem more obvious at times.
Keeping it simple
Often, we tend to start a conversation, even with prospective first-time investors, with terms like financial planning and long-term goals. While this is well intentioned, it often creates the perception that mutual funds are complicated and not for me. It would be better to restrict oneself to basic terms like saving and investing and explain the associated risks in a simple manner. Talk about funds as a credible and better alternative to what the investor is currently used to investing in.
Another aspect to consider is keeping the focus narrow. There are many types of funds, and very often, we end up talking about all of them, in the hope that one of the products may appeal. A better choice may be to understand what the investor currently invests in, and focus on one or two simple fund alternatives that will suffice. Once the investor gets comfortable with mutual funds as an investment product and starts to invest, it is probably more appropriate to broaden the discussion to involve the need for a financial plan and risk profiling.
Share of wallet
We can draw many lessons from the way most private sector banks in India approach the customer. The focus is always on broadening the relationship, and moving the customer to think beyond just deposits and loans. In much the same way, we need to look at the investor as not just someone who invests in equity or debt funds, but someone whose entire investing experience needs to migrate over time to the distributor/adviser. In that respect, I find the role of a liquid fund is often ignored. We see it as a vehicle only for larger clients, as smaller amounts tend to be less material both from an investor return as well as from the adviser revenue standpoint.
However, if one focused on this purely as a savings discipline, and have most of our investors start an SIP into a few liquid funds from their monthly surpluses, you will have greater control on the client’s investment wallet.
It may sound naïve, but as an example, I have often found that it is easier to convince an investor to shift into an equity or debt fund from his existing liquid fund, than convince him to make a fresh investment per se. Moreover, on a lighter note, this is perhaps the one investment product, where you are almost guaranteed to beat the alternative, i.e. the savings bank account interest.
Digital
Increasingly seen as the sure fire solution to change investing patterns at an unprecedented scale. However, I remain a traditionalist in this respect.
Funds will always remain a push product, and making it super convenient, or easily available, or putting out all possible information at the investor’s fingertips is not going to change investing habits to a level that investing becomes the next logical step. As per reports, over 70% of online purchases consist of mobiles, apparel and consumer durables. It is one thing to buy a mobile or a laptop online, and quite another to invest a large sum of money, only relying on digital resources. Digital is much more than just e-commerce though, and there are aspects of digital that can make a big difference.
Take for example ‘Digital Intelligence’. If we were to look at some of the largest e-commerce platforms in India today, behind the convenience, product availability and discounts, is the extensive use of analytics to target each customer based on his or her consumer behaviour. It is possible to translate this onto our customer platforms as well.
For instance, do we know who amongst our customer base is more inclined to invest more in equity in a market dip based on past behaviour? How many of them have cash flows coming in from maturities of prior deposits or bonds over the coming quarter or year for that matter? More importantly, what do we do with this information?
Using digital to reach out to your customers at the right time, with the right proposition can be more valuable than the use of it to create investing convenience or better financial planning tools, or aggregate portfolio information. To my mind, the latter will become basic hygiene factors in the customer relationship, but using digital to change the way we interact with our investors will have a much greater impact.
And so....
Only time will tell whether this cycle is that moment in history wherein distributors are able to make the quantum leap in terms of a 10x or a 100-x jump in terms of new mutual fund investors.
However, when one looks at the kind of work that is happening in the distribution of investment products over the last few years, and recent data on retail flows, this could very well be that moment.
The above article is written by the author in his personal capacity and may not reflect the views of the organization he represents.
