Fair & Lovely Mutual Funds

Savers are not interested in investing in mutual funds. But instead of trying to find out the real reasons, the fund companies seem to think that if they use marketing gimmicks like consumer products companies, they will be able to expand their reach, rather than simpler products and actual performance


The mutual fund industry, which is facing continuous erosion in equity assets for several years now, is clearly worried about its survival. Some desperate measures were discussed at an industry summit in June to meet the objective of ‘reaching out to a larger number of investors’ and focus on ‘investor education & awareness’. The industry believes that its problem lies in the fact that 74% of its market is concentrated in just five cities, so it engaged PriceWaterHouse (PWC) to come up with solutions.

Typical of consulting firms, PWC held out the promise of ‘big opportunity for growth and further penetration’ and offered some neat, if fanciful, solutions that are attractive to companies with spending power but no ideas. PWC’s suggestions were:  to market mutual funds as a ‘concept’; use ‘social media’ to spread the word; and use ‘mobile banking’ which could be a potential game-changer in marketing mutual funds. Let’s examine each of these.

Fair & Lovely Mutual Funds: Since a speaker from Hindustan Unilever was invited to tell the industry how to sell mutual funds like personal-care products, let us look at the hottest-selling ‘concept’ created by such companies. Giant multinationals spend crores of rupees every year to tell Indians that being of fairer skin should be our ultimate goal and desire. If you are fair, you are immediately more beautiful, more confident, have more friends, get the best jobs and attract better partners, is their message. In recent years, they have expanded this ‘concept’ to men and doubled their market. Prominent media houses ‘help’ to promote the ‘concept’ of metrosexual males who are unembarrassed about using an array of cosmetics. Such editorial promotions are now part of advertising deals.

More importantly, these companies have no qualms about making claims that are outright false or misleading. They routinely launch products with blatantly false and bogus claims about making your skin X-times fairer, your hair Y-times stronger or use tags like ‘guaranteed’, ‘best’, ‘100%’ and ‘herbal’. They also file complaints against each other’s products which are regularly upheld by the Advertising Standards Council of India (ASCI). The offending ad is withdrawn for a few months until another outrageous ad takes its place. Since ASCI is not a statutory regulator, it remains soft in dealing with ‘habitual offenders’. After all, media and advertisers are beneficiaries of big advertising budgets. What about consumers? Why don’t they protest? Well, because these nicely perfumed gels and lotions may not make you fairer, but they are harmless; they moisturise and they allow people to live in hope. In other words, the consumer is a willing sucker in this case and there is little harm done.

Can mutual funds (MFs) try to sell their schemes like fair & lovely? MFs have an obligation to perform. If an MF scheme, over a period of time, gives you low or negative returns, it hurts your financial future. It is not harmless.

Sell MFs through Mobile Phones? Before you say: ‘What an idea sirji’, pause and think. True, India has a mobile subscriber base of 900 million, but using phones to invest, exit and redeem funds? What do you do about a regulator whose complex KYC (know your customer) procedures make it a hassle even to buy online? Moneylife has been researching the online subscription process offered by leading distribution companies and has come to the conclusion that it is so cumbersome that only net-savvy and dogged individuals would use this option, especially for first-time subscription. If the entry to mutual fund investment is difficult, how can mobile phone transactions make it easier? And who will MFs target for mobile transactions? If it is the affluent class in smaller cities and towns, then access to information is hardly a barrier. Surely PWC does not expect the non-urban poor, who have low income and savings, to use mobile banking to buy mutual funds?

Social Media for Mutual Funds: PWC suggests that mutual funds should use social media for product innovation, customer services and real-time information with the aim to create unique solutions and experiences. Creating twitter handles or facebook pages only works when handled well and for companies that deliver on their promises. It can be brutal and enormously damaging when a company has poor service, grievance redress mechanism or couldn’t care less for customers, which is often the case.

Consider just one example. HDFC Mutual Fund is consistently among the best performers in the industry and HDFC Bank is certainly the best in terms of its stock price and profitability. But check the Bank’s @HDFC_Cares twitter handle and you find that it is a magnet for angry customers to vent their ire. In fact, it would probably do well to avoid a possible negative rub-off. Social media is completely democratic and there are plenty of global case studies to show that the impact of hundreds of instant opinions (including false and uninformed ones) can devastate a brand.  

The best advice that PWC can give MFs is to focus on performance and pay attention to consumer needs instead of launching products only to enhance assets under management. The investment will come.

Comments
SuchindranathAiyerS
9 years ago
Indian Mutual Funds are influenced, like the rest of India, by Government Policy. The first assumption in India, based on experience with India's vote fodder for sixty five long years is that most Indians are dumb. Indian governance proves this conclusively. However, the target segment for mutual funds are not the vote fodder, notwithstanding Rajiv Gandhi's Yojanas. They are the persecuted middle class who are staring a trebling of their cost-of-living in the face thanks to Congress (You pay too) insouciance, corruption and profligacy.
Peddareddy Rajasekhar
9 years ago
With the recent regulations on expense ratios, all AMCs have happily increased the expense ratios of all the schemes. The stock funds with more than Rs 10,000 crores AUM have also increased beyond 2% per annum i.e. more than 200 crores of investors money for fund house from this scheme alone. There are no stock mutual funds now in the market where expense ratio is below 2% per annum. If AMCs are so greedy to cut from investors money, how will the returns happen to investors. If stock markets remain flat for the next few years, there will be no investors in the stock funds as everybody will see only losses. But, AMCs would have collected lots of money!
DB DESAI
9 years ago
Engaging marketers of fmcg products to enlighten mf industry is a sing of lack of ideas within the industry. Growth is important but not the way suggested by fmcg people and you are right in expressing the reservations. It is also true that regulators have made a big mess of the industry and it all started from Mr. Bhave's time. A recent article in Business Standard ( I may be incorrect) and an interview of Mr. Sethuraman Iyer, Ex CEO of Diawa Mutual fund is worth reading and considering by all concerned. Rural penetration is very very easy but not with the mindset of so called consultants and CEOs who have actually not seen rural market in their life. It can not be learned from movies and ad campaigns. It has to be lived.
Deepak Sholapurkar
9 years ago
MF is slowly going on a suicidal path. AMFI and SEBI not doing any thing for this. May be everyone wants Mutual Funds to die a natural death and high commission yielding ULIPS to prosper.
Siva
9 years ago
Haha... consultants!! How can people keep a straight face while looking at their suggestions. PWC if u are listening, I have one more brainwave for your report, how about awarding MF units free along with train tickets and making all the Ticket examiners as MF agents!! The passengers are anyway stuck in the train for so many hours, the TTEs can use that time to EDUCATE them regarding MFs. What say Mr Consultant?? Pls post my consultancy fee check.. :)
Arun Mehta
9 years ago
One only have to dread what will happen when more Financial/Industrial Houses get Bank licences and "M/F Market " will get charged up as a full no holds barred market putting even the 'Fair and lovely" market look a kids game.
Ramesh Poapt
9 years ago
Since 2008 crash, investors fear for the loss.Volatility to stay quite long yet.Even Balanced fund category gave very good loss in 2008. Govt hard presses Eqty culture. But for next 3 yrs at least,if Balanced fund with minimum eqty 45-50% is considered as eqty funds,then there can be less fear of much loss.=after one year, gains to be taxfree.In my opinion, we can get much more retail participation in MF.
Nilesh KAMERKAR
9 years ago
To put it mildly, the regulations that govern the MF industry are just not Fair and Lovely. Even a FMCG giant like HUL may struggle to survive in similar conditions.

And a consultant must be first made to acquire 1000 retail folios per town from 100 towns . . . before they make their expensive recommendations.
vivek khare
9 years ago
Well said Money Life. No body wants to go to the root cause of the problem. Every body is interested in milking an urban cow. No AMC wants to walk an extra mile and try and sell the products to the urban poor who are totally unaware of the MF as an investment vehicle. Unless n until we try and get masses (inclusive growth as some politicians put it)with us the industry will remain at the same place leave aside the market impact on the funds.
DEEPAK KHEMANI
9 years ago
With a deaf regulator who refuses to listen to reason and mute AMC's who just nod to everything the regulator says what else does anyone expect?
Unless the schemes are made simple and easy to understand, easy to invest, easy to withdraw, only the existing HNI and limited retail investors will continue to switch across schemes and the AUM will remain as it is.
Anil Agashe
9 years ago
As a friend who was Company Secretary in a MNC used to say," All consultants tell you things that you know or know are not workable; for a fat fee. They are mostly MBAs wear a tie and make good PPTs the value of which is zero"
I think kiranawalas if trained well, will sale MF products better than all MBAs recruited to do this job!
The truth is no fund house wants to do the hard work required. They only want to sale to HNIs and investors who already know.
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