A study by SEBI’s Development Research Group caught my attention recently. Titled, Penetration of Mutual Funds in India: Opportunities and Challenges, it had been authored by a group of four individuals: two from SEBI, and two from the Indian School of Business, and had been released in February, this year. A quick flip through it gave me the impression that it was just another study by people who were disconnected from the ground realities of the business. But towards the end, there was a section that made me sit up and take notice.
I realized that it offered a perspective on what fund houses thought about the way forward for the industry, particularly on enhancing the reach/ penetration of mutual fund schemes. The authors had, apparently, questioned fund houses on issues that, they thought, impacted the sales of mutual funds. Against each issue, fund houses were expected to choose one of five responses: ‘Strongly Agree,’ ‘Agree’, ‘Neutral,’ ‘Disagree,’ or ‘Strongly Disagree.’ The responses were then summarized to show the percentage of fund houses that agreed, disagreed, or were ‘neutral’ to each issue. While summarizing, instances where no responses were given were included under the category, ‘neutral.’
As I looked at this summary, two things struck me. Firstly, it was evident that on none of the issues was there a consensus view across the industry. Secondly, on a number of questions there were, in my opinion, far too many ‘neutral’ responses. I could understand a ‘neutral’ response to some questions, but in the case of certain questions, such a response seemed inexplicable. Yes, it could have also been that the fund house did not offer a response to that question but then that, too, was incomprehensible. I recognize a fund house’s choice to not offer a view but given that this came from SEBI and benefits the industry, why would one make that choice?
I give below some of the issues on which opinion was sought, along with the responses. To enhance readability, I have paraphrased the issues as questions.
Is the quality of distributors a challenge in selling mutual fund products?
I would have thought that the response to this question would be a near-unanimous ‘Yes.’ Well, 62% of fund houses thought it was a challenge, while 9% didn’t. Intriguingly, 24% of fund houses were ‘neutral.’ This could only mean that they had no view on this relatively straightforward issue or chose not to offer a view. (PS: These numbers are reproduced as in the report. This is one of multiple instances where the responses do not add up to 100%.)
Do the certification courses by NISM for distributors need improvement?
I don’t know what the authors meant by ‘certification courses’ or whether they meant the certification examination. I’m guessing that the fund houses must have sought and got a clarification. Irrespective, I was astonished to see that 40% of the fund houses were ‘neutral.’ Once again, this is a straightforward issue and I can’t figure out why a fund house would have no view on this or choose not to offer a view. To me, the only plausible explanation is that they had no clue about the contents of the certification course/ exam. For whatever it is worth, 37% of fund houses felt improvement was needed while 20% felt it wasn’t.
Are the current limits for incentives/ commission a constraint in recruiting quality distributors/ agents?
Again, I am not sure what limits are being referred to. I was puzzled that 20% of the fund houses were ‘neutral.’ I was also surprised to note that 63% of fund houses felt that these limits, whatever these are, were a constraint.
Regardless of reasonable incentive/ commission, is it difficult to recruit sufficient number of qualified distributors?
29% of fund houses were ‘neutral’ on this. Once again, it baffles me as to why so many fund houses would not have an opinion, as this would be a core part of their sales strategy. The remaining fund houses were divided. 49% of them felt it was difficult while 20% of them did not think so.
Would the facility of investing in mutual funds through an ATM machine boost investments?
I can’t visualize anyone taking the trouble of going to an ATM machine and making an investment. But this post isn’t about me, it’s about what fund houses think. Going by the responses, 40% of fund houses shared my view but 34% of them felt it would, indeed, boost investments.
In case you would like to see the complete study, it can be accessed here.
