MFs eye opportunities in smaller centres

New Sebi incentives may trigger localisation of the industry.

B M Varma was among the first employees of Kothari Pioneer Mutual Fund, the first private sector fund house in the country. After close to a decade, Varma, (name changed on request) moved to greener pastures in the booming life insurance industry, where he handled the agency distribution division for several years in different capacities.

After the recent regulatory changes, the MF industry is the place to be, he says. He is talking to a couple of fund houses for a senior role in marketing.
 

FILLING THE GAP

• Last year, Irda had put restrictions on the commissions payable by life insurance companies
• Many companies which had expanded aggressively closed branches and retreated from smaller towns
• Fund houses look to move into this vacuum
• Sebi also wants funds to go to smaller areas
• The new incentive package will give the much-needed push, fundmen say

“Life insurance companies are pulling out of tier-3 and tier-4 centres. In the past year or so, over 2,000 branches have been closed and 50,000 people asked to go. On the other hand, MFs have hit the roof in their existing markets of 10-15 cities. They have no option but to go to smaller centres if they have to grow,” Varma said at the Business Standard Fund Cafe, where he had come to listen to top fund CEOs discuss issues and trends.

Some fund managers and marketing heads feel there is a vacuum created by the exit of the life insurance agents and employees, especially in the smaller towns, and MFs are placed ideally to move into this space. This is where the recent move of the Securities and Exchnage Board of India for a '150 charge per transaction to the distributor has game-changer potential, feel fund industry watchers. “The charge amounts to 1.5 per cent of a '10,000 transaction. Add to that the 50-75 basis points paid by the fund house. It is as good as the old entry load, which was capped at 2.25 per cent,”explained a distributor.

At the BS Fund Cafe, Sundeep Sikka, CEO, Reliance MF, described the Sebi move as great for the industry. “It will ensure the penetration of MF products in smaller towns,” he said.

Enterprising distributors are already reaching out there. Etica Wealth Management, which deals in several financial products, including life insurance, recently conducted a camp at Jorhat in Assam and enrolled 75 investors in systematic investment plans. Gajendra Kothari, its managing director, said there was a lot of interest about MF products in the smaller towns. “There is neither scarcity of money or the will to invest. There is a lack of knowledge, which we are trying to bridge. We had a successful camp last week, where we enrolled 75 and we have been invited to conduct another,” he said.

Varma says even the weather is perfect this year. “With the rains being good, farmers will have money in their hands all through the next year. It's the perfect time for mutual fund CEOs to go for the kill.”

Some fund houses have already started taking the message to the local independent financial advisors (IFAs). T P Raman, managing director, Sundaram MF, said while the transaction charge was not an end in itself, it was a step in the right direction. “We are telling the IFAs, now that you have got this, where your expenses get recompensed, it's time to take things a bit more seriously.” New Sebi incentives may trigger a localisation of MF industry, hope marketers.