25 years of private sector MF: Rearranging the pillars

With the advent of private sector players in 1993, it appeared that the mutual fund (MF) industry had come of age. Of course, there were apprehensions regarding how investors would respond as they perceived public sector MFs to be safer bets. Besides, unlike their public sector counterparts with a wide network of agents spread across the  country, private sector players had to build their distribution network from scratch. 

Since this was going be a daunting and time-consuming process, they relied mainly on initial public offer (IPO) brokers initially for distribution of their products. The focus, clearly, was on quantity rather than quality. The only thing required to be done was to get registered with a fund house and one was ready to sell. MFs were bought and sold as IPOs and many eager investors had little idea about what they were letting themselves into. The mismatch between unrealistic expectations and reality made investors shun closed-end funds. The MF industry had two options; either to wait for a change in perception or actively win back investors’ confidence. The industry chose the latter.

MFs then focused their attention on open-end schemes and adopted a two-fold agenda: Train the existing distribution channels and develop newer ones to attain wider reach. Gone were the days of IPO-like launches where funds printed the forms and distributors did the rest. With the traditional methods of marketing becoming less effective, the focus shifted to other channels like banks and independent financial advisors (IFAs). While banks and national distributors had an existing client base to cross sell mutual fund products, IFAs worked diligently to reach out to investors to get them into the industry’s fold. 

The emergence of robo advisors has transformed the landscape of MF distribution over the past few years. While the ever-evolving distribution network augurs well for MF industry’s growth, only those channels that add value to investors’ investment process will flourish. Simply put, it will be the survival of the fittest!

The writer is chief executive, Wiseinvest Advisors