New Delhi: Just one out of seven people with savings in 2007 were aware of mutual fund opportunities, illustrating the difficulty asset management companies, or AMCs, face in signing up new investors after the stock market recovers, according to a report by the research firm IIMS Dataworks.
The Bombay Stock Exchange’s key sensitive index, or Sensex, has declined more than 28% this year on rising prices which pushed inflation to a 13-year high, increasing interest rates and slowing foreign investment in equities.
According to the Association of Mutual Funds in India, total assets under management in June were Rs5.65 trillion, down from Rs6 trillion in May, as investors fretful of market volatility cashed out.
The number of retail mutual fund investors before the market downturn was a little under six million, said the IIMS Dataworks report, based on its 2007 “Invest India Incomes and Savings Survey”. Many new investors would have been scared off by the volatile markets, it said.
“Once the market does eventually bottom out, retail investor interest in mutual funds can be expected to resume and perhaps more aggressively as share values that sit behind funds may appreciate quickly after that time,” it said. “As that point is almost certainly approaching, this is the correct time for AMCs to be preparing to remobilize the market..”
But, the low level of awareness of mutual fund investment opportunities is a hurdle asset managers need to leap over. Awareness is the highest in the metros where nearly half of all savers know about mutual funds; nearly one in three of the so-called aware group had also invested in mutual funds, it said.
“There is a huge portion of India which is yet to participate and be a part of the mutual fund bandwagon,” said Kalyan Karmakar, associate director, customized research at the market research firm Nielsen Co.
Mutual funds have caught on particularly in states such as Gujarat and Maharashtra in the west, and in northern India, but investors in the east and the south tend to focus on land and gold, respectively, said Karmakar, who expects the mutual fund industry to bounce back when equities start rallying.
Mutual funds are a favourite investment tool for services sector oriented customers and professionals, he said.
On a state-specific basis, the rate at which the aware population invests in mutual funds varied from a high of 47% in Haryana to a low of 3% in northern hill states, according to the survey.
Haryana and Madhya Pradesh also stood out because their aggregate awareness levels were low at 15.5% and 13.3%, respectively, but conversion rates of aware population to mutual-fund investors were highest. In Madhya Pradesh, 37.7% of aware investors put money into mutual funds.
“AMCs would also be well advised to target more of their sales efforts at middle income groups with annual incomes in the Rs2.5-10 lakh range as the conversion rate of the aware population in this income band is a very healthy 50%,” IIMS Dataworks said.
“While investment ticket sizes from this group would be lower than is the case for higher incomes group, the fact that the group is numerically significant means that aggregate investment would be very high,” the research firm said.
Mutual fund customers source their information mainly from agents, bank distributors or newspapers, according to the report, which found that these channels are “as much a part of the problem as they are a part of the solution”.
“Individual AMCs are reluctant to invest in agent training beyond the mandatory certification requirement owing to the fact that the agent workforce is not tied to particular AMCs,” the report said. “As a result, agents and bank staff are not well placed to situate mutual fund investments in the wider suite of financial needs and priorities that customers have.”
Until AMCs come together to fund improvements in agent training, expanding the retail investor base to “a truly significant size will remain problematic, a curious result at best given the relative investment attractions of mutual funds compared to most other savings and investment options,” said the report.