Mumbai: The chairman of the third-largest mutual fund (MF) in India, who manages about 11% of the Rs3.5 lakh crore that Indians have invested in MFs, will visit Mhaswad village, a 90-minute drive from Satara, a town in western Maharashtra, to welcome 2,000 new investors into his company’s fold.
The investors aren’t high net worth individuals—a term becoming increasingly popular in India’s banking and financial services circles. The women, members of a cooperative called Mann Deshi Mahila Sahakari Bank, could invest just around Rs200 a month in the fund’s micro-pension plan.
For U.K. Sinha, chairman and managing director, UTI Mutual Fund, that’s significant enough. The 2,000 new members will constitute another milestone in his quest to take MFs to India’s masses. “About 80% of the new assets garnered by the industry, excluding UTI, is from eight cities (the four metros and Bangalore, Hyderabad, Ahmedabad and Pune). How can we say we are representing the whole country?” asks Sinha.
The women from Mhaswad will join 40,000 dairy farmers from Bihar, 25,000 self-employed women of Shri Mahila Sewa Sahakari Bank in Gujarat, 500 casual labourers of the Paradip Port Trust, and 5,000 farmers from Tiruchirapalli in Tamil Nadu, who are all investors in UTI Mutual Fund.
Over the past year, Sinha has criss-crossed India, wooing retail investors in rural areas. The former joint secretary in the ministry of finance is not happy with the fact that most MFs concentrate their efforts on the metros. His effort, he believes, is as inclusive as it will be profitable in the long run. “I’m a believer in the ‘bottom of the pyramid’ philosophy,” says Sinha referring to an idea, first propounded by management guru C.K. Prahalad, which says companies can flourish by selling tailored-for-them products to the poor.
UTI Mutual Fund has around 100,000 investors from rural areas for its pension plan who account for just around 1% of the Rs500 crore corpus of its pension fund. It hopes to add a million more investors to the scheme this year.
At Mhaswad, Mann Deshi Mahila Sahakari Bank will collect small amounts of money every month from these members and give a consolidated cheque and details of individual contributions to UTI Mutual Fund for investment in the UTI-Retirement Benefit Pension Fund.
The fund’s objective is to provide a regular income to investors after they reach 58 years. The scheme invests a minimum of 60% in debt and the balance in equity. However, the investment in debt instruments can go up to as much as 100% of the total corpus, depending on the discretion of the fund manager. The average return offered by the scheme is around 12%.
The cooperative itself has 40,000 members, all women, and is run by women. It was founded in 1997 to foster financial independence among women in the drought-prone area of western Maharashtra.
By catering to investors such as the women from Mhaswad, UTI Mutual Fund’s immediate profitability may suffer. Sinha admits that “temporarily, UTI will have a setback”, but adds that he is “ready for that”.
MFs usually avoid tapping investors in the segment UTI Mutual Fund is looking at simply because it is economically unviable to collect and administer investments as low as Rs200 or Rs500.
But Sameer Kamdar, country head (MFs) at Mata Securities, a fund distributor, said that although fund houses have to start looking at smaller cities and rural areas for investors, not all will do so immediately. “Funds need to spend hugely to reach out to the rural retail. We won’t see all players spreading across rural India overnight,” he added.
UTI Mutual Fund’s focus has traditionally been beyond the large cities. In its case, the four metros and Bangalore, Hyderabad, Ahmedabad and Pune account for about 25% of its corpus; 50% comes from smaller towns and cities. It has direct representatives in 360 districts and 25,000 independent financial advisors in 4,000 towns. Sinha is confident that devising software and business processes to deal with small-value investors will help the company in the long run.
The MF industry took off in the US in the 1980s after pension plans were allowed to invest in them. Now, 40% of the $8 trillion corpus of the industry in the country comes from pension funds. “In our case, it is zero. There is huge potential to expand our investor base,” said Sinha.