Shyamal Banerjee/Mint
Shyamal Banerjee/Mint

Can fund houses communicate with distributors the right way?

Unless MFs change the way they communicate, it will continue to attract the wrong sort of investors

As equity markets rise again after years of volatility and uncertainty, it’s important that investors invest in mutual funds (MF), especially equity schemes, for the correct reasons. Therefore, it is critical that fund houses communicate the right kind of message to investors and not just throw literature at them about why their latest new fund offer (NFO) is the best thing in town.

All’s not lost though. Axis Asset Management Co. Ltd has put together a programme, called Shubhchintak, to help distributors become financial planners in a manner of speaking. The concept allows distributors to focus on goal-based planning and not just on selling the next hot product. Targeted at independent financial advisers (IFA) who wish to offer value than just form-filling, this is a web-enabled platform that allows them to capture key investor details and then formulate a financial plan, based on various goals.

Conceived by Axis AMC, Shubhchintak’s infrastructure is taken care by FINFRA (erstwhile, Ffreedom Financial Planners, a Mumbai-based wealth management firm). IFAs have to pay a nominal fee of 599 a month to FINFRA; the MF will absorb the bulk of this cost.

But it’s more than just a website. Based on the inputs—and the distributor’s assessment of the investor’s goals—she recommends products. Advisers are free to sell any MF scheme as part of their solutions. They aren’t obliged to recommend products of any particular fund house. She can even recommend insurance plans if she feels that her clients are underinsured. The distributor’s data is stored with FINFRA and Axis MF does not have access to the advise given by them.

The second example is that of JP Morgan Asset Management Co. Ltd. Putting its global research team to use here, the fund house publishes its global markets review in a mini-book format. Called Guide to the Markets (GTM), which it gives to its distributors, the book consists of charts and graphs explaining global markets and crunches various country-specific data to better explain their economic scenarios. The MF now has an iPad app of this book, which distributors can make use of when they talk to their investors.

With 70 pages and numerous graphs and charts, the book might look intimidating to many distributors who need the use of simple language to better explain to their investors why they should invest in equity or debt or balanced funds (categories, not individual products). The app gives them the freedom to select as many charts as they want to make a customized presentation (could be as few as 3-4 slides or pages).

Moreover, the MF’s international team now visits India every quarter to address a gathering of distributors across metro cities soon after the book for the quarter is launched.

The idea, though, is not to intimidate. Tools such as the book and regular interactions with its authors allow distributors to improve their knowledge and awareness. A better understanding leads to better message delivery.

More effort is needed. Prakash Praharaj, a Mumbai-based distributor, complained to me the other day that he could not find the right person at HDFC Asset Management Co. Ltd to explain to him why two of its marque schemes, HDFC Equity Fund and HDFC Top 200 Fund, went through a rough patch till the end of 2013. To be fair, fund managers like Prashant Jain of HDFC AMC and S. Naren of ICICI Prudential AMC are known to talk to distributors frequently. For most part of the industry though, communication leaves much to be desired.

Fund houses still advertise dividend declarations (as if that’s why you should invest in a fund) and even future bonus declarations by way of Excel illustrations (on blank sheets to avoid trace, no less!) in the hope of attracting investors who wish to do bonus stripping.

Some distributors have taken the lead to send across right messages. IFAs use WhatsApp, a popular messaging service, to send messages these days. From nudging investors to gift their sisters a systematic investment plan (SIP) as a Raksha Bandhan gift to demonstrating the example of how a certain layman, Mr. Chatur Prasad, could spend 1 crore on his daughter’s wedding. The answer, according to the message? He had invested 100 a day, everyday for the past 19 years, in HDFC Equity Fund; that grew to 1.27 crore in July 2014.

Unless fund houses change the way they talk to distributors and investors, the industry will continue to attract the wrong sort of investors who’ll end up with sour experiences.