Friday, February 28, 2014

Fund houses want post offices to distribute mutual funds

Dear Comrades,

Majority of fund houses want to leverage the nationwide network of India Post to distribute their mutual fund schemes, said a recent report on mutual fund penetration published by SEBI. India Post has 1.5 lakh branches across the country. 

The SEBI survey showed that 68% of fund houses feel distribution through post office would increase penetration whereas 18% of fund houses had a neutral view. Only a few fund houses are of the opinion that such move may not be of much help. 

“If the distribution is carried out through post offices, it could be a positive step towards increasing the penetration of mutual funds. If this could be started, this would be a significant step considering the recent push by India Post of the post office saving schemes. Since India Post is a loss making enterprise, an introduction of such mutual fund sales through India Post could also help them in reducing their deficit and this could be a highly beneficial move for both parties,” stated the SEBI report. 

Many fund houses are of the view that the nationwide network of post offices could be leveraged for mutual fund distribution. DP Singh, Chief Marketing Officer – Domestic Market, SBI Mutual Fund believes that it will increase penetration of mutual fund industry. However, he opined that only simple products should be distributed through these networks so that both post office employee and customers can easily understand the products.
A senior fund official from the fund house which already sells its schemes through post offices feels that the post office network will help AMCs to expand their footprint in B-15 cities without incurring much money on distribution and marketing costs.
Earlier in 2001, India Post along with IDBI Principal had initiated a pilot project in which they distributed mutual fund schemes in Delhi, Mumbai, Kolkata and Patna. Later, they started operations in other cities and offered products of many fund houses like UTI, SBI, Principal, Franklin Templeton and Reliance. Recognizing its efforts, in September 2009, CNBC-UTI gave a special commendation award to India Post for effectively utilizing its network to promote financial inclusion in small places. However, after entry load ban, it became unviable for India Post to carry out distribution business.
“India Post found it difficult to sustain its business model only on trail commission after abolition of entry load,” says Dhirendra Kumar, CEO, Value Research.
The fund official quoted above added that India Post generated a decent number of folios for AMCs. However, due to regulatory constraints and increasing instances of mis-selling, they discontinued distribution of mutual fund schemes, he added.
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