The Hindu Business Line : MFs start looking beyond metros

TIRED of jostling with each other in the crowded metros, mutual fund houses are branching out into smaller cities and towns in the hope of snagging new customers.

Cities such as Indore, Surat, Patna, and Coimbatore already house the branch offices of all leading mutual funds. Some funds have even stationed agents in the remote backwaters of Aluva and Agartala.

About 65-70 per cent of mutual fund sales have traditionally originated from Mumbai, home to most institutional investors.

Over the past year, UTI Mutual Fund has forged distribution alliances with four banks, chosen specifically for their regional base; these will now vend UTI products through their 500-odd branches.

Plans are also afoot to double the agent-force and expand the number of UTI financial centres from 55 to 110 by the year-end.

"Bankers in smaller cities and towns have a strong ongoing relationship with their customers. We would like to leverage this," says Mr Ashutosh Bishnoi, Chief Marketing Officer of UTI Mutual Fund.

He adds that the top 10 cities put together now account for no more than 30-40 per cent of UTI's sales.

Prudential ICICI Mutual Fund is using a "multi-channel" strategy given the diverse nature of the Indian market, says Mr Pankaj Razdan, CEO of the fund.

This year the fund will expand the number of service centres from 27 to 33 and add new marketing representatives at 36 centres. In the major cities, the fund will tap banks, brokers and large third-party distributors.

In the smaller cities and towns, the fund plans to market through qualified financial advisors - individuals who already sell financial products and have a "good catchment" of customers.

Mr Razdan says that the fund will also continue to "deepen" its penetration in the major cities. "In a sense, we have not yet picked even the low-hanging fruit; less than 1.5 per cent of the retail assets now go into mutual funds."

He estimates that 35-40 per cent of the fund's sales today originate from Mumbai, against 65-70 per cent a few years earlier.

Smaller fund houses such as JM and Sundaram Mutual Fund see a small-town presence as one way to avoid the bruising competition of the metros.

JM Mutual Fund, which started expanding into the smaller centres a couple of years back, says that it has relied mainly on a proprietary network.

"Investors in the smaller centres have a limited understanding of mutual funds. They need responsible selling and a lot of hand-holding even after the sales transaction is put through," says Mr Krishnamurthy Vijayan, CEO.

Are fund houses seeing results from this expansion? Yes, if you measure "response" by the number of investors who walk into these offices. But not yet, if one goes by value of sales.

"We are quite happy with the response. It may not be high in rupee terms; but it is only a matter of time before it picks up. In any case, we expect the smaller centres to break even within a year," says Mr Razdan.

As Mr Vijayan puts it: "Investors in these places have a healthy mistrust of new entrants. They are too used to people setting up offices, collecting money and then disappearing without a trace. So they put in Rs 5,000 or Rs 10,000 and will commit more money once they make sure you are here for the long-term."

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