This section Covers..
01. Meaning
02. Mutual fund set-up
03. Product Focus
04. Schemes
05. Distribution Focus
06. Product & Services
[Provided by Ravichandran, Rasipuram, Erode, Tamilnadu (12.05.09)]
By the way Schemes were traded:
In an open-ended scheme there are no limits on the total size of the corpus. Investors are permitted to enter and exit the open-ended scheme at any point of time at a price that is linked to the net asset value (NAV). In case of close-ended schemes, the total size of the corpus is limited by the size of the initial offer. The entry and exit of investors is possible by only trading on the stock exchanges. Due to liquidity constraints posed by close-ended funds, they were soon rendered obsolete and most of the prevailing schemes today are open-ended schemes.
By Composition of Debt and Equity in the Scheme:
The products were also differentiated by the composition of equity and debt in various schemes.
Growth schemes invest predominantly in equities whereas Income schemes invest only in fixed income debt securities. Balanced schemes try to derive the benefits of both equity and debt by investing in both. Money market schemes invest in short term liquid securities like money market instruments so that they serve as appropriate products for investing short term funds.
There were other niche schemes to fulfill specific needs, such as Tax Saving Schemes, Sector Specific Schemes, Index Schemes (which are passively invested in a benchmark Index) and so on.
In the Product Focus stage, the aim of the mutual fund companies was to introduce a wide variety of products and due to oligopolistic competition; there was no dearth of subscribers. The only parameter on which the selling was based was the relative performance of the products.
Distribution Focus
Product focus continued for 2-3 years even after the entry of private sector players in 1993. Initially, the private sector companies introduced the same products available from the pubic sector players and promised superior performance. When they realized that they needed to differentiate on some other parameter as well, they focused on distribution. As it was difficult and time consuming to replicate the wide-spread distribution structure of Agents set up by UTI, they encouraged third-party distribution companies to distribute their products all over India. Specialist distribution companies such as Karvy, Bajaj Capital, and integrated Enterprises etc. had emerged. Special focus was given to investor servicing so that investors could experience superior servicing standards from private players. Some groups such as Birla Mutual Fund even set up their own distribution companies (BirlaDistribution).
While the focus on improved distribution and investor servicing did help the private players establish themselves against large players like UTI, it had also resulted in a lot of problems. In the rush to gain volumes and thereby commission incomes, the distribution companies many a time sold the wrong product to the wrong customer. A growth product, which invests primarily in risky instruments like equities, was sold to old, retired people looking for regular, steady income as pension. The ensuing dissatisfaction has thus paved the way at last for the most critical area for marketing, the Customer Ownership Focus.
Customer Ownership Focus
Mutual fund companies began to segment their target customers and position their various products based on the target segment they proposed to address. The target segment was broadly divided into institutional segment and individual investor segment. The institutional segment consisted of treasury departments of Corporate, Trusts etc and suitable products such as Institutional Income schemes and Money Market schemes were targeted at them. The individual investor was in turn divided into various segments such as Young Families with small or no children, Middle-aged People saving for retirement and Retired People looking for steady income. Suitable products such as Growth and Balanced schemes for young families and Income schemes for retired people were marketed.
By proper segmentation and by targeting the right product to the right customer, Mutual Fund companies hoped to win the confidence of their customers and 'own' them for a lifetime.
Specialized Product & Service Focus
If one observes the trends in the recent past, Companies have been taking the above customer focus further by designing and launching specialised products and services. As awareness levels of individual investors go up, focus is on identifying one's investment needs depending on one's financial goals, risk taking ability and time horizon. Investors chose companies, which help them in the above through specialised products and services.
For example, a common financial goal is to save and invest for meeting the education needs of children. A number of mutual funds such as Pru-ICICI Mutual Fund and UTI Mutual Fund have launched products that are designed to serve this specific need.
A similar such need is planning for a comfortable retirement.
In addition, there is a need for specialised services that help investors assess their risk taking ability and chose products accordingly. Some mutual fund companies are launching a new product called 'Fund of Funds' which is a Scheme that merely invests in a combination of other mutual fund schemes (growth schemes, income schemes etc.), based on the investment objective and risk profile of the investor.
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