1

A
REPORT
ON

"ANALYTICAL STUDY OF MUTUAL FUND

MARKETS AND DISTRIBUTION CHANNELS OF
BIRLA SUN LIFE AMC"

By
JIGARKUMAR KANSAGRA
09BS0001020

Birla Sun Life Asset Management Co. Ltd

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A
REPORT
ON

"ANALYTICAL STUDY OF MUTUAL FUND MARKETS AND

DISTRIBUTION CHANNELS OF BIRLA SUN LIFE AMC"

By

JIGARKUMAR KANSAGRA
(09BS0001020)

Birla Sun Life Asset Management Co. Ltd

A REPORT SUBMITTED IN PARTIAL FULFILMENT OF

THE REQUIREMENTS OF MBA PROGRAM OF
THE ICFAI UNIVERSITY, DEHRADUN

SUBMITTED TO SUBMITTED BY
MITALI SAXENA JIGARKUMAR KANSAGRA
(FACULTY GUIDE) (09BS0001020)
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declaration

I hereby declare that this project report entitled

“ANALYTICAL STUDY OF MUTUAL FUND MARKETS AND
DISTRIBUTION CHANNELS OF BIRLA SUN LIFE AMC“
submitted in partial fulfillment of the MBA program of ICFAI
Business School is my original work and the project is not submitted
as project previously to any institution for the award of any degree,
associateship, fellowship or any other similar titles.

Date:

Place: Signature of the Student

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Certificate

This is to certify that the project work entitled

“ANALYTICAL STUDY OF MUTUAL FUND MARKETS AND
DISTRIBUTION CHANNELS OF BIRLA SUN LIFE AMC“ is a
bonafide project work carried out by mr. jigarkumar a. Kansagra mba
student, ICFAI Business School, chandigarh during February-may
2010 in partial fulfillment of the requirements of the MBA program
and that the project work has not formed the basis for the award
previously of any degree, diploma, associateship, fellowship, or other
similar titles.

Date:

Place: Signature of the Guide

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aCKNOWLEDGEMENTs

With regard to my project with mutual fund I would like to thank

each and every one who offered help, guideline and support whenever
required.

I am very thankful to entire team of Birla Sun Life Asset Management

Co. Ltd. For their cooperation, without which completion of this
project would not have been possible.

My first word of gratitude is due Mr. Manishkumar Joshi –

Relationship Manager, Birla Sun Life AMC, My corporate guide, for
his kind help and support and his valuable guidance throught my
project.

I am highly thankful to Mr. Prakash Gandhi(Vice President), Mr

Mitesh Maheshwari – RR Investors Capital Services Pvt. Ltd. for
sharing with me all the details of the project and providing me with
valuable insides about the project.

Finally, I would like to thank my internal faculty guide Prof. Mitali

Saxena under whose able guidance this project work was carried out.
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ABSTRACT

I joined BIRLA SUN LIFE ASSET MANAGEMENT CO.

LTD for internship program (as a part of MBA). I only had a
theoritical knowledge of related subjects, thanks to my Faculty Guide
and my Company Mentor for giving me an opportunity to implement
my theoritical knowledge in practical aspect.

My company mentor Mr. Manishkumar Joshi has given

me the project to analyze the mutual fund markets in India and
distribution channels of Birla Sun Life AMC. I started this project by
understanding the concept and technalities of mutual fund.

The project is about to micro analysis of mutual fund

market in Indian contest which provides actual vision to the size of
Indian mutual fund marketplace and other key addressability metrics.
Understanding the proprietary analysis of the multiple distribution
channels for mutual funds in India which includes independent
financial advisors (IFAs), banks, and national and regional
distribution firms. This report examines the multiple distribution
channels for mutual funds in India with a specific focus on
independent financial advisors (IFAs), national and regional
distributors, banks etc.
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Table of content

Declaration.........................................................................3
Certificate...........................................................................4
Acknowledgements............................................................5
Abstract..............................................................................6
Introduction.......................................................................8
Objective of the study......................................................8
Limitation of study..........................................................8
Scope of study.................................................................9
Methodology...................................................................9
Introduction to mutual fund and its various aspects.....11
Concept of mutual fund..................................................12
Types of mutual fund......................................................13
Advantages of mutual fund.............................................20
Disadvantages of mutual fund........................................21
Parties involved in mutual fund industry.......................22
Recent trend in mutual fund industry.............................24
Evolving distribution strategies.......................................26
Distribution of mutual funds...........................................28
Essentials of a good distribution system.........................29
Role of mutual fund distributors.....................................29
Role of various channels...................................................30
Retailization of the indian mutual fund industry...........38
Challenges and issues........................................................38
Future of mutual fund distribution in india...................39
Key findings.......................................................................42
Company profile................................................................44
Conclusion..........................................................................47
Questionnaire.....................................................................48
Recommendations & suggestions.....................................52
References...........................................................................53
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INTRODUCTION

Objectives of the project

To understand the future growth of mutual fund market in Indian

contest
To satisfy customer‘s needs by providing them saving solutions,
regular income solutions, tax saving solutions, and also wealth
creation solutions
To provide safe and tax efficient wealth building investments
solutions to the customers in various open-ended and closed-ended
mutual funds.
The project will help the mutual fund distributors to understand
the competition and benchmark themselves against the industry
standards.
To find out the most preffered distribution channel.

Limitations of study

Time constrain - As the mutual funds have covered giant market in

last few decades, It is very difficult to analyze whole market
Mutual fund concepts are new as compared to bank FD and postal
deposits so it is somehow arduous to change customers‘
perceptions and beliefs
Studies of mutual fund are confined to the Indian markets only.
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The data which will be collected from the customers is through the
questionnaires and is subject to response errors.

Scope of study

The primary beneficiaries of this anlytical study are asset

management firms with an interest in either understanding the
distribution dynamics of india‘s mutual fund marketplace, or those
firms already present in india and wishing to benchmark their
performance against the industry standard.This report is to provide in-
depth analysis on all banking and non banking distribution channels
in india

Methodology

The study was exploratory in nature and aimed at exploring

the factors, which formed the basis for selection of different types of
investments by individuals.The research was carried out by collecting
primary data for the study through a self-developed, non-disguised
questionnaire for the customers of various AMCs
This report is based on primary as well as secondary data,
however primary data collection was given more importance since it
is overhearing factor in attitude studies.
Anlysis of distribution channels of mutual funds in india is
ongoing analyses of mutual fund industries throughout the various
regions.
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Consultative qualitative information designed to help clients

deside how best to plan their mutual fund distribution strategies for
indian asset management marketplece. India is blessed with multiple
distribution channels, but this also complicates the issues of how best
to access both retail and institutional investors, and how to find the
most effective way to build distribution capacity.
Granular quantitative information that provides a better
picture of the true current and potential opportunities in asset
management marketplace, as well as the most effective approach to
distribution. This quantitative information aims to reduce uncertainty
regarding metrics such as marketshare, distribution dynamics, and the
product developement demand.

Data sources

Research is totally based on primary data. Secondary data

can be used only for the reference. Research has been done by
primary data collection.
The primary data has been collected interectiong with the
people. A predefined questions have been prepared regarding
customer‘s views in investments especially mutual fund markets. The
secondary data has been collected sources like journals, fact sheets,
annual reports.
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INTRODUCTION TO MUTUAL FUND AND ITS VARIOUS

ASPECTS.

A mutual fund is a professionally managed type of

collective investment scheme that pools money from many investors
and invests it in stocks, bonds, short-term money market instruments
and other securities. There are various investment avenues available
to an investor such as real estate, bank deposits, post office deposits,
shares, debentures, bonds etc. A mutual fund is one more type of
Investment Avenue available to investors.

Mutual funds have a fund manager who invests the money

on behalf of the investors by buying / selling stocks, bonds etc. The
fund‘s assets are owned by the investors in the same proportion as
their contribution bears to the total contributions of all investors put
together.

When one invests in a mutual fund, he is buying shares (or

portions) of the mutual fund and becoming a shareholder of the fund.
The income earned through these investments and the capital
appreciations realized are shared by its unit holders in proportion to
the number of units owned by them. Thus a Mutual Fund is the most
suitable investment for the common man as it offers an opportunity to
invest in a diversified, professionally managed basket of securities at
a relatively low cost.
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TYPES OF MUTUAL FUNDS

By Structure
○ Open - Ended Schemes
○ Close - Ended Schemes
○ Interval Schemes
By Investment Objective
○ Growth Schemes
○ Income Schemes
○ Balanced Schemes
○ Debt Schemes
○ Money Market Schemes
Other Schemes
○ Tax Saving Schemes
○ Load & No Load Schemes
○ Special Schemes
 Index Schemes
 Sector Specific Scheme
 Gilt Funds
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Overview of existing schemes existed in

mutual fund category

By Structure

1. Open - Ended Schemes:

An open-end fund is one that is available for subscription all
through the year. These do not have a fixed maturity. Investors can
conveniently buy and sell units at Net Asset Value ("NAV") related
prices. The key feature of open-end schemes is liquidity.
2. Close - Ended Schemes:
These schemes have a pre-specified maturity period. One can invest
directly in the scheme at the time of the initial issue. Depending on
the structure of the scheme there are two exit options available to an
investor after the initial offer period closes. Investors can transact
(buy or sell) the units of the scheme on the stock exchanges where
they are listed.
3. Interval Schemes:
Interval Schemes are that scheme, which combines the features of
open-ended and close-ended schemes. The units may be traded on
the stock exchange or may be open for sale or redemption during
pre-determined intervals at NAV related prices.
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By Nature

1. Equity fund:
These funds invest a maximum part of their corpus into equities
holdings. The structure of the fund may vary different for different
schemes and the fund manager‘s outlook on different stocks. The
Equity Funds are sub-classified depending upon their investment
objective, as follows:

Diversified Equity Funds

Mid-Cap Funds
Sector Specific Funds
Tax Savings Funds (ELSS)

2. Debt funds:
The objective of these Funds is to invest in debt papers. Government
authorities, private companies, banks and financial institutions are
some of the major issuers of debt papers. By investing in debt
instruments, these funds ensure low risk and provide stable income
to the investors. Debt funds are further classified as:

Gilt Funds: Invest their corpus in securities issued by

Government, popularly known as Government of India debt
papers. These Funds carry zero Default risk but are associated with
Interest Rate risk. These schemes are safer as they invest in papers
 16

backed by Government.

Income Funds: Invest a major portion into various debt

instruments such as bonds, corporate debentures and Government
securities.

MIPs: Invests maximum of their total corpus in debt instruments

while they take minimum exposure in equities. It gets benefit of
both equity and debt market. These scheme ranks slightly high on
the risk-return matrix when compared with other debt schemes.

Short Term Plans (STPs): Meant for investment horizon for three
to six months. These funds primarily invest in short term papers
like Certificate of Deposits (CDs) and Commercial Papers (CPs).
Some portion of the corpus is also invested in corporate
debentures.

Liquid Funds: Also known as Money Market Schemes, These

funds provides easy liquidity and preservation of capital. These
schemes invest in short-term instruments like Treasury Bills, inter-
bank call money market, CPs and CDs. These funds are meant for
short-term cash management of corporate houses and are meant for
an investment horizon of 1day to 3 months. These schemes rank
low on risk-return matrix and are considered to be the safest
amongst all categories of mutual funds.
 17

3. Balanced funds:
As the name suggest they, are a mix of both equity and debt funds.
They invest in both equities and fixed income securities, which are
in line with pre-defined investment objective of the scheme. These
schemes aim to provide investors with the best of both the worlds.
Equity part provides growth and the debt part provides stability in
returns.

By investment objective:

Growth Schemes: Growth Schemes are also known as equity

schemes. The aim of these schemes is to provide capital
appreciation over medium to long term. These schemes normally
invest a major part of their fund in equities and are willing to bear
short-term decline in value for possible future appreciation.

Income Schemes: Income Schemes are also known as debt

schemes. The aim of these schemes is to provide regular and
steady income to investors. These schemes generally invest in
fixed income securities such as bonds and corporate debentures.
Capital appreciation in such schemes may be limited.

Balanced Schemes: Balanced Schemes aim to provide both

growth and income by periodically distributing a part of the
income and capital gains they earn. These schemes invest in both
shares and fixed income securities, in the proportion indicated in
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their offer documents (normally 50:50).

Money Market Schemes: Money Market Schemes aim to provide

easy liquidity, preservation of capital and moderate income. These
schemes generally invest in safer, short-term instruments, such as
treasury bills, certificates of deposit, commercial paper and inter-
bank call money.

Other Schemes
Tax Saving Schemes:

Tax-saving schemes offer tax rebates to the investors under tax

laws prescribed from time to time. Under Sec.88 of the Income
Tax Act, contributions made to any Equity Linked Savings
Scheme (ELSS) are eligible for rebate.
Index Schemes:

Index schemes attempt to replicate the performance of a particular

index such as the BSE Sensex or the NSE 50. The portfolio of
these schemes will consist of only those stocks that constitute the
index. The percentage of each stock to the total holding will be
identical to the stocks index weightage. And hence, the returns
from such schemes would be more or less equivalent to those of
the Index.
 19

Sector Specific Schemes:

These are the funds/schemes which invest in the securities of only

those sectors or industries as specified in the offer documents. e.g.
Pharmaceuticals, Software, Fast Moving Consumer Goods
(FMCG), Petroleum stocks, etc. The returns in these funds are
dependent on the performance of the respective sectors/industries.
While these funds may give higher returns, they are more risky
compared to diversified funds. Investors need to keep a watch on
the performance of those sectors/industries and must exit at an
appropriate time.
 20

ADVANTAGES OF A MUTUAL FUND

Professional Management: The Mutual Funds are professionally

managed. The experienced Fund Managers pertaining to the
Mutual Funds examine all options based on research and
experience.
Diversification: The risk pertaining to the Mutual Funds is quite
low as the total investment is distributed in several industries and
different stocks.
Flexibility: The investments pertaining to the Mutual Fund offers
the public a lot of flexibility by means of dividend reinvestment,
systematic investment plans and systematic withdrawal plans.
Affordability: The Mutual funds are available in units. Hence they
are highly affordable and due to the very large principal sum, even
the small investors are benefited by the investment scheme.
Liquidity: In case of Open Ended Mutual Fund schemes, the
investors have the option of redeeming or withdrawing money at
any point of time at the current rate of net value asset.
Potential of return: The Fund Managers of the Mutual Funds
gather data from leading economists and financial analysts. So they
are in a better position to analyze the scopes of lucrative return
from the investments.
Low Costs: The fees pertaining to the custodial, brokerage, and
others are very low.
 21

DISADVANTAGES OF A MUTUAL FUND

The Drawbacks of Mutual Funds are the major obstacles for the
growth of the same. Management risks, trading limitations and
absence of taxes are some of the major drawbacks of mutual funds.

Fees and commissions: The Mutual funds charge administrative

fees to meet the daily expenses. Many funds charge brokerage or
'loads' to pay financial planners or financial consultants, brokers.
In case a shareholder does not use the services of financial adviser,
he still has to pay a sales commission.
No Guarantees: All investments bear risk factors. The Mutual
Funds are no different. It depends on the stock market. A fall in the
stock market would trigger a fall in the value of the mutual fund
shares. Although the risk factor pertaining to Mutual funds are
much lower compared to Mutual Funds.
Inefficiency of Cash Reserves: The Mutual Funds maintain big
cash reserves, for situations such as a number of large withdrawals.
The investors are provided with liquidity, and a major portion of
the financial resources is maintained as cash, and it is not invested
in some assets.
Management risk: The investment pertaining to the Mutual Funds
depends on the fund manager and his selection of the mutual fund
portfolio, which is based on speculation. If things do not go as
expected, the investments may not earn enough money.
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Taxes: The proceeds from the sale of mutual funds are taxable,
even if the same is reinvested in mutual funds.
No Insurance: The Mutual funds are regulated by the central
government. However mutual funds are still not insured against
losses.
Trading Limitations: The Mutual Funds usually have high
liquidity, but most of the mutual funds, such as open-ended funds,
are bought or sold at the end of the day
Loss of Control: In case, if the mutual funds are managed by the
investor himself, the portfolio management may go bad and have
an adverse effect on the earnings from the investment.

PARTIES INVOLVED IN MUTUAL FUND DEALINGS

INVESTORS
Investors are the people who actually invest their money into the
market. Every investor, given his financial position and personal
disposition, has a certain inclination to take risk. The hypothesis is
that by taking an incremental risk, it would be possible for the
investor to earn an incremental return. Mutual Fund is a kind of
solution for investors who lack the time, the inclination or the skills
to actively manage their investment risk in individual securities.
 23

TRUSTEES
Trustees are the people within a mutual fund organization who are
responsible for ensuring that investors‘ interests in a scheme are
properly taken care of. In return for their services, they are paid
trustee fees, which are normally charged to the scheme.

ASSET MANAGEMENT COMPANY

AMCs manage the investment portfolios of schemes. An AMC‘s
income comes from the management fees it charges the schemes it
manages. The management fee is calculated as a percentage of net
assets managed. An AMC has naturally to employ people and bear
all the establishment costs that are related to its activity out of its
management fee earned.

DISTRIBUTORS
Distributors earn a commission for bringing investors into the
schemes of a mutual fund. This commission is an expense for the
scheme, although there are occasions when an AMC may choose to
bear the cost, wholly or partly. Depending on the financial and
physical resources at their disposal, the distributor could be; who
have their own or franchised network reaching out to investors all
across the country; distributors who are generally regional players
with some reach within their region; distributors who are small and
marginal players with limited reach.
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RECENT TRENDS IN MUTUAL FUND INDUSTRY

The Indian mutual fund industry has evolved from a

single player monopoly in 1964 to a fast growing, competitive
market on the back of the strong regulatory framework. The most
important trend in the mutual fund industry is the aggressive
expansion of the foreign owned mutual fund companies and the
decline of the companies floated by nationalized banks and smaller
private sector players.

Many nationalized banks got into the mutual fund

business in the early nineties and got off to a good start due to the
stock market boom prevailing then. These banks did not really
understand the mutual fund business and they just viewed it as
another kind of banking activity. Few hired specialized staff and
generally chose to transfer staff from the parent organizations.
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AUM Growth

AUM Growth
Growth in AUM in the Indian Mutual Fund Industry
(Average AUM in INR Billion)

8000
7000
6000
5000
4000 Growth in AUM in the
3000 Indian Mutual Fund
Industry (Average AUM in
2000
INR Billion)
1000
0
2005 2006 2007 2008 2009 2010

The asset under Management(AUM) have grown at a rapid

pace over the past few years, at a CAGR of 35 percent for the six-
year period from 31 march 2005 to 31 march 2010. Over the 10-year
period from 1999 to 2009 encompassing varied economic cycles, the
industry grew at 22 percent CAGR. This growth was despite two
falls in the AUM – the first being after the year 2001 due to dotcom
bubble burst, and the second in 2008 consequent to the global
economic crisis.

India has been amongst the fastest growing markets for the
mutual funds since 2004, in the seven year period from 2004-2010
the Indian mutual fund grew at 35 percent CAGR as against the
global average of 7 percent.
 26

Evolving distribution strategies

The Indian mutual fund industry has been growing at a

rapid pace. Particularly over the last 4 four years the growth has been
phenomenal, thanks to a booming capital market and favorable tax
regime. This era of exponential growth has seen changes,
refinements, innovations etc in products, practices and channel
development of the AMCs. The ultimate beneficiary has been the
growing and prospering investors.

In the past 25 years, there have been dramatic changes in

how mutual funds are sold to the investing public. Before 1980, all
funds had a single share class, and shares of a given fund were
offered to all investors. Most funds were sold through a broker, who
provided advice, assistance, and ongoing service to the fund buyer.
The shareholder paid for these distribution services through a front-
end sales charge when he or she bought the fund. Other funds sold
shares directly to investors without a sales charge. Investors in these
funds either did not receive advice and assistance or obtained and
paid for these services separately. Funds sold through financial
professionals such as brokers have since adopted alternatives to the
front-end sales charge.
In addition, the range of venues (or distribution channels)
through which an investor can purchase fund shares has expanded
 27

since 1980, and each distribution channel may offer different

services. With the expansion in distribution channels, many fund
sponsors have abandoned earlier, single-channel distribution
strategies in favor of multi-channel distribution. As a result, mutual
fund sponsors that once marketed exclusively through a single,
traditional distribution channel — sales force or directly to investors
— often now compete head-to-head in the same distribution
channels.
The purpose of this report is to describe the current
structure of the distribution system for mutual funds and to analyze
trends and developments in distribution cost incurred by mutual fund
investors since 1980.
 28

Distribution of Mutual Funds

There have been dramatic changes in the manner in

which mutual funds are sold abroad. Before 1980, most funds were
vended through a broker, who provided advice, assistance and
ongoing service to the buyer. The unit holder paid for these
distribution services through a front-end sales charge when he bought
the fund. Funds sold through finance professionals such as brokers
have since adopted alternatives to the front-end sales charge. The
alternative payment methods typically include a fee based on assets
that may also be in combination with a front-end or back-end sales
charge.
In many cases, funds offer several different share
classes, all of which invest in the same underlying portfolio of assets,
but each share class may offer shareholders different methods of
paying for broker services. With the expansion in distribution
channels, many fund sponsors have moved from single-channel
distribution strategies in favor of multi-channel distribution. The
changes in fund distribution have been accompanied by a significant
decrease in the average cost of distribution services incurred by
mutual fund buyers. The decline in distribution costs reflects a
variety of developments, including competition between funds,
expansion of the 401(k) plan market and other markets with low
distribution costs, and increased availability of lower-cost advice to
investors.
 29

Essentials of a Good Distribution System

Distribution success for mutual funds or any financial product is

dependent on certain key elements. These are:
• Careful product selection
• A careful selection of internal sales staff (who will sell)
• Right targeting of customers - a properly graded geographical
strategy based on a demographic study will propel a smooth,
seamless customer penetration and sales volumes
• Proper training - Training is the axle on which the entire
distribution revolves. Continuous training of the sales force is
essential in this dynamic environment
• Educating / counseling the customer about products, keeping in
mind rising customer expectations and increasing buyer expertise
• After sales servicing

Role of Mutual Fund Distributors

A mutual fund distributor is an entity responsible for

marketing and selling the shares of a mutual fund company. These
mutual fund distributors are also known as underwriters for the fund.
The distributor is responsible for the following:

Creating prospectus for the mutual fund

Develop extensive marketing campaigns (TV, internet, magazine)
 30

Sell the shares directly to the public

Provide a wholesale market to reach a larger number of investors
Portfolio Advisory
Timely delivery of A/c Statements & Valuations
Regularly updating about markets

Role of Various Channels

All distribution channels have played a pivotal role in increasing

Mutual Fund penetration
• Banks
• IFAs
• National Distributors

Direct Selling:

Direct selling is the least significant element today.

Normally, only very big ticket items are done through this.
Alternatively, it derives its inflows mainly from online sales.
However, recent changes in regulation are all set to give this channel
a fillip. MFs are gearing up by opening their own offices in more
places. Also R&T Agents are expanding their infrastructure to
facilitate this.
 31

Organized distributors:

Organized distributors are the backbone of MF

distribution. They have infrastructure and flexibility to adapt to the
need of the hour. They too have realized the importance of going to
smaller centre and are establishing offices in urban and semi-urban
locations. This is the sector which needs to be nurtured to expand.

Banks as distributors:

Mutual fund distribution by banks is emerging a key

element. Banks have huge potential to build and improve the retail
segment, which needs to become as strong as its institutional
counterpart. Even among banks there are two major types of
distributors. There are those that handle wealth management of their
clients and, on their behalf, manage portfolios wherein investment in
mutual funds is one asset class. Such banks have sophisticated wealth
management practices with qualified staff and well-heeled clients.
MNC banks, private banks and a few niche players (like HSBC, City,
ICICI, HDFC, Kotak etc) are examples. Then there are banks that
use their networks to sell MFs as just another financial service. Most
of the PSBs and other commercial banks including large cooperative
banks fall under this category. For the banks the existing customer
base serves as a captive prospective investor base for marketing
 32

mutual funds. They have the advantage of having already won the
trust of the customer. There is no other distribution channel that can
have a more effective retail penetration across Tier-II and Tier-III
cities as well as across rural India. This channel has slowly realized
its own potential and is now emerging as a big player.
Abroad banks are among the leading fund supermarkets. The Post
Office too has been emerging as an effective channel. For all
practical purposes, it can be clubbed with PSBs. Banks with post
offices are likely to emerge as a very crucial channel for ―financial
inclusion‖ in the MF arena. This combination along with the online
variants in the near future will dominate the distribution of mutual
funds. Banks as a distribution channel have huge potential to build
and improve the retail side of the investors' universe of MFs, which
is skewed towards the institutional side now. There is no other
distribution channel for MFs that can offer such a lucrative retail
base on a platter by a tie-up. Trained frontline staff of the bank will
serve as ready-made marketers for distribution. For the bank, a strike
rate of even 10 per cent of the targeted customers will translate into
huge volumes for the MFs to encase. In addition, the database can be
used effectively for "Experience Marketing" of future products and
"Product Co Creation" based on segments.
The opportunity for the customers to avail of non-banking financial
products with multiple return matrixes from their banking services
providers without the strain of shopping in the market. Customers are
offered a buffet of MF products with different themes and return
 33

expectations through the bank, based on their risk appetite. They are
also offered counseling support from the bank and the MF personnel.
Over the last decade, commercial banks have augmented their
traditional deposit and lending services with investment products,
including mutual funds. Banks offer both proprietary mutual funds,
managed and sold through the bank or an affiliate, and
nonproprietary mutual funds, managed by an independent fund
company but sold through the bank or an affiliate. Some bank
proprietary mutual funds also are available to investors through other
distribution channels, such as full-service brokers, financial planners,
and insurance agents. To determine bank activity in the mutual fund
market, the Institute has surveyed mutual funds annually since 1991
about new sales1 of long-term funds available through banks or their
affiliates. This yearly survey is based on actual sales of both
proprietary and nonproprietary long-term funds sold through banks.

Independent Financial Advisor:

Independent Financial Advisors or IFAs are professionals

who offer independent advice on financial matters to their clients and
recommend suitable financial products from the whole of the market.

Typically an Independent Financial Advisor will conduct

a detailed survey of their client‘s financial position, preferences and
 34

objectives; this is sometimes known as a ‗fact find‘. They will then

advise appropriate action to meet the client's objectives; and if
necessary recommend a suitable financial product to match the
client‘s needs.
Presently the IFA is the friendly neighborhood guy – one
who is very effective in selling the product. However, he has to
manage his costs from the commission he gets. Advisory services are
today given gratis. The scenario is changing and the space in
advisory services will undergo a rapid change in the next few years.
Financial Planning services will be much sought after and Certified
Financial Planners will be in demand for their specialized services.
Over the last couple of years the IFA channel has made
remarkable Strides, not just in terms of growing its marketshare, but
also in professionalizing itself. There is little doubt it will face very
stiff competition from both the banks and the national and regional
distributors—all of which want to develop distribution strategies for
the retail marketplace—but early signs suggest the IFAs are going to
be able to hold their own and carve out an important niche for
themselves

Paying for Advice

Traditionally IFAs have relied upon commission paid by
product providers to pay for their services. In recent years there has
been a shift towards fee based advice as this is perceived as fairer
toward the client. However, due to under-capitalization in the advice
 35

sector and consumer reluctance to pay for something they perceived

as getting for free, the transition to fee based advice has been slow
and concentrated in the 'high net worth sector.

Commission: Traditionally the most common way to pay for

advice is for the IFA to receive a commission from the product
provider. The amount of commission must be disclosed, and some
IFAs will rebate a portion of their commission, particularly in
Execution-Only cases. The amount of commission and whether it is
deducted from the amount you actually invest or is included in the
cost of the investment varies from product to product. The client
pays for commission from product charges so it does not represent
'free advice'. As well as the initial commission, the adviser is likely
to be also paid an annual "trail" commission by the product provider.
Not all products offer the same rate of trail commission and therefore
a potential conflict of interest may arise. The products making the
highest management charges usually offer the adviser the highest
trail commission.

Fees: Less common than commission, all IFAs must offer the
option of working for a fee. Depending on the size and type of the
investment, and the complexity of the advice, this can work out
cheaper than paying commission. Paying a fee for advice is the best
way to ensure that the advice is impartial and there is no incentive for
the IFA to recommend a product solution.
 36

Combination: It is also possible to pay a combination of fees and

commission. In this situation the IFA will rebate a proportion of the
commission they would have been due in a commission-only
scenario.
 37

Number of Distributors by Category Registered Annually

by
AMFI
25000

20000

15000 Corporates

10000
Corporate
Employees
5000
Individuals
0

As of march 2009, the mutual fund industry had 92499

registered distributors as compared to approximately 2.5 million
insurance agents. The Independent Financial Advisors (IFAs) or
individual distributors, corporate employees and corporate comprised
7321and 6 percent respectively of the total distributor base. Banks in
general, foreign banks and the leading new private sector banks in
particular, dominate the mutual fund distribution with over 30
percent AUM share. Nation and Regional Distributors (including
broker dealers) together with IFAs comprised 57 percent of total
AUM as of 2007. The public sector banks are gradually enhancing
focus on mutual fund distribution to boost their fee income.
 38

Retailisation of the Indian MF Industry

As already stated in brief, the retail push to MFs in India

has been spearheaded by the big distribution houses, IFAs and banks,
including PSBs. MFs are now expanding their own networks to this
end. Online distribution, while catching up among the computer-
savvy segment of the public, will not be a very significant
contributor, at least in the near future.

Challenges and issues

Low Levels of Customer Awareness

Limited Focus on Increasing Retail Penetration
Limited Focus Beyond the Top 20 Cities
Limited Innovation in Product Offerings
Limited Flexibility in Fees and Pricing Structures
Limited Customer Engagement
Limited Focus of the Public Sector Network on Distribution of
Mutual
Funds
Multiple Regulatory Frameworks Governing Financial Services
Sector
©
 39

Future of MF Distribution in India

Industry AUM is likely to continue to grow in the range of

15 to 25 percent from the period 2010 to 2015 resulting in AUM of
INR 16,000 to 18,000 billion in 2015.

Projected AUM (Rs Billion) Growth from 2010 to 2015

20000

18000

16000

14000

12000

10000

8000

6000

4000

2000

0
2009 2012(P) 2015(P)
Assuming 22% CAGR Assuming 25% CAGR

Source: KPMG analysis

Key growth drivers for this scenario include:

• Increased retail investor participation with a Preference for mutual

funds over other asset Classes perceived to be more risky.
• Innovations in distribution driven by increase in the Number of
certified IFAs and banks selling mutual funds focusing on Tier 2
and Tier 3 towns
 40

• Increase in institutional participation triggered by rising corporate

revenues with increased economic activity.

Banks
• The public sector network of nationalized banks and post offices
likely to increase their focus on the distribution of mutual funds
• Entry of public sector banks as mutual fund manufacturers expected
to increase their focus on mutual fund distribution
• Private banks providing financial advice to HNIs expected to
marginally increase their market share.

IFAs
• IFAs expected to emerge as a dominant channel in a scenario of
robust stock market growth focusing on increasing penetration and
will therefore have to focus on initiatives to develop and support
this Channel

Source:BCG analysis
 41

The potential for MF industry to grow is huge.

Currently 77% of the investments in mutual fund come from super
metros and Tier I towns. The scenario is most likely to change with
everyone expanding. The strategy, firstly, is to increase the
penetration to cover Tier II-Tier III cities and rural areas. Secondly,
complementary to the first idea, enhancing Investor education and
awareness initiatives by the industry are getting high priority. Savvy
fund houses are increasing appropriate technological infrastructure in
rural areas and strengthening alternative distribution networks.
Recent regulatory changes may have temporarily
brought despondency to the distribution channels but in time suitable
strategies (including fee for advisory) will restore balance.
Investment is an area where consultation is very important; the direct
route will be used by very few investors.
The country is enjoying robust economic health. This is
due to the efforts of all citizens including the farmers and small
workers in the most rural of rural India. The capital market owes its
rise to these humble workers as much as to any one else. Therefore,
the India story cannot be called a success unless these people too can
partake in the capital market boom. The only way to do this is
through mutual funds and it is the distribution which has to deliver.
This can happen only with the support of the regulator and the
industry.
 42

Key findings

Preffered Channels for Investment

Independent Financial
Advisors
Bokerage Houses

9%
24% Local Chartered
13%
Accountant
Internet
14% 9%

Direct Investment
12% 17%
Public Sector Banks
2%

Foreign Banks

Private Sector Banks

Source: CII-KPMG Survey in May 2009

Banks and IFAs are the preferred channel for investing in

mutual funds. Customers expressed confidence in banks given the
long standing relationship and the trust built with the banks over the
years. Similarly the customers have become accustomed to dealing
with IFAs to seek independent advice on a wide range of investment
and financial planning issues.

Banks are key player in distribution and are likely to grow their
market share, but they face competition from national and regional
distribution firms and IFAs
 43

An Indian IFA firm could rival with a regional distributor with

assets under administration and a private bank with service and
delivery of advice.
Two-thirds of asset manager survey respondents suggested that the
IFA channel is a viable alternative to the national and regional
distributors.
 44

Company profile

The Aditya Birla Group

The Aditya Birla Group is one of India's largest business houses.

A US $28 billion corporation with a market cap. of US $31.5
billion and in the League of Fortune 500, the Aditya Birla Group is
anchored by an extraordinary force of 100,000 employees,
belonging to 25 different nationalities.
The Aditya Birla Group is a dominant player in all its areas of
operations viz; Aluminum, Copper, Cement, Viscose Staple Fiber,
Carbon Black, Viscose Filament Yarn, Fertilizers, Insulators,
Sponge Iron, Chemicals, Branded Apparels, Insurance, Mutual
Funds, Software and Telecom.
The Group has strategic joint ventures with global majors such as
Sun Life (Canada), AT&T (USA), the Tata Group and NGK
Insulators (Japan), and has ventured into the BPO sector with the
acquisition of TransWorks, a leading ITES/BPO company.

Sun Life Financial

Sun Life Financial Inc is a leading international financial services

organization providing a diverse range of wealth accumulation and
 45

protection products and services to individuals and corporate

customers.
Chartered in 1865, Sun Life Financial Inc and its partners today
have operations in key markets worldwide, including Canada, the
United States, the United Kingdom, Hong Kong, the Philippines,
Japan, Indonesia, India, China and Bermuda.

Birla Sun Life Asset Management Company Ltd.

(BSLAMC)

Birla Sun Life Asset Management Company Ltd. (BSLAMC), the

investment managers of Birla Sun Life Mutual Fund, is a joint
venture between the Aditya Birla Group and the Sun Life Financial
Services Inc. of Canada.
Established in 1994, Birla Sun Life Mutual fund has emerged as
one of India's leading flagships of Mutual Funds business
managing assets of a large investor base.
The fund offers a range of investment options, which include
diversified and sector specific equity schemes, fund of fund
schemes, hybrid and monthly income funds, a wide range of debt
and treasury products and offshore funds.
Birla Sun Life Asset Management Company has one of the largest
team of research analysts in the industry, dedicated to tracking
down the best companies to invest in.
 46

Board of Directors

Mr. Prafull Anubhai (Independent Director)

Mr. Gurcharan Das (Independent Director)
Dr. V.Arunachalam (Independent Director)
Mr. Suresh Talwar (Associate Director)
Mr. B.N.Puranmalka (Associate Director)
Mr. Kumar Mangalam Birla (Associate Director & Chairman)
Mr. Ajay Srinivasan (Associate Director)
Mr. Ashok Goenka (Independent Director)
Mr. S.S. Raman (Independent Director)
Mr. Donald Stewart (Associate Director)
Mr. N.N.Jambusaria (Independent Director)
Mr. N.C.Singhal (Independent Director)
Mr. Stephan Rajotte (Associate Director)
Mr. Venkatesh Mysore (Associate Director)
Mr. Ravindra Chandra Bhargava (Independent Director)
Mr. R Vaidyanathan (Independent Director)
Mr. Pankaj Razdan (Associate Director)
 47

Conclusion

The changes in the distribution of mutual funds during the

past two decades have allowed investors to choose from a wider
range of services and have provided greater access to mutual funds
than was available in 1980. Companies sponsoring mutual funds are
able to tailor funds and share classes to provide packages of services
and means of paying for those services that better meet investor
needs.

The wider availability of Mutual funds through new

distribution channels, investors‘ increased reliance on no-load mutual
fund share classes, and competition between loads and no-load fund
sponsors has sharply reduced the distribution costs paid by mutual
fund shareholders.
 48

Questionnaire

SURVEY ON ATTITUDE MEASUREMENT OF INVESTORS

PERCEPTION FOR INVESTMENT IN MUTUAL FUNDS
1. Your age is:
30 and under
31 to 40
41 to 55
56 to 65
Over 65

2. Your average household tax annual income from all sources (e.g.,
employment, investments, etc) is:
 Under Rs 100000.
 Rs.100001 to Rs.300,000.
 Rs.300,001 to Rs.600,000.
 Rs.600,001 to Rs.1000,000.
Over Rs.1000,000.

3. You regularly save the following percentage of your income for

special expenditures, such as education, mortgage lump sum repayments,
retirement, etc.
 0% 5% 10% 15% 20% or more

4. You expect your current income level (at a minimum) to continue for
the:
 next 3 years.
 next 6 years.
next 10 years.
 next 15 years.
next 15 years or more.

5. You can't invest more than you have, so you should invest accordingly.
For example, a sharp decline in your current income in the near future
would probably call for a portfolio with lower risk. You would describe
your financial
Situation as being:
 Very unstable.
 Somewhat unstable.
 Moderately stable.
 Stable.
 49

 Very stable.

6. Investment objective: What is your primary objective for your

investment?
 Preservation of Principal
 Current Income
 Growth and Income
 Conservative Growth
 Aggressive Growth

7. You would describe your knowledge about investments as being:

 Very little knowledge
 Some knowledge
 Moderate amount of knowledge
 Good working knowledge.
 Expert in investing

8. In the past, you have invested mostly in:

 Savings accounts and PIOs
 Mutual funds investing in bonds
 Balanced mutual funds
 Mutual funds investing in stocks
 Individual stocks and bonds
 Many different financial instruments, including stocks, bonds, real estate,
and higher risk investments (e.g., commodities,
Options, futures, etc.).

9. You would prefer to have:

Minor fluctuations in the value of your account, but consistently earn a
lower return on your investments.
 Some fluctuations in the value of your account, but earn a modest return.
 Noticeable monthly fluctuations in the value of your account, but earn a
higher return.
 Noticeable daily fluctuations in the value of your account, but earn the
highest possible return.

10. How long you stay invested?

 Less than 1 year  1-3 year

 3-5 years  More than 5 years
 50

11. How many instrument of investment are there in your portfolio?

 Equity______%  Future &

Option______%
 Government sec. /fixed income______%  Insurance______%
 Mutual fund_____%  Real estate______%
 Gold, silver_____%
 Other_________________%

12. According to you what criteria differentiate mutual fund from other
instruments?
 Expert & active fund management  Diversification in portfolio
 Higher return in long term  Transparency of portfolio
 Liquidity  Tax efficiency

13. Which type of fund you prefer in MF?

 Equity_______%  debt_______%
 balanced_____%  money market_____%
 MIP_____% offshore fund (foreign
fund)_____%
 other_____%

14. Which kind of criteria you prefer for investment in mutual fund?

 Return tax rebate

 Risk diversification  brand name
 Suitability of fund  other__________

15. In which category of mutual funds you have invested?

Saving Solutions
Regular Income Solutions
Tax Saving Solutions
Wealth Creation Solutions

16. In which major mutual funds has you invested?

 Reliance  DSP Black Rock

 SBI  ICICI Prudential
 Kotak  UTI
 TATA  Birla Sun Life
 51

 HDFC

17. What kind of return do you expect from the mutual fund as compared
with risk?

Between 12 to 20% Between 30 to 50%

 Between 20 to 30% Above 50%

18. How you manage your investment portfolio:

Service of financial advisor Advice from relatives or friends

News from print media/TV financial Web Sites
Agent of post or insurance Brokers
Self

NAME:
_____________________________________________________________________

ADDRESS:
_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

CONTACT NO: (R)________________________

(M)____________________________________

E-MAIL Id:
____________________________________________________________________

References:
Name of Trainee:
_______________________________________________________________

Date: __/__/____

Place: ______________________________
 52

Recommendations and suggestions

There should be given more time & concentration on the Tier-3

distributors.
The resolution of the queries should be fast enough to satisfy the
distributors.
Time to time presentation/training classes about the products
should be there.
There should be more number of relationship managers in
different regions because one RM can handle a maximum of 125
distributors efficiently and also to cover untapped market.
Regular activities like canopy should be done so as to get more
interaction with the distributors.
 53

REFERENCES

From the internet resources

www.birlasunlife.com
www.mutualfund.birlasunlife.com
www.nseindia.com
www.sebi.gov.in
www.mutualfundindia.com
www.amfi.com
www.scribd.com
www.valueresearch.com
www.moneycontrol.com
www.cii.com

From the news papers and magazines

The economic times,
Business standard,
The financial times,
Business today

From the print materials

Birla Sun Life Mutual Fund fact sheets

From the books

Marketing Financial Products (ICMR)
54