Chapter 1

Understanding Financial services

o What is a Financial Service?

Broadly, a financial service is a service dealing with movement of funds between various sectors of economy. For example, Banking
Services deal with movement of funds from household sector to the Industrial sector etc, i.e., movement of savings of households to
the entities who require the funds. Insurance Services again move the fund from household sector to Industrial sector thus benefiting
the both – the proposer of the insurance and the industries etc.
These financial services are produced by various companies involving various financial instruments. For example, an Asset
Management Company of a Mutual Fund creates the financial service of “wealth creation” by investing the savings of people in the
various instruments like equity (commonly known as shares), debentures etc. The Life insurance company creates the Financial
Service of accepting the money (known as premium) from a person and in return providing an assurance or guarantee for financial
compensation to that person’s family or nominee in case of death of the person. Bank provides the services of accepting your
surplus fund and lending it to those who need it. Bank pays to you interest for using your fund, and bank earns interest from the
person whom bank lent the money.
In all such services, ultimately the fund moves from surplus zone to the deficit zone. During these service take place, all the players
involved are benefited. For example, in the banking services, you as a depositor earn an interest on your surplus idle fund, the Bank
earns interest from the borrower whom bank lent, and the borrower gets the money for a prefixed time to fulfill his entrepreneurial
needs or personal needs.

o What are the types of financial services

o Non Insurance Financial Services

o Insurance financial services

Non Insurance Financial Services:

This again may be divided into two sub categories:

o Capital Market (Apex body for regulation is SEBI)

o Non Capital Market

Capital Market based

Mostly, there are three major financial instruments under this category - Equity, Debt, and Money market instrument.

Equity : When a company or organization needs capital (by capital here we mean ‘money”), it has various options to raise money.
One of the most popular ways is inviting public to invest their savings in the project and become the owner of the company.
Suppose, an entrepreneur needs Rs 1 lakh to start a new project. He comes to public with an offer to participate in this project. Now
suppose, Mr A, after being satisfied with the plans and capability of the entrepreneur, provides him Rs 1000/-. Now Mr A’s
ownership on the said project is 1 %. Mr A, in return gets a piece of paper (now in electronic form) acknowledging 1 % ownership.
This acknowledgement, this piece of paper is called ‘Equity’. Mr A invested because he believes that the project will earn profits
and the profits will be distributed among the owners. He may also invest in the expectation that in the future when the project runs
in profits, other people may like to purchase this equity (ownership) from him. In that condition he will be able to sell it at a higher
price earning a profit. There are many variants of equity – ordinary share, preference share etc.

Debt/Bond/Debenture : Companies also raise fund from public in the form of loan. There may be many people who are risk averse
and who do not want to become the owner of the company by investing their savings as the owner has to share the loss also if the
company runs into losses. Therefore, they just lend their savings to the company for a pre fixed period (known as ‘tenure’) at a pre
fixed interest rate (known as ‘coupon’). The piece of paper (now in electronic form) which acknowledges the contribution is called
Bond/debenture. At the end of the tenure, the lender gets his principal amount back.

Money market Instruments: When companies borrows from public for a period up to one year only, then such ….is called Money
market instrument. Various Banks and companies require funds for a short period, even for one day also.

Mutual Funds : Mutual Fund is a pool of money, which is collected from many investors and is invested by an Asset Management
Company (AMC) in above mentioned instruments to achieve some common objective of the investors. The broad objective is
appreciation on investment. The benefits for investments through mutual Fund over direct investment into equity/debt/money
market are as under :

Portfolio Diversification , Professional Management , Reduction of RISK, Reduction of Transaction cost , Liquidity ,Convenience

If the MF has invested its corpus in equity, then it is an equity fund. If in debt, it is an debt fund. If in both, it is a balanced fund. If
in Money market, it is Money market or Liquid fund. The apex body for regulating MFs in India is SEBI (Securities and exchange
Board of India)

Portfolio Management Services (PMS): PMS also collects money from investors and invests in equity/debt/money market etc. But
there is one difference. In mutual funds, the portfolio of one scheme is common to all the investors of that scheme. But in PMS, for
each and every investor, a separate portfolio is created. For example, if there are 100 investors in an MF scheme, and money
collected from them has been invested in, say, equities of three companies, A, B, and C. Then portfolio of this scheme is A, B, C.
Now all 100 investors will say that their portfolio is A, B, C. But suppose there are 50 investors in PMS, then the PMS provider has
to create 50 different portfolios for each of them. That’s why; the minimum investment in PMS is very high.

Non Capital market based:

Banks: They accept savings from people and lend it to those borrowers (individual and corporates) who need it. When banks accept
money, it is “Liability for bank”. When they lend it, it is “asset for bank”. Various Liability products are savings account (for
savings purpose), Current account (for business purpose), recurring deposit, Fixed deposit etc. Various Asset products are “term
loan (for long period)” demand Loan (for short period), cash credit (for meeting day to day business needs of companies) etc. The
apex body for banks in India is Reserve bank of India.

INSURANCE FINANCIAL SERVICES:

There are 2 types: Life insurance services and Non Life Insurance services (general insurance). Insurance is a contractual
arrangement whereby the insurance company agrees to compensate another for losses (Loss to life in case of Life Insurance, and
loss to other tangibles in case of general Insurance) in return for the payment of “premium”. The Apex regulatory body for
Insurance services in India is IRDA. The base of Life insurance is “emotion”. That’s why in life insurance ads, a lot of emotions are
used.

Chapter 2
Types of Retail Financial Channels

Importance of retailing of Financial Services:

From Social point of view:
o Wealth creation for millions of economically weak people
o Insurance protection to millions of people with no other income source.
o Post retirement support to those who don’t have structured pension support.
o Support to millions of people for important financial planning like children’s education etc.

From Economy point of view:

o Domestic liquidity to Capital market
o Productive use of household savings
o Depth and width to stock markets.
 o Making funds available for Industries, Agriculture, and other developments.

From Companies’ point of view:

o Enhancement of revenue and profits
o Retail is the backbone of financial services co. All Financial Services companies, i.e., MF, Insurance, Banks, Equity
investments etc depend on huge no. of individual participants with small amount of contribution by each rather than a few
big investors. This is so because in case of small no. of participants, withdrawal of investment by those few will make the
particular financial services co. collapse.

What is retailing of Financial Services?

Retailing is the business activity that makes the particular Financial Service available to the consumer of the service. For example,
Mutual Funds or insurance cos. are providing financial services, but without retailing it would not reach its targeted consumer, i.e.,
proposer of insurance, or investor of Mutual Funds etc.

What is the distribution channel?

Distribution channel of Financial Services Retailing is a set of individuals, or a set of other entities which facilitate the movement of
financial services from the point of creation to the individual consumer. For example, a bank which is making the MF product
available to its customers is a retailer. But the whole group of such banks is called “Bank channel for the financial services
Retailing”. In the same way, IFA (Independent Financial Advisor) channel, Distributor channel (those group of entities which are
formed to retail the Financial services and which are neither banks nor individuals, like bajaj capital).

What are the types of Channels for Retailing of Financial services ?

1. IFAs (Independent Financial Adviors)
2. Banks
3. National Distribution Houses
4. Regional Distribution Houses
5. Local Distribution Houses
6. Post Offices
7. On line
8. Others
IFAs
Features
o Oldest for retailing of MFs, insurance, and PO deposits.
o Largest contributor
o Individuals
o Vast reach
o Most important for retailing in rural, semi urban areas.

Which services’ retailing they do ?

o Mutual Funds (all MFs)
o Insurance (Only one Life and one Non Life)
o Post Offices deposits

Why they take this profession?

o For most of them, it is a full time profession. For some, part time.

Eligibility
o For Mutual Funds : NCFM – Mutual Fund (Advisors Module) & ARN
o For Insurance (Life) : IRDA certification for Life Insurance
o For Insurance (Non Life) : IRDA certification for Non Life Insurance
o For Post Office deposits: 12th pass.

Strength:
o Provides personalized services
o Low cost involved in starting the retailing
o Mostly, they provide 24x7 service to their clients.

Challenges:
o Facing threat from other channels like banks (specially PSU banks in rural areas)
o Lacks capital for enhanced research
o Unavailability of Multi location service facilities.
BANKS

Features
o Banks have started retailing financial services other than their own banking services. When banks retail these MF, Insurance,
Equity investment services, they call it Retailing of Third Party Products.
o Not the core business of banks.
o Recent trend. Among them also, Private sector Banks (especially foreign) started first.
o Nationalized Banks started very recently.
o Co operative Banks also new players.
o Major players in third party products retailing :
 Pvt/foreign : Citi Bank, Axis, ICICI, Kotak
 Nationalised/PSU : SBI, Dena Bank, IDBI Bank etc
 Co operative Banks : Saraswat Bank, PMC Bank, TMC etc

Which Services?
o Their Own products (Banking)
o MFs
o Insurance
o Stock trading services

Why ?
o Enhancement of revenue
o Fee based commission
o Optimal utilization of existing Infrastructure
o Client loyalty
o Marketing strategy of helping customers to remain loyal by providing all financial needs under one roof.

Strength ?
o Financial Power for better research
o Reach (No. of branches)
o Trust of clients being already enjoyed
 o Technology
o Huge no. of existing depositors which can be offered third party products.

Challenges
o Attitude of employees of Banks, especially PSU Banks of not selling third party products. They still feel these products as
competitors for their own bank products.
o No dedicated Marketing Team in most of the branches of PSU Banks.
o Require a huge push from MF or Insurance etc.
Distribution Houses
Three models:
1. Who started as only equity trading service provider, and later started retailing MF and Insurance services. Anand Rathi,
2. Started all services together : India Info line
3. Only distribution of MF and Insurance : Bajaj Capital
Features:
o Company form
o Professional
o No. of loyal clients
3 types :
o National : Branches in almost all states of the country (Bajaj Cap, India Info)
o Regional : operating with branches in a region only. (Blue chip)
o Local : Krishna Finance etc
Strenghth :
o Loyal Customers
o Huge no. of existing trading clients.
Challenges :
o Sales force need to update themselves.
o Fast churning of sales forces
Post Offices
o Recent entry
o Vast reach
o Compulsion to enter into retailing of financial Services because of declining revenue from core business.
o Need extensive training in understanding and retailing of Fin Services
 o Need big change in mind set (from fixed return to variable return products)
o Currently selling only UTI MF and Reliance MF

Regional Rural Banks

o Sponsored by PSU Banks
o Best to reach the rural areas
o Require much training.
o Currently only a few RRBs selling only UTI MF products.

On Line
o Currently, only MF services available.
o Almost all MFs provide on line investment facility.
o Still not popular. Reason ?

Chapter 3
Channel Marketing

The process of channel Marketing for Mutual Fund can be understood with the help of following table :

Chan Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7 S

nel t
e
p
8
IFA Identify the Provide Arrange When he/she When ARN is Provide product In the
potential AMFI for his clears the AMFI allotted, he enters training to him beginning,
IFA Trainin AMFI test, ,arrange for into an (all the schemes arrange for
g (for test , his application for agreement with of your AMC) joint calls with
MF), mandatory ARN the AMC. him to his
(Amfi Agreeement prospective
Registration No.) format is fixed. clients.
Bank Meet the Present Signing Mapping of Banks Communication Instruct your Initially, keep Branch level
s marketing the of regional offices about this AMC branches to some meeting
 deptt or strength Agreem with your AMC’s agreement to conduct initial campaign should
“third party and best ent regional offices, your branches by meeting with and wherein the continue at
sales” deptt scheme prefera AND bank’s AMC HO, and to product training marketing least
of the bank s of bly n branches with bank branches by for the grass root officers of the weekly.
at its Head your the your AMCs bank’s HO. level marketing bank
office. AMC. presenc branches. Provide officers of branches will Keep on
e of this mapped list to Co branded branches of your be getting arranging
press the Bank HO and publicity material bank, as they will some bank’s
and its branches as should be be monetary clients meet,
media well as your prepared selling/retailing reward for NRI’s meet
AMCs branches. (banners, posters, your financial selling your etc and
leaflets etc). You products products. address
must take written them jointly
(through mail) with the
permission from bank about
the Bank to use your
its logo for co financial
branded services.
publicity.
Distr Same
ibuti as
on banks
chan
nel

How to motivate the channel partners?

Monetary and non monetary.

Monetary :

o Giving incentives on achievement of certain targets.

o Foreign trips etc
Non Monetary :
o Arranging various training to them (sales training, BSE modules training etc)
o Arranging certification programs etc
o Enhancing their skills through professional courses etc
o Creation of various clubs like “Chairman club of IFA” Regional Head club of IFAs” etc

Chapter 4
Integrated marketing Communication in Financial Services/Branding & Co branding activities
The challenges:
1. When one purchases a Financial Service, say Mutual fund, one does not purchase something tangible. What one purchases is
just a “promise” – a promise to grow your money (bank), a promise to compensate your loss (Insurance), a promise to
provide you best possible return by investing your money into equities/debt etc (Mutual Fund) etc. This intangibility or future
oriented ness is the biggest challenge for marketing communication. It is like selling the invisible.
2. Low financial literacy in India: People still don’t believe in financial planning.

IMC in Financial Services can be categorized into two groups:

1. Advertising
2. PR (Public Relations). This is also co branding activity.
Advertising
o Through Hoardings, print media, electronic media.
o For MFs, hoardings are most common. For Insurance etc, Hoardings as well as electronic media, print media all common.
o Various regulations on MF advertising imposed by AMFI (Association of Mutual Funds in India).
o Advertising the details of schemes/plans of MF is not possible through these media as financial services are a bit complexed.
That’s why, through these ads, only category is emphasized, i.e., need for insurance, importance of MFs etc.
o Various statements have to be compulsorily placed in every advt, like “Mutual Funds are subject to market risk. Read offer
document carefully before investing” etc.
o Majority of people become aware by the ads of financial services , but rarely they get motivated by the ads to purchase the
service.
o This motivational punch is provided by publicity/PR.
PR :
o Mostly, it works as co branding activity also.
 o Through news items in print media: An effective motivator for buying decision in financial services.
o Through words of mouth of Intermediaries like IFAs, Distribution houses, banks etc : Most effective in India. It is said
that Financial Services Market in India is driven by channels. Mostly people invest or buy insurance on the word of
retailers.
o Through various activities, either jointly with Retailers (Banks, distribution houses, IFAs) or singly by Financial
Services companies. These activities are Investors workshop, investors seminars, Investors meet, prospective investors
meet etc.
In a nutshell, we can say that Advertising plays a very important role of making people aware of a financial Service, but because of
the complexity involved in the Financial Services, buying decision is taken on the basis of ad alone. Buying decision is mostly
influenced by PR, (mainly, the words of Retailers, and also by news items in news paper)