Beruflich Dokumente
Kultur Dokumente
Others 2%
Corporates/lnstitutions 66%
FIGURE 2:
Ownership of Private Sector Mutual Funds by Investor Type as % of Assets
Under Management. FIGURE3a:
Industry and Infiniti - Comparison of Fund Composition.
Source: SEBI
~
40,000 (j) 616 Month
the
tive
the
tive
6,3642004
14,620
14,703
35,008
2,061 Schemes
Totalfor
Cumula-
Totalfor
Ason
31st
10,853
31,934
104,818
115,775
2,072
27,31~
10,597
16,548
5,053
17,802
6,405
11,469
2,804
2,376
Janua
Cumula-
3,651
Apr 03 Unde
Mana-to
to Jan'04
Apr'03
Month
Existing All Schemes
Jan'04 Total
New
Schemes
From Sales - All Schemes15
From Redemption - Asset,
geme
2,804
No. Amount Amount ~
2.376 41
2
Category
30,000
E 20,000
E
{J}
(J)
::::>
.....•
A) Bank
10,000 Sponsored (5)
B)lnstitutions (3)
C) Private Sector.
0-- Dee 2003 Dee 2004 Jan 2005 1. Indian (8)
21.168
• UTI • Bank/lnstituion Sponsored • Pvt. Sector
2. Foreign (1)
4. Joint Ventures:
Infiniti and the industry predominantly
657
616424,227
476,435
54,065
48,172
53,408
44,240
157,994
377,673
177,006
423,625
17,648
41,058
44,856
110,56
51,272
18,498
Foreign (9) 18,498
Infiniti started off as a pure investment bank in India; it was distributing mutual fund products *35,370 *248,979 *34,177 *232,367 *121,805 II 145,371 •
3 I
in India in 1994 when there were no mutual fund distributors. In 1997, Infiniti launched its February 25, 2004 I
Total
Released on
own mutual fund and was #10 in terms of assets managed as of March 31, 22006. In 1997, In- (1 +2+3)
finiti used to have to call brokers (who transacted on the stock exchange) and explain to them
as to what a mutual fund was. In March 2006, Infiniti Mutual Fund was ranked seventh out of Grand Total
(A+B+C)
27 different fund houses that were managing mutual funds in India in terms of assets under
management (AUM) (see Tables la, 1b & Table 2). With increasing market liberalisation,
growth in demand for financial products, including mutual funds, was expected to continue.
Unlike physical products and many services, mutual funds are an advisory product even for the
individual buyer.
NOTES:
(A+B+C)
Indian
gement
Foreign
Sponsored (3)
(1)@
Predominantly Mutual
(10)schemes
1. *Figuresfor
Data isprovisional
4,322If -Fund
- ::- --'-
andventure
hence,
Data
subject
- of January
to revision. Indian.
2005 (Rs. in crores) Redemption - Tablel2 Market Share by Assets Under Management of
as
2.
3. Bank
#only Sponsored
new Joint
correspondingperiod
where allotment -predominantly
lastis
year.
completed Source: Infiniti.
4.
1.Joint
1.lndia Ventures:
@consequent
(10) to the change in shareholdingpattern ofSBI Funds Management Ltd It has been reclassified
Released on February 9, 2005 Private Mutual Fund Firms
Mutual Fund Market Share (Jan 06)
PrudentiallCICI 10.89%
HDFC 9.52%
Birla 6.53%
Reliance MF 5.36%
Infiniti 4.95%
HSBC 4.85%
Tata 4.55%
SBI MF 4.11%
Kotak MF 3.91%
Excluding UTI
From Dec 01, Infiniti FM has steadily increased market share. Templeton acquired Pioneer in August
02; HDFC acquired Zurich in June 03 and Birla acquired Alliance in 2005.
Over the five years to 2010, India's working population looks set to grow by 100 million
and the consuming category to rise by 280 million. Penetration levels of financial products are
low - for example, only 8% ofIndia's population is currently insured and there are just 7
million (2% of bankable population) credit-card holders. Banks equipped with large distribu-
tion networks (branches, ATMs) and established customer relationships are the distributors
of choice for mutual funds and already account for 30% of private mutual fund sales.
Currently, fees contribute only 21 % ofincome for Indian banks, versus 30-35% for their peers
internationally .
The banks' focus on third-parry products has coincided with the rapid growth in demand
for these products. Mutual fund sales in the country have enjoyed a 77% compound annual
growth rate (CAGR) over the four years to 2005. The total ADM was close to Rs. 190,000
croreas of October 31, 2005, at Rs. 149,816 crore on March 31, 2005 against Rs. 18,645 crore
on March 31, 2004.
Mutual fund IPOs6 during the 12 months to March 31, 2005 added around Rs 6,000 crore
to the ADM, which is almost 24 per cent more than the total funds added by the industry dur-
ing the previous calendar year7• Penetration of rural areas by mutual funds is relatively lower,
with 13.7% of urban households owning mutual funds versus only 3.8% of rural households'.
In general, compared to the developed economies, financial product penetration is low in In-
dia (seeTable 3).
6 Now called new fund offers to distinguish tl1em from IPOs of stocks of listed companies,
7 hHn. 1/IAfIA/lM ft:J/onrl1nhinrlil1 "1"\"'" 11f"l&:f"lA 1 J / •.•••.••.• /J..., ••.• ; •.••.••.••.• / •.•• "" ••• , A/.Y'V'I"I"!,o;:'" ~ •.•_
__ ~~ .• ~--r-~-~_~O""VTl"'n:'-OVcr--·"::r.O"/O • ot fiouseholasown-mutUal runas,
. and the UK, where around 17% of households own mutual funds. However, both these coun-
11
tries have had mutual funds (Le. open-ended funds) markets since the 1930s and mutual fund
regulations since the 1940s (though as already mentioned, the UK has had closed ended in- Provident and Pension 22%
vestment trust companies since 1868). Both also have large, established, middle classes, which
are the classic investment fund target market. And, the scale of the US mutual fund industry,
which far outweighs any other - the US represents 55% of the value invested in mutual funds
worldwide12 is in good part due to retirement savings through mutual funds. Approximately
-
21 % of all retirement savings, worth some $2.1 trillion, are invested through mutual funds and
Insurance 14%
around one third of the money flowing into mutual funds in each of the last few years to 2005
has been retirement-related.
FIGURE 4:
Shares, Debentures and Mutual Funds Attract only a Small Proportion of Savings.
There were 11.8 million households investing in units of mutual funds constituting 6.7%
of all households, while in 1998-9 there were 15 million investor households or about 9% of all
households investing in mutual funds. In terms of actual numbers, this reflects a decline from
Personal Final Consumption Expenditure (PFCE). 23 million unit holders in 1998-9 to 19 million unit holders in 2000-1. As of March 2005,
provident funds and employee provident funds (EPFs) - a government scheme for employee
Sources: amfindia.com, RBI, IRDA, Venture Infotek, savings - were not allowed to invest in mutual funds. Historically, government savings
IRDA, CMIE, CLSA Asia-Pacific Markets. schemes (RBI bonds, National Savings Certificates, etc.) have had relatively high fixed returns;
with the security that they offered (a sovereign guarantee), there was little motive for individual
investors to invest in mutual funds. Very high interest rates (as high as 16% at one point in
As in most countries, investment in physical assets (mainly housing) accounts for the most
time) also decreased the attractiveness of mutual funds that were considered riskier in compar-
important percentage of household assets, owning a home is usually a first priority once a fam-
ison to products that had a sovereign guarantee and had fairly high returns. Fraudulent activi-
ily has any disposable income at all. This rose from 37% of the total to 44% of total household ties on the stock markets related to Harshad Mehta in the early 1990s and to Ketan Parekh in
savings during the period. Investment in shares and debentures (which includes mutual funds) the late 1990s also eroded investor confidence in mutual funds as an investment alternative for
accounts for a tiny percentage of investment in financial assets (the percentage of the total, ex-
individual buyers.
cluding physical assets).
For Infiniti, India was a growing market and one that the company had high hopes on for
New investment in mutual funds accounted for only 0.73% of financial assets of house-
the future. Table 4 provides the structure of AUM by asset class for Infiniti. Each mutual fund's
holds in 2000-200113• The high percentage represented by deposits underlines the fundamen-
investment approach was a function of goals and the inclinations of the chief investment offi-
tally conservative nature of Indian investors and the relatively tiny percentage represented by
cer (CIG). Nandkumar, the Infiniti CIG had an approach that was a combination of top-down
mutual funds in 2000-2001 is distorted by the shrinkage of UTI and the aftermath of the tech
and bottom-up.14
boom. In addition, Indians have a fascination for gold, as an investment asset, buying close to
700 tonnes of the yellow metal annually (see Figure 4).
/2 International fund statistics to end June 2003, Investment Company Institute. the investor is locked in for a pre-determined period - this allows greater predictability of funds flows for the MF); however, most mu-
tual funds are oDen-ended in Inrlin j ~ ._..Ju_ mA
/3 Not/anal Income Statistics, Centre for Monitoring Indian Economy.
inIlDt<-fn •.r •••...••.• ,.,;1-,.....1 •...•.••• -~
~ = -=
- _n
Bond
Gilt
~
Product
Balanced
~n. Short-term -19.585
....•
Product
Sales
Fixed
Fixed
347.191
2,556,786
314;173
'37,019
510,874
-
_283,097
AUM
Income
Plans
Income
129,038
102.730
, ~t_".:;v
_11,888,544
••••Fixed
w55,897
wnw tur-II •• J.:;v..-W nore ,'IUI --------- r - --r ' ~ ~~ · 0 b- 0
Red
••••. '-'1. ••.•
Equity 118.873
221,122
304,875
(Diversified)
2,253,093
2.771,124
1,173,198
41,331,644
46,852
216.222
102.504
47,603,228
49,795,726
467.996 5.130.168
J.
~, Fixed Monthly
Fixed
Income Hybrid
Income
Maturity
(Sector)
Hybrid
44.374.053
Equity
Equity 378,410
533,233
2.695,061
1,646,051
604.587
226,073
335.968 Segment
Income Category
'¥,Plans
(Period Ending 31st Oct 05 by Product Segment
Liquid Funds) (Rs. Lakhs) tomers' wallets by undertaking mutual funds and insurance sales. Wealth management, which
S. until recently had been a forte of a handful of foreign banks in the country is now also available
from select private banks.
Then there are 153,000 post offices that are capable of processing money orders'5 with
138,000 of these in rural areas (in total the post offices services 634,321 villages and 4,869
towns). In addition there are insurance sales forces linked to general and life insurance firms,
brokers and mutual fund distributors. UTI, which for historical reasons had the largest distrib-
utor network of its own, has between 60,000-70,000 distributors (mostly individual opera-
tions) - at one time it had around 100,000 agents. In the past, huge sales forces were built up
by LIC and UTI, which at one time may have had 100,000 and 500,000 sales people respec-
tively. They are still important for their owners, but a large number of individuals have broken
away to form large and small distribution firms or networks to serve independent AMCs.
As of early 2005, there was no direct regulatory control over distributors of mutual funds,
although Securities and Exchange Board ofIndia (SEBI) requires all distributors to be regis-
tered by the Association of Mutual Funds in India (AMPI). The distributor or financial adviser
performs three functions. The first is to give advice to buyers (of mutual funds, insurance prod-
uct, ete.) on the nature of the product and possible risks and returns. The second is to actually
distribute the product (have the buyer fill out the forms, collect and process the cheque (be-
cause mutual funds, unlike banks, are not part of the clearing system and so cannot collect
cheques), provide receipts and proof of purchase (number of units held in the mutual fund).
The third function is to promote different financial products to the retail investor and to act as
a liaison between the financial services firm and the retail investor.
There are very few direct outlets of AMCs. Distributors of mutual funds need to be certified
by the AMPI/SEBI certification programme. Some AMCs are closely tied in with forward-
looking banks, which have a business model that targets the personal finance markee6 and
which have a large number of branches. Many of the banks and securities houses that have their
own affiliated mutual funds have adopted what has come to be called 'open architecture', that
Distributing a mutual fund
is to say that they will offer the funds of several other management companies as well as their
AMCs distribute mutual funds through banks, brokers, non-banking financial companies and own. Among those that have adopted this approach are Infiniti, ICICI Prudential, HDFC,
financial advisors. Indian banks have a large distribution reach (about 75,000 branches, and Standard Chartered, Birla Sunlife, Kotak Mahindra, HSBC and Citibank.
20,000 ATMs). The largest bank, State Bank ofIndia, along with its associate banks had more CAMS' figures also show that the average assets under management with the top ten brokers of
than 10,000 branches. At the other end are American, European and Asian banks that have a an AMC, for the period July-September 2003 was between 44.77% and 46.64%; and for the
smaller branch network. For example, Citibank had 37 branches in India as of October 2005. top 25 brokers of anAMC was 59.30% to 63.58%. Thus, clearly, relationships with brokers are
Banks that have 45% of the household-savings pool also possess the trust and retail relation- extremely important to AMCs; they are likely to be able to negotiate commissions very effec-
ships to be the distributor of choice for these products. ICICI Direct is the largest distributor tively.
and they do more business transactions than the largest banks (Table 5).
Distributing infiniti equity funds
15 Number of Accounts in Top Three Banks as of December 2005 Infiniti had a two-tier distribution structure - one for retail sales and one for institutional sales
of mutual funds. The head of retail channel sales was Arpit Aiyar.
Top Three Banks Number of Accounts (m) Branches The sales and distribution structure for mutual funds for Infiniti was as follows:
SBI 90 9,093 a. The retail end:
PNB 35 4.022 i. 3,200 distributors empanelled - meaning that the distributor firms were certified by
AMFI (as per SEBI rules), and also had a registration number and then they registered
ICICI Bank 10 600 with the mutual fund (MF) firms to distribute the mutual funds of the AMC
(like Infini ti).
Source: CLSA Asia-Pacific Markets. ii. 80% of distributors did 20% of business. Distributors were split into categories.
15 Old Age Social and Income Security (OASIS) Report, January 2000.
16 T.• ,,,, '"'v •••••...•.•
n/L>C" ",ffhi"" ,..".'" 1I">,rol ~_~ ftru-,..
1
3
S.No ABN
Direct
Tata
Enam
Birla
Russell
Infiniti
Standard
Citibank
HDFC
Kotak
JM
SPA
The
12 arge
TDSales
Sunlife
Amro
Morgan
, I
Red
Securities
to
Mahindra
Ltd.
Bank
DistributorCredit
Waterhouse
AMC
NA
Chartered
IIBank
961,090
23,167,298
2,577,834
1,140,293
47,603,228
435,375
531,813
456,531
1,117,095
2,580,231
1,273,900
1,358,830
1,372,239
827,214
550,140
2,170,468
5,187.429
1,670,412
4,034,710
1,099,257
955,253
1,205,553
Hongkong
Capital
1,090,805
ICICI
- - Bank
Stanley
BankServices
and
1,264,753 13
- Ltd.
Distribution
Ltd.
Ltd.
Bank
Pvt.
N.Y.
2Sweep
24,104,991
454,214
49,795,726
391,813
5.465.422
497,080
778,729 Ltd. AUM
419,186
564,121
310,166
6,069,417
1,324.419
414,444
404,488
369,300
321,715
229,944
CO.•. Ltd.
392,187
345,280
229,392
211,786
210,776
Shanghai
Ltd. Retail --
- Services
11,888,545 Pvt. Ltd. ~ I
! Ii, 4 915 Securities Pvt. Ltd.
57811
reglOnamealers/brokers
14 - strong regionally e.g., 40 branches of blue4,116,180
418.733 chip were in I i,~
I 1I!II
I,
6 10 Banking Corporation Ltd.
op 15
I 1,288,895 '
I 322,214
ternationally).
dustries empireinto
customers Historically,
between Mukesh
the mutual the best
and
fund known
Anil financial
Ambani,
market.'8 service
it was
Reliance brands
expected
Equity in Reliance
Fundthat
hadIndia were
raised SBI,
Capital
Rs. 5,700UTI
Ltd. andI
crores j Source: Infiniti
The Infiniti sales force was organised as follows. There were a total of 30 sales people that were
distributed between institutional and retail sales. Larger towns like Mumbai, Delhi, Chennai,
Bangalore, Calcutta, etc., had institutional salespersons who were responsible for the top 50
corporations in the area.
There were about 600 firms whose treasury operations could be considered for being ap-
proached and serviced by AMCs in India. These provided the bulk of the institutional business,
through a new customer segment that was coming Up.20Accotding to Champak Lal Popat,
head of institutional sales, the new thing in the institutional area was the advent of the SME
market - potentially better money in terms of stickiness. Larger firms tended to be transac-
tion-oriented and defected more often.
17 Internationally. independent mutual funds (those not associated with banks) tend to be bigger (this is an outcome of the enforced
separation ot commercial and investment banks In the aftermath ot the Glass Stegall Act in the 1930s in the US),
18 Personal interview. Arpif AiyaT, head of channel soles. October 27. 2005,
20 Personal interview. Arpit Aiyar. head of channel sales. Infinifi. October 27. 2005,
19 hffp://www, financialexpress. com/latesUul'-story.php?contenUd = 120576 (accessed March 17. 2006).
Kolkata
~.JI Ij,
!. - 5,998,967
Trivandrum
Vadodara
Coimbatore
Chennai
Ahmedabad
Lucknow
Kochi
Ludhiana
Others
AMEX
NewOelhi
Indore
Patna
Bhubaneshwar
Bhilai
Nasik
Guwahati
Madurai
Pune
Goa
Surat
Mumbai
Citibank-Chennai
Jaipur
Chandigarh
Kanpur
Jamshedpur
Vishakapatnam
Vijayawada
Bangalore
Nagpur
Rajkot
Bhopal
Udaipur Sales
91,026
13,051
19,392
47,469
28,451
22,231 19,517
33,076,789
299,464
107,224 16,276
11,407
!24,499
4,447,858
35,972
20,270
60,734
25,691
73,112
26,697
18,916
11,854
18,888
5,110
10,1257,380
18,795 10,515
11,888
7,298
41,010
17,551
22,878
60,169
23,116
20,639
29,737
213,839
6,517
Ii102,658
62,062
179,015
15,733
3,111,950
1,643,121
1,314,518
118,641
175,810
29,365
656,955
108,643
1,201,102
44,564
331,782 ,223
50,787
49,262
9 4,895
126,079
130,337
182,362
34,211,500
314,393
31,312
4,627,209
130,863 AUM
1,670,982
928,158
851,579
553,251
44,693
36,203
24,883
86,564
61,295
58,451
21,047
19,247
18,851
13,890
12,436
18,470
11,979
105,533
58,984
25,006
24,259
13,646 I I
~onthsEnding Oct 31,
year
utual
35.
"
For Infiniti,orthe
distributor,
66,229
47,939
Redemptions
201,474
71,314
162,460
7,643
373,252
make
1,766,946
1,155,875
1,231,936
4,220,310
589,920
318,735
distributor
33.
29.
25.28.
20.
24.
18.
19.
26.
05
23.
a previously was the
9,478
(Rs Lakhs)r*
contact
inactive point with
distributor theactive.
more customer
18,807
11,256
and most
In regions
many AMCs people
places, were far
I I I
I11,III I
37. 4.
6.
13.
17.
27.
34. Location
_3.7~Secund[ab"d
15.110.
21.
31.
___
14.
11.
2.
32.
22.
m ___
30. Hyderabad
12.
16.
5.
9.
•• _____ •
')
,i
n _____ n_n ______________
(North,sales ~ 53,890
13,241
90,435
I
Overall, there was a matrix structure - there were three major South and
38. Moradabad 6,740 4,787 3,295 inaIly, iliere was me Issue orn~rrorrwere1aITrrCncu-Dj.rnT'~~~'-'~-~- --------.,-
sold initially as IPOs. Recently, under SEBI direction, these have been redesignated as new
39 Mangalore 6,487 6,462 7,768
fund offers. New equity mutual fund schemes for the retail investor have a higher margin for
40 ICICI Web Trade-Mumbai 6,286 8,434 5,394 the distributor (in the range of 6% as against 12% for an existing equity mutual fund scheme).
41 Ranchi 6,162 24,056 18,842 Due to relatively low levels of investor awareness and education, many retail investors tend to
think of a new fund offer priced at Rs. 10 as being cheap since they believe that it is the equiva-
42 Varanasi 5,490 4,065 4,148
lent of a stock being offered at a par value ofRs. 10.
-----
44 Raipur 5,067 16,900 16,378
Fee and commission structure
45 Trichy 4,854 4,302 1,515
46 FOF 4,746 8,526 14,803 Corporate customers are clearly much more sensitive to fee rates than retail investors and are
unprepared to pay front-end loads for fixed income investments, notably at the shorter end.
47 Oehradun 4,702 2,700 2,038
Given that the size of each corporate transaction is many hundreds or even thousands of times
48 Jalandhar 4,304 6,085 4,949 greater than the average retail investment, large investors are cheaper to service administratively.
49 Jodhpur 4,171 4,649 3,825 Thus managers are prepared to cut their charges for larger transactions in units; it is not entirely
clear whether all managers have a published tariff for volume reductions or whether reductions
50 Agra 3,537 3,092 1,730
can be negotiated on a case-by-case basis, now that rebating by agents has been disallowed. In
51 Amritsar 3,289 2,820 2,013 addition, AMCs are under competitive pressure to keep overall fund costs down, so are absorb-
52 Allahabad 3,175 1,864 773 ing some of the costs related to operation of funds themselves, though they also need to stay
within the caps set by SEBI.
-----
53 Siliguri 3,143 3,008 3,024
The other major cost to AMCs is the need to pay commissions to distributors. For the ma-
54 Jamnagar 2,548 1,917 889
jority of fixed income funds that carry no front-end load, these commissions are paid as trail
-----
55 Hubli 2,168 1,602 391 fees, a fixed percentage of the value of the investment that is paid to the distributor so long as
-----
56
57
Mysore
Trichur
1,718 1,243 696
3,888
the investment remains with a particular fund. Such distribution costs are allowed for in 5EBI
regulations which allow an extra 1% on the maximum permitted management fee from which
1,692 6,111
to pay trail commissions if there is no front-end load; the overall cap however, still remains. 50
58 Calicut 1,393 1,986 8,719 if an AMC were to increase its management fee on the first slab of an income fund from the ba-
59 Panipat 1,042 2,117 1,437 sic permitted (1.25% to 2.25%), there would be nothing left for other expenses. In many cases
the competitive nature of the market would make such an increase impossible. This means that
60 Valsad 992 670 143
the payment of trail fees will often have the effect of eroding the AMC's fee revenue.
61 Kottayam 955 1,497 685
Most managers seem to regard a total expense ratio of 1.00% or lower for shorter term
62 Salem 915 1,141 575 funds as the most that the market will bear, despite the fact that the application of the tapering
63 Belgaum 795 445 67 scale of caps imposed bySEBI regulations would, for income funds, start at 2.25% and level off
at 1.5% for the amount of funds above Rs.700 crore. Table 8 depicts a short-term fund high-
64 Rajahmundry 674 484 512
lighting expenses.
65 Pondicherry 661 739 315
66 Patiala 618 681 271 fablE': 8 A Typical Short-term Fund
67 Aurangabad 517 621 74 Short· term income
68 Ajmer 469 730 348 fund expenses Short maturity fund Insta cash plus
69 Guntur 316 311 20 Investment management
-----
70 Kota 209 136 142 and advisory fees
Trustee fees
__ --:;;--;_._!I
'
_._-"-_--:':
-"
_:::-:-:' . 0.35
0.01
:-_'=._.:' 0.35
0.01
71 N.A 140 120 19 ~ • -
- ••• = •• - - •••
-----
73
74
Panaji
Nellore
112
96 106
o
386
o Distribution and selling expenses
0.01 _.
0.25
0.01
*Three entities viz: Citibank. Chennai/AMEX and I CI CI web trade appear as locations since the reg-
c..uJ..,_Eo~•.•.•
"'.fci"cLM"'m£'l~aDdum_oLQei.Jt sse,lfYIanaflement.
Templeton SBI Birla Infiniti
_-------:'~;_:_-__:___;_:_.-----r--.~.-.~-~-~~n"UC01.,--rnc'Secon<1 category usuaITygot)U basISPOIntS.
• At the low end, distributors were paid in kind e.g., computer, a trip for the family, phone for the a.AMC 1.014 0.67 0.996 1.041
office, ete. This leaves AMC with 150 basis points that go toward marketing expenses and reg-
istration fees. AMC was left with about 20 to 50 basis points as profit. In addition, there were b. Distribution * 0.396 0.718 0.451 0.512
management fees that ranged from 1% to 1.25% depending on the size of the investment,
bas % ofa 39.05 107.16 45.28 49.18
0.45% for the registrar and 1% for the custodian of the mutual fund. Table 9 gives the com-
mission charged by Infiniti equity mutual funds.
* Commissions + Advertising
Tablej 9 Commission Charged by Infiniti Equity Mutual Funds Source: Reports and accounts for the financial
-----
~--.:.;1.06
1.25
0.642 13.00
Birla
10.10
87.26
0.154
1.277
Birla
N/a
.766
0.13
.;::
51.36
Infiniti
---- ---
001 SBr
Infiniti
1.525
059.98
0.925
..
SBI
- -~-
*20.58
* 0.5
43.07
1.161
0.256
~ Product launch
n ablel10
ij-'-= =--
empleton
t~
Distribution Costs as a Percentage of the AMC Fee In September 2005, Infiniti launched a first of its kind product for an equity fund house - the
Balanced Super-SIP - a combination of investment in a mutual fund and a life insurance policy. Table
11 provides the product features of the Super SIP. If a distributor or broker were to sell one Su-
per SIP to a single investor for a 21 year plan, he25would get a commission ofRs. 5.61akhs over
the period (Rs. 2.71akhs in present value terms). The Super-SIP was the first product from an
AMC that had insurance bundled with it (previous offerings had come from insurance firms
(e.g., Birla Sun). Infiniti advertised the product heavily in different media including TV, print,
hoardings and magazines. They also conducted presentations with different distributors
around India. Rajat Jain expected to collect about Rs. 10 crores in funds from investors in the
launch period up to October 25,2005.
--r--
(that looked at the risk-return profile of the fund) and percentage of mutual funds in overall in-
vestments as part of their asset allocation.
Liquidity
Variable Cover Plan Fixed Cover Plan
(6, 11 & 16 years) (21 years) I 240
240
o
Liquid Income Equity
FIGURE 5:
Exit load of 2% if withdrawn before two years Mutual Funds: Average Holding Period.
Entry load structure for variable cover plan Source CAMS - Redemptions are for the period upto June 2005.
Plan Load for SSIP Normal equity fund loads (per year insurance cost)
21 year 5% 2.25% 0.1375%
"In these scams, Harshad Mehta and Ketan Parekh were able to mabilise funds through fraudulent means 10 drive the prices of se-
ExitJ.oad of ?0.-h if \A1ithrl.n:nAln hoft""\r'o th,..oo \.IO.!:\r'c.-, lected stacks and the index to new highs. Retail investors were caught in the frenzy of rising prices and bought stocks at inflated prices .
•• - -- _ ••f •• " - ~_..J __ ,I.&._ •.11 .. __ • _¥ J.h", •• ..I .,,..'" A •.•,in" ',n ,..# I. ,•.•A,.. r'af,.,i/ inlloct"r~ IItIDrQ ',;aft hnlrlinrl thp. r.nn Investor
ru«ncrOl-£\JU::FIJO were Ini11CatlOns
oftliis tren
~IIJ.IIU"& &...,•.•._.-vvtot:cra~sys!em-o
Leading AMes such as Franklin Templeton and Infiniti were moving toward establishing
,Un:S-duorrDyvaIue~otInvestments anClthere were roughly five categories: profitable practices in the distribution channel that would also enable long-term market
1. High Net Worth Individuals - HNI (individuals with assets of more than Rs. 1 crore), growth. Rajat Jain and Arpit Aiyar needed to evaluate the present distribution approach in light
most of these have a lot of churn.
of the rising competition, new offerings from the competition and a changing investment cul-
2. HNI 100 customers with assets between Rs. 25 lakhs and Rs. 1 crore. ture among retail investors. From a viewpoint of expanding its distribution reach in order to
3. HNI15 customers with assets under management between Rs. 5lakhs and Rs. 251akhs. compete better with its rivals, which was the right approach? Where should the focus be so far
4. RetailS with assets between Rs. 1lakh and Rs. 5lakhs. as different distributor categories were concerned? What should be the role of the brand in sell-
5. Those with assets under Rs. 11akh. ing mutual funds and increasing the AUM for Infiniti as compared to reach? All these questions
needed answers in the context of equity fund sales from Infiniti as well as in more specific terms
as Jain and Aiyar sat down to evaluate the launch of Super SIP and to make decisions about the
During 2005, the maximum growth was in the investor segment that was investing below sales and distribution process for the Super SIP and other products.
Rs. 11akh. Due to the rise in the value of the stock market indices (the BSE Sensex had gone up
from about 6,600 in January 2005 to close to 10,800 in March 2006), retail investor interest
was increasing. Figures indicate that a lot of retail investors had started investing when the sen-
sex crossed the 6,400 level.27 Table 12 provides the AUM by investor category.
Points for Discussion
Table 12
Trust
HNI
HNl100
Retail(>
(5
Overseas
Inv. <1(25
Sales
Red
((>
40,827,385
47,603,228
670.585 < 5 Lacs)
43.438,738
Lacs
473,598
573,123
462.574
1cr)
1
1,081.643
53,075
61.116 -25
Lacs
&lac)
1,139.993
49,795.726
502,292
418.217
3.468,866
253,127
3,505,377
469.244
segment
Domestic Corp.
Corp. AUM
-1 cr)
Lacs)
567.415
7,098,784
561.903
990,172
700.801
52.322
889,910
11.888,544
1,027.236
=: AUM as on Oct 05 End and Sales/Red for the 12 Months Ending 31st
Oct 05 (Rs. Lakhs)
1. Should Infiniti be going in for a pan-India banking presence? Or should it
S.No
Source:/nfiniti. focus on the route of using individual advisors?
2. How can Infiniti encourage distributors and investors to reduce churn and
focus on getting new business?
27 Personal interview. Rajat Jain, chief marketing afficer, October 27, 2005.