22nd May 2012

Rohit Kumar is passionately committed to mutual funds as he strongly believes it's the best product for his clients. He is very concerned that there is very little genuine effort on the ground to really grow the MF industry by reaching out to new investors. Most of the efforts in the industry seem to be expended in trading assets between each other rather than going out and getting new assets, he frets.

He is equally concerned that IFAs, being small entrepreneurs, lack even a basic social security of a pension plan - which will be critical in their golden years. Rohit has come up with a simple, yet novel and innovative plan that offers a solution to both key issues. Read on to discover how his two rupee plan can help you build a Rs. 10,000 per month pension for yourself and 50 lakh new folios each year for the AMC...

Everyone is in the mandi - nobody's out in the fields

There are virtually no retail flows into mutual funds. We are seeing more redemptions than inflows and more accounts closed than opened. Nobody is going out into the retail world to bring new investors. Like I always say, " Hum sab agar mandi mein baith gaye, to nayi fasal kaun ugayega?" If all of sit like traders in the market, moving around existing assets from one place to another, who is going to grow the new crop? Who is going to bring in new investors to grow the industry? If you want to really bring in new investors into the industry, in what way is the industry incentivising new business / new folio creation (field work) as opposed to churning of existing assets (mandi work)? If the incentive structure for both activities is the same, more people will prefer to become mandi wallas and sit in their shops and few will want to go out into the fields to bring in the next crop. Think about it - who does the Government incentivise - the farmer who grows the crop or the mandi walla who trades in grains?

Big issue for IFAs is lack of a pension plan

A lot of discussion has happened on how to incentivise an IFA to go out and acquire new clients. Whether it is the Rs. 100 transaction fee or any per application commissions - lots of ideas have been tried, but few have succeeded. In order to really motivate an IFA to bring in new investors into the industry, you must offer an incentive that he really needs. To my mind, one of the biggest issues for IFAs today is the lack of any pension plan. Jab tak daud rahe hain, to theek hai. Jab ruk gaye, so sub kuch ruk jata hai. We are ok as long as we keep running - the day we stop running, its all over.

Two rupee plan to solve industry's and IFA problems

I have a simple proposal to make to all the leading AMCs. Come up with a plan where you offer Rs. 2 per month for every new investor (unique PAN) that an IFA brings in, so long as the folio remains with you. This will be an additional incentive - you can call it the IFA pension plan, over and above your normal upfront and trail commission structures.

Each IFA can set himself a goal of how much pension he wants to accumulate. If I believe I can bring in 2000 new investors each year, then in 5 years, I would have brought in 10,000 new investors and would have assured myself of a Rs.20,000 per month pension so long as those investors remain invested. Somebody else may set himself a target of 1000 new investors each year - which means he can create a Rs.10,000 per month pension plan for himself in 5 years (5000 clients @ Rs. 2 per client per month).

1000 new investors per year looks tough? No, think differently and it looks very achievable. Go to every parent you know and ask them to invest an affordable amount - between Rs.1000 to Rs.10000 in the name of each child on the child's birthday in a good Child Fund Plan or a good balanced fund that you want to position as a Child Fund. Go to every parent of a new born and ask them to invest the gift money (shagun) into a similar Child Fund Plan. As long as the amounts are relatively small for that investor and in the name of the child, the money will never go out of the system. Its only when investors invest large amounts that they start worrying about markets and start redeeming when they see poor performance. Its only large amounts where investors look out for alternative investments like property etc and redeem when they find better alternatives. Small amounts for children are never touched.

Think about it - we are supposed to be a young population - with lots of children and many more being born every month. Why can't you have a focussed campaign and acquire 1000 new young investors each year? I would in fact go to the extent of saying I don't mind having my staff go out into small towns and acquire such new clients each month, with a focussed Child Fund campaign, if I know this initiative is going to create a lifelong pension for me.

When markets improve, as they surely will one day, go back to these same investors, show them what they have earned and get more business from them. After all, if you get new investors when markets are down, they are bound to be happy investors in the long run.

50 lakh new folios each year and 2500 crs new inflows each year - any AMC interested?

Look at it from an AMC's perspective. If an AMC were to work with 5000 IFAs on this plan and each IFA sets himself a target of 1000 new investors per year, each year it can add 50 lakh new folios - all new investors. If the average folio size is Rs. 5000, that would mean Rs. 2500 crores of fresh inflows each year. The AMC would be paying out Rs. 12 crores per year (50 lakh folios at Rs. 2 per folio per month ie Rs. 24 per folio per annum) - which works out to an additional 0.5% of AuM on an annual basis. Most large AMCs spend much more than Rs. 12 crores each year on sales, advertising and marketing - and yet get practically no incremental assets. Here is a plan where the same Rs. 12 crores can get the AMC an incremental Rs. 2500 crores each year of high quality, stable assets. And in the process, in 5 years times, the 5000 IFAs who choose to be part of this plan would have created for themselves a pension of Rs. 10,000 per month - over and above the trail that they will get on overall assets.

I am going into the field to get new investors - anyone joining me?

In the last financial year, the industry lost 16 lakh folios. If 5000 IFAs come together with an AMC and work on this plan, we can bring in 50 lakh new folios each year, and secure our own financial futures as well. Ab mandi main baithna bandh karo, aur jao kheton mein. I am ready to go out into the field and bring in new investors under this plan - are AMCs and IFAs with me?