The mutual fund industry has been in active existence for over 20 years now, with multiple players - domestic and foreign and numerous products across asset categories. Yet, by and large, mutual funds lack retail credibility as long term savings and investment avenues. Despite 20 years + of existence, mutual funds are still sold as replacements to primary solutions. Safety conscious investors flock towards bank FDs, we try to sell them debt funds as a replacement, pointing out tax efficiency. Capital appreciation oriented investors go for property, we try to sell them equity funds as a replacement, pointing out long term returns, liquidity and convenience. Most Indians accumulate gold, we try and sell them gold funds as a replacement, pointing out convenience and cost efficiency. The point is that even after 20 years, we are still trying to project mutual funds as an alternative - not as a primary solution for any single need of an investor. Its time we introspect why we are in this situation, because so long as you keep positioning your product as a replacement, you will always be only a replacement - never a primary solution, never a core proposition.
Why are mutual funds still only a replacement product?
In our view, the crux of the problem is that mutual funds mean different things to different people at different points of time, and our industry has, through its practices, fuelled this situation. Ask a 55 year old retail saver, what is a mutual fund. The answer will be that it's a risky product. Ask a 25 year old today - and he will tell you it's a great product that gave 50% return in the last 1 year. We have, as an industry, collectively promoted short-term perspectives which rob the product off a lasting positioning. We fuel the question "where to invest now", rather than dissuading such questions. When an investor asks "where to invest now", he is looking at a short term money making proposition, and our industry readily gives out views. In June, infra was the theme, by July we were told cyclicals is the theme and in September, the preferred theme changed to defensives. What then is a mutual fund? A short term money making proposition, to be used when stock markets are rising fast. And in this rising market, how should we extract the best return? We have our theme of the month view readily available for this. As we keep on promoting flavours of the season, we are consciously or unconsciously promoting mutual funds as a short term investment alternative. Then we wring our hands in desperation and wonder why investors don't come to mutual funds with a long term horizon, but are perfectly willing to take long term calls with insurance, property and gold.
Lessons from the olive oil industry
Let's take a step back and see how product positioning is actually built. Today, you ask any urban consumer in any metro city in India "which is the healthiest cooking oil"? Chances are bright that the answer will be "olive oil". Ten years ago, how many of us had even heard of olive oil or seen a bottle of olive oil in any supermarket or any grocery shop? Almost none. So, how did we build this perception in our minds in the last 10 years? Which salesman came to our door and sold us the merits of olive oil? Which salesman ran after us attempting to pitch olive oil as a replacement to our established cooking mediums? The manufacturers built a sustained campaign over the years for olive oil - not as a replacement - but as the 1st choice for anyone who believed that a healthy cooking oil is what her family deserved. By promoting olive oil as the healthiest, it automatically demoted all others to less healthy. They didn't fight on taste, which is what other cooking oils were fighting on - they took a different plank, created their own positioning and sustained it over the years. Positioning requires single minded focus on a single communication over a long period of time, for it to penetrate into consumers' minds and remain there. Every olive oil manufacturer pitches olive oil as the healthiest cooking medium. Nobody moves away from that core proposition.
What does a washing machine mean to a consumer?
Lets take another example - maybe an extreme one - to showcase where we as an industry are going wrong. Washing machines have become indispensible household appliances across the length and breadth of the country. There are many washing machine brands in the country. Initially they showcased how washing machines were a better and more convenient alternative to hand wash and then, when that positioning was firmly entrenched in the consumer's minds, they started competing with each other on subtle product attributes - top loading vs front loading and so on. Now, it so happens that many restaurants and dhabas in Punjab discovered long ago the convenience of using washing machines for making lassi. It opened up a new niche for the manufacturers. But, did any of them even dream of coming up with a campaign highlighting the virtues of washing machines as lassi makers? What would have gone on in a consumer's mind if he saw one ad of a washing machine promoting its convenience over hand wash for clothes and another ad promoting the same product as a lassi maker?
How is this example relevant to us? It is very relevant, though a somewhat extreme example, because our single biggest failure in the industry is the lack of a unified positioning of what a mutual fund is. The more we get into peddling accrual funds in season 1, switch to equity funds in season 2 then move on to thematic equities in season 3 and then to duration based income funds in season 4, the more confusion we are creating in an investor's mind on the fundamental question : what is a mutual fund and what does it do for me?
What should be a mutual fund's core proposition?
Just as the olive oil industry created its own niche on a plank that nobody could compete on, and a plank that served a consumer's need, AMCs must come together to create and promote 1 unique proposition that no other financial product can match. To us, the answer is very clear : inflation beater. Inflation - mehangai - is a big problem for every Indian household. We all fight inflation every year by working more and trying to earn more to preserve our purchasing power and standard of living. None of the financial instruments that a retail saver puts his money in, helps him in his effort to fight inflation. None. It is only mutual funds that have the ability to fight inflation and have the track record of having done so. When we have such a powerful solution to such a key problem of every Indian, why can't we just focus on this one attribute and collectively raise awareness on this single plank? Let every Indian saver know that his only friend in fighting inflation is a mutual fund.
Let us also understand one thing clearly. The biggest challenge that prevents so many retail savers from meeting their life goals including children's education, marriage and their own retirement is the fight for so many years against rising costs of all these responsibilities. Without inflation, many of these goals suddenly become more achievable. Throw in inflation - which is a hard reality - and the numbers start to look daunting when you look at goals 10-20 years down the road. If you find a way to combat inflation, you are on your path to achieving your life goals. Without an inflation fighter by your side, life becomes an uphill struggle. No financial instrument other than mutual funds has the capability to help you win this fight and realize your dreams and aspirations. What more do you need to sell this product, if only we are able to consistently position it in this manner?
We are not suggesting that inflation fighting as a plank has not been communicated before. All we are saying is that it is critical that this should be the ONLY plank - this should be the core proposition for the product across the industry. Imagine if one washing machine manufacturer pitched his product as a lassi maker, another pitched his as a superior clothes washing solution and a third found another niche and pitched his product as such. How much confusion will the industry successfully create in the minds of the consumer about what a washing machine is supposed to do for him! In just the same way, if one fund house talks about inflation fighting, another talks about closed ended small cap equity fund and a third talks about a gilt fund to ride an interest rate curve, what will the investor understand about a mutual fund and its core function in his financial life?
Dealing with "risk"
What is the biggest objection of retail savers against mutual funds? That they are risky. Our regulator also insists on highlighting this in every communication. What should we do about it? A loser will complain and whine. A smart marketer will convert it into a positive. Every investor knows that without risk, you don't get healthy returns. Millions across the country have tried their hands at "safe" high interest bearing products from chit funds and assorted scamsters and have burnt their fingers. Every individual internally understands that in life there is nothing like a free lunch. All we need to do is to change our communication to say "Thoda risk faydemand ho sakta hai" - a little risk can be beneficial. People understand this. We just need to communicate this loudly and positively. Then we can go on to say how to mitigate this risk - whether through SIPs or hybrid products and so on. But, we must convert a perceived negative into a positive by pointing out the fallacy of safety in any other product that promises inflation beating returns.
Key success mantra : lage raho
For us to collectively create a unique positioning in an investor's mind that mutual funds are his best friend in his war against inflation, we must all collectively say this, over and over again, for years on end. Positioning is not built overnight - it requires conviction and perseverance to stay on the chosen path. Every ad of every AMC must highlight mutual funds as inflation fighters. Every investor awareness session conducted anywhere in the country must have a single theme - mutual funds are the best inflation fighters among all financial instruments. Mutual funds are your only friend in your war against inflation. Keep communicating this all the time, and you will find that over time, we don't have to sell mutual funds as a replacement to anything but as the first choice for anybody who wants to fight inflation.
AMCs must distinguish B-to-B and B-to-C communication
This approach that we have articulated, will call for some changes to be made by AMCs as well as by distributors. Lets take AMCs first. Every AMC will want to make its own media presence with a view to gaining market share. This will obviously continue. However, in media interactions, most CEOs and CIOs provide market and sector outlook. Invariably, discussions revolve around which sectors will do better and which themes look most promising. Our request to AMCs is that it is time to distinguish B-to-B communication from B-to-C communication. All the views on sectors, interest rate views, currency views etc are no doubt valuable inputs for advisors in their asset allocation decisions for their clients. But, the same communication causes confusion for a retail investor. An investor who sees a prominent CIO on TV talking about infra sector, will go to his distributor and ask for an infra fund, notwithstanding the fact that his distributor had recommended a diversified equity fund 3 years ago, which the investor has made good money on. Our request to AMCs is when you speak to investors, please keep reinforcing the inflation fighter concept, keep reinforcing how mutual funds can help them meet their life goals and keep reinforcing the need for discipline and patience to achieve financial objectives. Use different ways to communicate this - but the message should be only this.
When you speak with distributors and advisors, you can give all your sector and thematic views. Some advisors will use this to make portfolio decisions for their HNI clients, more retail oriented distributors may not find too much value from these inputs in managing their clients. If the fund industry is able to sharply distinguish its business-to-business communication from its business-to-consumer communication, we will help prevent a lot of confusion in the minds of a retail investor.
Empower distributors to carry your messages
Of late, some AMCs have really started doing excellent work in communicating simple messages in an effective manner to retail investors, as part of their investor education initiatives. Many AMCs now have TV spots which promote these simple concepts very effectively. This is truly encouraging. What will add wings to AMCs efforts is if they can empower us distributors to carry these messages to all our investors and prospects who we connect with through our websites and our social media presence. Give us these videos and enable us to add a small pitch about our proposition at the end of your videos - and we will be delighted to carry this joint message to all our contacts. Think of how many more touchpoints you will get, if you empower us. Think of the impact on investors - they see your ads on TV, they see these messages when they log on to our websites to get portfolio updates, they see these videos in social media pages that we are active on - when they see the same messages all around, it will hit home a lot more effectively than only TV spots which you will have to keep buying all the time to maintain visibility. We can help maintain visibility a lot more cost effectively, if you can empower us.
Change in focus required from distributors
In most of my interactions with my distributor friends - whether on WhatsApp or in conversations, I find too many of us spending too much of our time in tracking markets, sectors and themes and trying to figure out where next will the most money be made in the next 6-12 months. It is really time for us to make up our minds clearly on what is the proposition we are offering to our investors. If you are in the retail segment and would like to offer goal based planning services, why should you waste your time on all this market forecasting? Aren't you better off spending that time in educating more clients and prospects about financial planning and about mutual funds as their best inflation fighters? Why even think of offering them short term and thematic ideas when you have decided that goal based financial planning is your proposition? If you are advising HNI clients and have taken a mandate to deliver alpha, all of this time spent on markets and sectors is the right thing to do. But, if you say on the one hand that its not your job to deliver alpha, and then you spend so much time figuring out where alpha can be created or where is the next good beta idea, aren't you contradicting yourself? Aren't you confusing your investors?
On a lighter note, we find it amusing as well as distressing that advisors come on TV giving alpha and beta ideas and CIOs come on the same channel and urge investors to adopt asset allocation as a way of life. The day is not far when we will find R&T agents coming on TV to give portfolio allocation advice! Jokes apart, the point we are making is each stakeholder in the value chain has his core competency and his role in the overall scheme of things. Its best if we recognize our role and do full justice to our role, rather than diffusing our focus into areas which are not our core competencies.
Just as we are asking AMCs to maintain consistency of messaging, it is our job as distributors to do likewise. Its only when the entire value chain speaks one voice that the investor will hear it loud and clear. And the single message to retail Indian savers should be a simple one : mutual funds are your best friend in your fight against inflation.
Share this article
|
Pawan Agarwal and Ashish Goel share a wonderful relationship of mentee and mentor, with Ashish giving Pawan a lot of valuable practice management inputs. This is not a one-off arrangement, but part of an institutionalized process within DFDA (north India's largest IFA group) where the senior members take up mentoring responsibilities of 2 DFDA members each, to enable seamless transmission of business development ideas across the tightly knit group. This arrangement encourages frequent brainstorming sessions within the group - this article is a product of one such brainstorming session. Pawan and Ashish make a very important point about why retail savers by and large still do not consider mutual funds. They also give the industry valuable food for thought on how mutual funds ought to be positioned in the eyes of the investor and where we are collectively going wrong in positioning. AMC senior management would do well to reflect on this very thought-provoking article and take suitable action to strengthen our industry's ability to connect better with retail savers.
