Infiniti: Sales and Distibution of Mutual Funds

Infiniti and Growth of Mutual Fund market in India Infiniti started off as a pure investment bank in India, it was distributing mutual fund products in India in 1994 when there were no MF distributors.In 1997, Infiniti launched its own Mutual Fund.Infiniti mutual fund had performed well in the year ending march 31, 2006. It had assets under management of more then Rs. 6000 crore and had improved its position amongst mutual funds to the seventh spot(from the tenth spot) in terms of asset under management Mutual fund market in India is growing at a good rate. People are started taking interests in mutual funds as an avenue for for financial investments. The middle and high income population had been growing at 10 percent a year in the decade to 2005, according to a study by ICICI bank. There had been 20.9% growth in real disposable income of middle class households in 1999-2003 and this section of the population are more likely to invest in mutual funds. With increasing market liberalization, growth in demand for financial products, including mutual fund, was expected to continue. Over the five years to 2010, Indias population looks set to grow by 100 million and the consuming category to rise by 280 million. Current penetration levels are low (only 8% of Indias population is currently insured) but banks with a wide variety of distribution network and established customer relationship have a good opportunity in mutual fund market. This results in 77% compound annual growth in sales of Mutual-funds. But govt schemes like Employee provident fund, NSC, RBI bonds etc were a great threat for mutual funds as they had a relatively high fixed returns as well as with the security they offered, there was a little motive for individual investors to invest in mutual funds. Some of the fraudlent activities in the 1990s also eroded investor confidence in mutual funds. Distribution Of Mutual Funds 1. Different AMCs (Asset Management Companies) distribute mutual funds through banks, brokers, non-banking financial companies, and financial advisors. 2. Indian banks also have a large distribution reach(about 70,000 branches and 15,000 ATMs). 3. There are 153,000 post offices that are capable of processing money orders with 138,000 of these in rural areas(post office serve 634,321 villages and 4,869 towns)

4. There are sales people also linked to general and life insurance firms, brokers, and mutual fund distributors.UTI and LIC have a large distribution network of agents. 5. There are very few direct outlets of AMCs. Distributors of Mutual funds need to be certified by the AMFI/SEBI certification programme. 6. Distibution network of Infiniti Equity Funds

Channel Intermediates The sales and distribution structure for mutual funds if Infiniti was as follows: a. The retail end i) ii) 3200 distributors empanelled. They register themselves with MF firms to distribute MFs for AMCs. Distributors are split into categories a.) National distributors- with all india presence and name ( Citi, JM Morgan, Karvy, StanChart) b.) Large regional dealers/brokers, strong regionally. c.) Independent financial agents d.) Public sector banks ( union bank of india, bank of india etc) b. The institutional end i) There are approximately 600 firms that are large enough to have treasury operations that form the target market for the direct salesforce.

Sales force Infiniti had a sales force that handled both institutional and retail sales of mutual funds.Infiniti used other banks and brokers to sell its mutual funds. The Infiniti sales force was organized as follows. There were a total of 30 sales people that were distributed between institutional and retail sales Major challenges Churn

One of the main challenge for Infiniti as well as for the whole industry is to reduce the churn in the market. Distributor and brokers were paid a commission every time they sold a mutual fund, therefore they encourage retail customers for short term buying and selling to increase their incentives.This will lead to churn in the market and it is the major problem in creating long term investments for the company. Fee and Commission Structures Corporate customers are more sensitive to fee rates than retail investors because of their large size transactions. Managers are ready to cut theircharges for larger transactions. AMCs are competitive pressure to keep overall fund costs down. The other major cost to AMCs companies is the need to pay commissions to distributors.These commissions will often have the effect of eroding the asset management companies fee revenue. Consumer Behaviour In India, investors consider mutual funds risky as compared to other fixed deposits, government bonds, gold and the property. Some incidents in early 1990s and early 2000s(Harshad Mehta and Ketan Parekh scams) have also a great affect on the investors. Retails investors would evaluate funds mainly on the basis of past performances, the brand equity of fund house, the amount of commission they had to pay, and distributor recommendations.

Segmentation Infiniti followed a system of categorization by value of investments as follows 1. HN1 (individuals with assets more then Rs. 1 crore) 2. HN1 100- assets between Rs. 25 lakh and Rs. 1 crore 3. HN1 15- assets between Rs. 5 lakh and 25 lakh 4. Retail 5- between Rs. 1 lakh and 5 lakh. 5. Under Rs. 1 lakh.