Distribution and Promotion of Mutual Fund

A new mutual fund product may have all the desired qualities but that does not ensure its spontaneous acceptance by customers. Success would greatly depend on appropriate distribution and promotion. The identification of appropriate market segments for the product, selection of appropriate distribution channels and promotional aids are essential.

Till the advent of public sector mutual funds in 1987 and private sector mutual funds in 1993, the marketing strategy followed by UTI was largely passive.

UTI units have been mainly sold through LIC agents whose job is really marketing insurance. Marketing intermediaries like agents/brokers in India, moreover, are under no obligation to follow any norms unlike the USA, UK and Japan.

While Indian mutual funds still depends mostly on retailing, a distinct change has been noted in marketing strategy after 1993.

The major market intermediaries are: agents appointed by respective mutual funds, stockbrokers who are members of stock exchange and are registered with the mutual fund, institutional and corporate agents.

Public sector mutual funds like LIC MF and UTI have an edge over others due to their well-established agency network. Though the corporate offices formulate the overall marketing strategy and co-ordinate the activities relating to publicity and product distribution, local level activities are supervised and coordinated by the zonal and branch offices. For example, UTI has four zonal offices and 44 branches; LIC MF has seven area offices. Other mutual funds also have regional offices, which promote sales at the local level.

Recent innovations in marketing aim to reach particular target groups. For example:

To market its income-cum-growth scheme in 1993 a bank-sponsored public sector mutual fund sent application forms to all the credit cardholders of the sponsoring bank. It is reported that about 10 per cent of the total collections came from the cardholders.

A public sector mutual fund, which launched a growth scheme in 1994 tied up with a foreign bank and the holders of credit cards of this bank, could pay for the initial subscription through credit cards.

Many mutual funds offer incentives for early subscriptions; some mutual funds also offer insurance benefits to attract investors.

An emerging trend is the distribution of schemes through merchant bankers. A number of funds have appointed lead managers to their schemes. The merchant bankers distribute the scheme through their booking wings that usually have wide network of sub-brokers.

Distribution of application forms through a tie-up with newspapers is also now a common practice.

Product promotion in India has taken the usual routes of advertisement and publicity. Mutual funds advertisements are regulated by SEBI, which prohibits materials and contents of publicity that may mislead the investing public.

Communication is important for effective marketing and communication through advertisement is the most important promotional aid for a mutual fund. Once the target group and its requirements are identified, an appropriate advertisement strategy is devised in order to reach the maximum number of potential customers. Advertising campaigns must aim at creating awareness of the product, its comparative advantages and future potential, past performance of similar products and superiority of the fund in relation to others in terms of assets, management and performance.