Chapter 4 Marketing of Mutual Funds

One of the primary job as a trainee in N.J. India Invest was to market the various schemes of
Mutual Funds to various clients. N.J. India Invest is a distribution house which distributes Mutual
Funds to the general public via its network of agents and partners. The trainees are assigned to a
partner and they have to pitch the schemes of Mutual funds to the clients of the partners. Details
about mutual Funds and the various schemes available have been discussed in the previous
chapter and this chapter will focus on the marketing aspect of Mutual Funds.
4.1 Market structure Before marketing of any product we must study the structure of the
market. This structure will determine where we should market the product so that it gets the best
response from the public. To study the market structure we must first divide the market into
different segments then choose our target segment. This is because no product can be pitched to
every person in the population. We have to then position the product so that the public is attracted
to it. Thus Segmentation Targeting and Positioning are extremely important before the marketing
of the product.
4.2 Segmentation The purpose of segmentation is to divide the whole market into smaller
segments so as to better understand the market and pitch your product to the right segment of the
population. There is no product which can be marketed to the entire population and if one tries to
market it to the entire population then it is a waste of the resources. To ensure the optimum
utilization of the resources we have to divide the market into smaller segments and concentrate on
the segment which will be most receptive of the product.
Mutual Funds are a financial product Education
and so it is imperative that one of the
basis of segmentation will be income.
For mutual funds first we will use the
Socio Economic Classification or SEC
to segment the market. SEC is a
system that combines social and
economic factors through intelligent
use of the demographics of occupation
and education.7 It is considered to be
an alternate to pure income based
classification. The SEC classification
is as shown in the table below. 17
Occupation
Illiterate Less 5-9 yrs School Some Graduate Post-
than 4 of school certificat college graduate
yrs in e
school
Skilled E2 E1 D C C B2 B2
Unskill E2 E2 E1 D D D D
ed
Shop D D C B2 B2 A2 A2
owner
Petty E2 D D C C B2 B2
trader
Employer of-
Above B1 B1 A2 A2 A1 A1 A1
10
persons
Below C B2 B2 B1 A2 A1 A1
10
persons
 None D C B2 B1 A2 A1 A1
Clerk D D D C B2 B1 B1
Supervi D D C C B2 B1 A2
sor
Profess D D D B2 B1 A2 A1
ional
Senior B1 B1 B1 B1 A2 A1 A1
executi
ve
Junior C C C B2 B1 A2 A
executi
ve

Another criterion for segmentation of the market in case of mutual Funds can be the age of the
potential investors. This is because the risk appetite of the investors varies with age. At the start
of the career the investor has higher propensity to take the risk as they have stable income source.
As the age advances the risk taking ability reduces. After retirement when there is no stable
source of income and so the risk taking ability is reduced. As per the age criterion we can define
the segment of the market as being below 35, 35 – 60 and more than 60. 18
4.3 Targeting After the market segments have been decided we have to look at which particular
segment of the market are we going to target. This is because no product can be marketed to all
the segments of the society. In case of Mutual Funds we have to target the segments based on the
different types of Mutual Fund schemes.
Using the SEC segmentation as a substitute for income based segmentation we can target the A,
B and C segments of the market. These are the segments which have a good source of income to
be able to invest in the mutual Funds. They are also educated and as a result can easily understand
the benefits of investing the money.
Among the A, B, C segments we can offer the C segment only SIP schemes. They don‟t have
that high a disposable income to be able to invest a large amount at one time but can invest a
small amount regularly. Many Mutual Fund companies have brought out various schemes
targeting this particular segment. For example Reliance Mutual Funds has SIP schemes wherein
the investors can start an SIP of only Rs. 100 a month.
The ELSS schemes can be marketed to A segment of the people because they are the taxpayers
and the schemes which help them in tax planning are going to be attractive to them.
As discussed earlier the risk appetite of the investors changes with age. So we can market equity
based funds to the people below the age of 35. These people have high risk appetite and so a fund
which gives high risk and high returns will be considered to be a good investment option. For
people between the ages of 35 to 60 we can offer a Balanced Fund which gives the best of Equity
and Income Schemes and has an acceptable level of risk while giving a good return on the
investment. In case of people over the age of 60 who have retired and so don‟t have a steady
income source we can offer Income Funds and Money Market Funds to them as they have less
risk and give guaranteed returns.
Thus it is seen that targeting the different schemes of the funds to different segments based on the
income and age is very helpful as one is able to identify the financial requirements of the investor
and guide him or her in a very effective manner.
4.4 Positioning Apart from segmenting a market and targeting a particular segment it is also
essential to position your product in a correct manner so that the customers receive it
successfully. Mutual Fund is basically a wealth creation product unlike insurance which is to be
used for Risk Cover. Many people have the belief that as they already have insurance they 19
have invested in a good product. The need is to tell the people that undoubtedly a great product
but it can‟t be used as a substitute for wealth creation.
Apart from positioning Mutual Funds as a wealth creation product we have to position the
various schemes of the Mutual Fund based on their function. Thus the SIP should be positioned
as a low cost investment option which even a person with low income can avail of while ELSS
should be positioned as a scheme that gives the investors tax benefits. The Income Funds and
Money Market funds should be positioned as low risk investment opportunities.
Good positioning of a product makes it more attractive to the potential consumer and he is able to
make an informed choice about the product.
4.5 4 P’s of Marketing in marketing management there is a concept of 4 P‟s of marketing. It is
essential to understand the 4 P‟s of marketing which are Product, Price Place and promotion
before trying to market any product or service. The knowledge of the 4 P‟s of marketing will help
us in understanding the product and in successfully convincing the customers to buy the product.
The 4 P‟s of marketing in case of Mutual Fund can be described as follows.
4.6 Product The product that we are trying to market to the consumers is Mutual Fund which is a
financial product created for the purpose of investment and wealth creation. We must be able to
explain the product to the customers. We should tell them that how they can invest the money in
mutual funds and get a good return on their investment. We should explain the advantages of
investment in the Mutual Funds. In times of slowdown as being witnessed recently the investor
confidence is very low. We have to convince the investors that though the stock market has
crashed and many investors have lost their money the markets are now on an upswing and the
prospects of a stable government in the centre will give a further boost to the markets. Thus this is
the best time to invest in Mutual Funds as an investment product.
We have to explain to the investors that though there are always risks associated with the Mutual
Fund investment these risks are negligible in the long run where it is seen that the investments
give good returns which even beat the stock market.
We have to sit with the investors and analyse carefully what are their requirements and do a
detailed financial planning session with them. This allows us to select the best schemes from 20
the basket of schemes available to get the investors the best possible return on their investments.
Thus it is seen that we must have the thorough knowledge of the product while at the same time
we must be able to convey this to the customers so that they are interested in buying our product.
4.7 Price One of the major factors in the marketing of any product is its price. The customers
want to know what price they are paying for the product or service and whether the price is
justified and the product or service is „Value for Money‟.
In case of Mutual Funds there are two components of the price. The first is the minimum amount
that can be invested in a particular scheme. This amount sets the base price for the scheme. The
investor if he or she so chooses can invest a higher amount than the minimum depending on his
own income and financial position. There is generally no upper limit in the amount to be
invested. The next component is the Entry/Exit load that the AMCs charge for various schemes.
These are generally 2-3% of the amount that has been invested but they differ from scheme to
scheme. Some schemes may have no entry/exit load for investment.
The financial planner must explain the prices of investing in the fund to the investor so that he is
kept knowledgeable about how his investments are going to work. In the highly competitive
Mutual fund industry the AMCs generally keep the price low so that the investors are attracted to
invest in their schemes. It is seen that the minimum amount to be invested is lower in case of SIPs
as compared to other schemes because the investors have to invest that amount on a regular basis.
This is also done to attract the small investors for whom the main source of investment is the
saving bank account. Reliance Mutual Fund has revolutionized low cost SIPs by allowing
investors to start SIPs for as low as Rs. 100 per month.
4.8 Place The place where we sell the product also plays an important role in the marketing of the
product or service. The place is usually decided by the nature of the product or service that is
being marketed.
In case of Mutual Funds the place of marketing is very important. The AMCs have enabled the
investors to directly buy the Mutual Funds from their own offices in the cities or through their
websites. They also have setup a wide network of distribution houses and agents to bring their
products to the investors. 21
Many of the agents and financial planners have their own offices either at a market place or at
home. It is cheaper to have your offices at home as the rent is lower and you can easily connect to
many potential clients who live in your neighbourhood. Selling of Mutual Funds does not need an
elaborate office setup and only needs a computer with net connection. Many people do not like to
go to a market place to do their investments and generally prefer to go to the offices in their
neighbourhood.
A large number of people don‟t have the time or inclination to go to any office. The Mutual fund
agents contact them directly via telephone and set up the appointments either at the offices or
homes of the potential investors. The agents also prefer this because this gives them a chance to
attract other potential investors to the product and explain the benefits of investing in Mutual
Funds.
Thus we can see that the place for selling the Mutual Fund ranges from the websites and offices
of the AMCs to the homes and offices of the investors and the agents. Thus the basic idea is to
bring the Mutual Funds as close to the investors as possible.
4.9 Promotion Marketing of a product or service is incomplete without an effective promotional
strategy. Without promotion the general public will not know about the product or service in
question and thus will not buy it. Thus promotion is essential to spread the word about the
product or service.
In case of Mutual Funds the AMCs spend a lot of money in promoting the various schemes. They
take out advertisements in various media like newspapers, television internet etc. When a new
scheme is launched the different agents are invited to attend seminars where the details about the
product are presented. This is because the agents are the people who come in direct contact with
the public and promote the products. The agents are also given promotional materials like
brochures posters mailers etc to be displayed in the offices or sent out to potential clients.
The distribution houses like N.J. India Invest also give a lot of promotional materials to the
agents who are associated with them. Apart from the materials the employees of the distribution
houses and AMCs also go with the agents on joint calls where a large number of potential
investors are addressed at the same time. 22
Cold calling and emailing are also promotional tools which are extensively used and the agents
hire telecallers to give calls to potential clients to set up appointments and sell the various
services. Some agents also make use of canopies which are put up in public places to attract the
customers to invest in the various schemes.