Large distributor network, passive funds can boost MF reach: Usha Thorat

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The mutual fund industry needs to build a large distributorship, introduce plain vanilla products and focus on passive schemes to boost market penetration, said Usha Thorat, chairperson of SEBI’s Mutual Fund Advisory Committee.

Speaking at the Business Standard BFSI Insight Summit recently, Thorat cited a AMFI-BCG report to stress on the importance of distributors. “The report shows different strategic ways to build a large distributorship in T30 and B30 areas. The potential is especially huge in B30 areas,” she said.

“Distribution mechanism is something we need to think over because unlike the banking sector, mutual funds do not have outlets to service investors,” she added.

The chief of SEBI’s MF advisory committee listed a few other areas which when worked upon can enhance the reach of mutual funds.

The first being the product itself. Thorat called upon AMCs to introduce simple products that can suit the needs of majority investors. “AMCs need to look at individual investor preferences in terms of their lifestage and requirements. There’s a need for a set of plain vanilla products that can suit the needs of typical investors,” she said.

To reduce complexity and make the products simple to understand, Thorat said AMCs should launch marketing and awareness campaigns in local languages.

‘Huge scope for passive schemes’

Noting that many actively managed funds are not being able to justify the high costs, Thorat pushed for a larger focus on passive schemes.

“Studies show that actively managed funds are not always outperforming the benchmark to warrant the higher cost,” she said, adding that AMCs need to look at introducing more passive funds.

“Passive funds are a game of volume. Margins are lower but the volume will enhance revenues,” she said.