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Is investor education in MFs a myth?

india Updated: Nov 30, 2013 00:48 IST
Kayezad E. Adajaniaa
Kayezad E. Adajaniaa
Hindustan Times
Highlight Story

It’s hard to miss all those mutual fund (MF) advertisements on bill boards across India. Asset management companies in the Rs. 8.07 lakh crore Indian MF industry have started to issue advertisements as part of investor education campaigns. Most of the advertisements aim to tell you about the virtues of putting money in MFs. The question we’re asking is: do these advertisements really give you the right message?

In a discussion between marketing and communication officials at an MF industry conference hosted by Cafemutual, an independent forum for MF professionals, on how to impart meaningful investor education, most panelists said the present bout of advertising isn’t expected to make much of a difference when it comes to educating investors.

Last year, the capital market regulator Securities and Exchange Board of India (Sebi) ruled that all fund houses must spend at least two basis points of their overall total expense ratio on investor education. That is about `160 crore just to spread financial awareness. The MF industry took the view that advertisements (those that spread MF awareness) come under investor education.

“These advertisements are very inward-looking,” said Bobby Pawar, director and CEO for South Asia and India at Publicis Worldwide. “I get the feeling that they are still trying to sell a product rather than solve the problem that Sebi has asked them to solve.” Adds Ravi Kiran, co-founder of Friends of Ambition, a business growth platform for relatively smaller towns and cities in India: “These advertisements don’t speak to me; they don’t tell me something that I don’t already know.”

What is investor education?

The experts present on the panel felt that investor awareness camps aren’t necessarily the most effective way of spreading awareness of MFs. “Most of the people who attend these investor awareness camps are people who have been around, slightly elderly. These people have been investing — even if it’s just been in fixed deposits — for the past 10-15 years or so and therefore come with deep prejudices.

Firstly, fund houses should talk to them like school teachers and not like product manufacturers. Secondly, it’s a better idea to target the young population who have just started earning. This lot is ambitious; they want to invest and accumulate wealth and are more ready to learn,” said Pawar.

Sundeep Sikka, CEO, Reliance Capital Asset Management Co Ltd and a panelist, said that while he agrees that investor awareness camps should be meaningful, investor education has several mediums. “Investor education is a behavioural change that takes several years and it’s a long journey. And so, we need a 360-degrees approach; this involves not just advertisements, but also on-the-ground support and guidance, advocators of the industry and so on.”

To be fair, the Association of Mutual Funds in India (Amfi, the MF industry’s lobby group) recently took steps to streamline the way fund house organise such camps. Earlier, fund houses were free to conduct camps wherever they wanted. This resulted in duplication; many districts were not touched by fund houses while some districts were covered by multiple fund houses. Recently, Amfi put up 200 districts for adoption and invited fund houses to take responsibility of financial literacy in districts that they choose.

Experts felt that fund houses should try out other mediums apart from conducting camps and airing television advertisements. “Last night, I was just searching on the Internet, on YouTube for any educational videos on MFs. If I am a reasonably Internet-savvy investor and I want to learn about MFs, I would search on the Internet. The most recent videos I found were all advertisements. If fund houses are genuinely concerned about investor education, they would break away from the 30-second TV ad barrier and create multiple 2-3 minute communication videos,” said Kiran.

“The biggest and mostly untapped way for the MF industry to take investor awareness and education forward is through better usage of the digital medium. The mobile phone is proving to be the first real and meaningful access to the Internet for a vast number of Indians,” said Sourabh Mishra, group chief strategy officer— India, Bates CHI & Partners, and a panelist.

Can success of investor education be measured?

Since fund houses will now spend two basis points of their expense ratio every year on investor education, some experts on the panel, like Kiran, felt that progress should be measured and monitored “because money is being spent here.”

“Results are important to measure, if only to know that we’re on our planned path. ‘defining advertising goals for measuring advertising results’ is a good method,” added Mishra.

Sikka doesn’t agree: “MF advertisements and investor awareness campaigns are not two-minute noodles. It takes years to convince a large section of the population to invest in instruments like MFs and most importantly to understand what it really is.”

True. But the Rs.160 crore they have to spend every year on spreading investor awareness is a sizeable sum of money and if fund houses claim it’s tough to monitor progress, they would need to ensure that they, at least, communicate effectively.