You were saying that Mahindra AMC's main focus would be rural areas. But the fact is that even insurance penetration in rural areas is abysmally-low and you know insurance is essential for everybody. In this context, how do you expect people in villages to buy mutual funds, an alien concept of investment in the country's hinterlands?
This CEO sees 5-fold jump in Mutual Fund biz
I will tell you a story. A gentleman came to India in 1920s or 30s. Wherever he went, he noticed that nobody wore shoes. People used to walk barefoot everywhere. That was a huge surprise for him. He kept thinking about it. Then, he sent a message to his factory manager back home, saying that he would not come back. For him, opportunity in India was fantastic.
He then said that when nobody was wearing shoes, he could sell shoes to everyone. That's how we are thinking. I don't know what the potential (for mutual funds) is in rural areas. But I know that they are not buying mutual funds there now. So, they will buy.
The key question is how you will be able to convince them. Don't you think it will be a difficult proposition to sell MFs in small towns and villages?
The main issue is that alternatives for investments are shrinking, especially in villages. Land has been the main investment option for villagers, but it is very expensive now. A farmer obviously needs more land.
But now they can't buy it. So is also the case with gold. Before we started this business, I travelled a lot across the country to check the demand for mutual funds. During that time, I went to Punjab, a progressive state for investments.
Mahindra Finance team took me to one of their customers - a farmer who bought three Mahindra tractors, two Mahindra Boleros. When you go to a house in Punjab, they will first treat you to a sumptuous food, then talk.
That's their custom. After the formalities, the farmer asked me to explain about the mutual funds. Then I asked him what did he think of Mahindra company. He said it was a good company. I asked him whether they bought any TV. He said his family used Sony, Videocon and other brands of television sets.
Then I asked him whether he was interested in investing in Mahindra, Hero, Sony companies. His reply was that why such big companies would allow him to invest in them when they had so much money. Then I told him that it is my job: taking money from people like him and investing in good companies. He understood the concept and said he would invest. That's how we try to convince them. But it takes time.
We have the concept of HNIs (high net-worth individuals). But they are basically from the urban areas. But there are high net-worth individuals in rural areas and villages as well. How do you plan to tap them?
We are trying to do that. That's why we strongly believe that there is a huge opportunity out there in rural areas. But the understanding and awareness is not there. At Mahindra, we take care of that.
Through Mahindra Finance, our parent company, we are selling loans to them. Mahindra Finance has 1,150 branches that connect to over 3 lakh villages. Of course, it will take a lot of time to reach there. And it's expensive too. It's very difficult to get distributors in hinterlands and that's the key hurdle.
It's a fact that people in villages don't have a stable and regular source of income. It's cyclical in nature. They get decent returns if rain god blesses them.
Otherwise, they will not have any extra funds for investments. So, how do you tackle this?
We need to realise that 80 per cent of Indians rely on cyclical sources of income. Only 20 per cent are salaried. Famer is also a self-employed businessman.
He gets income twice a year or if successful, thrice a year. We advise them to invest in those schemes where they can opt for systemic withdrawal option. We offer different solutions for different people.
It’s good that you are focusing on rural markets. But what percentage of your customer base is from small towns and rural markets?
We have 75,000 customers on board as of now from as many as 300 cities and their nearby places. Nearly 35 per cent of them are for rural areas. For other MF companies, it's not even 10 per cent. That shows we are on the right track.
But we have a goal to take the rural pie in our customer base to 50 per cent in five years. As of now, we have five MF schemes. We will launch four more. I think that's enough for us as we are just 18-month old.
How do you see mutual fund market evolving over next few years?
In India, the worst economic scenario is over now and every segment is witnessing spurt in demand. Midsize businesses are doing pretty well while for large businesses, demand will come back as time goes by. Even in the bad times, we clocked a GDP growth of 7.1 per cent. We will do 9-10 per cent if times are good. It's standard practice that market capitalisation of companies rises if GDP goes up.
Our GDP is at $2.3 trillion while total market capitalisation is $2 trillion now. If the GDP goes up to $3 trillion, then market cap will go up to $2.7 trillion, which translates into 35 per cent growth. The current bull run in the market is a seven-year cycle and it will continue for five more years.
But have you anticipated the kind of explosive growth that's currently happening in mutual funds sector?
Investment avenues have narrowed now as gold and real estate are not giving returns. Bank deposit rates are at the lowest. So, where will people put their money? Obviously, they have to invest in stock markets which are giving good returns.
Moreover, there is national campaign happening on mutual funds. It is helping the sector acquire legitimacy. The mutual fund market in India will reach Rs 100 lakh crore by 2025 from Rs 20 lakh crore now. That's when real golden run in this segment will begin. I firmly believe it will happen.