36

CHAPTER II

MUTUAL FUND / INSURANCE

DISTRIBUTION INTERMEDIARIES

& RETAIL INVESTORS

This focus of this chapter is to study distribution

channels prevailing in India as well as throughout

the world. While doing so, researcher has

maintained the focus on insurance and mutual fund

distribution channels. After finalizing working

classification of distribution channels, researcher

defined retail investors and also discussed

distribution intermediaries’ role towards retail

investors. Towards the end of this chapter

researcher reviewed retail investor specific studies

and discussed various emerging forms of MF / ULIP

distribution channels globally.

37

2.1 Importance of distribution channels for Financial Services

The financial services refer to services provided by the financial industry.

Thus the financial industry comprises of a broad range of organizations that

deal with the management of money. Among these organizations are banks,

insurance companies, consumer finance companies, investment funds and

stock broking companies.

Lovelock (1983)1 classified services based on various criterions like nature of

service acts, who receives the service, nature of service delivery, type of

relationship, need for customization, need for judgment by customer contact

staff, demand – supply fluctuations, availability of service outlet, customer –

service provider interaction. Researcher applied these bases to financial

services and the scenario emerged is as follows: -

- Financial services are intangible and they are directed towards

things.

- Continuous nature of service delivery.

- Formal relationship between service provider and customer

- High level of customization is needed.

- High level of judgment is needed from customer contact staff

- Low demand fluctuations. Demand is met without major delay.

- Service availability at multiple outlets

- Mainly organization comes to customer but increasingly even

customer goes to organization. Due to technology both i.e. buyer

and seller transact at arm‟s length.

These all characteristics of financial services make distribution channels very

significant. Mutual funds and insurance are those modern financial services

which are needed by corporate as well as retail customers. This entire chapter

will portray various retail distribution channels prevailing in both insurance

and mutual fund industry.

2.2 Mutual Fund / Insurance Distribution Channels worldwide

There are wide differences across the countries in terms of how mutual funds

are distributed. Let us start with mutual fund distribution channels prevalent in

USA.

38

Mutual Fund distribution structure prevailing in USA is well described in

various literatures. An official source for classifying Mutual Fund distribution

intermediaries in USA is reports and various publications of Investment

Company Institute (ICI). ICI classifies MF distribution channels into three

types as shown in Table 2.1 below: -

Table 2.1 – Mutual Fund distribution channels in USA

Type of

Channel

Employer or

Retirement

Channel

Sales force

Channel

Direct Channel

Channel

Members

Employees are

investing in

defined

Contribution plans

through employers

Full service Broker Direct Mutual

Fund company

Independent

Financial Planner

Discount Broker

or NTF (Non

Transaction Fee)

supermarket Banks

Insurance Agent

Share of

channel as

on 2001

48 percent 37 percent 15 percent

Compiled from: www.ici.org

U.S. mutual fund distribution has been concentrated on full-service broker-

dealers which maintain large retail sales force capable of penetrating the

household or retail sector and which are compensated mainly on the basis of

commissions. In recent years, discount brokers have made substantial presence

in mutual fund distribution, compensating for reduced sales effort and limited

investment advice by lower fees and expenses. Insurance agents account for

another 15 percent of U.S. mutual fund distribution which focus on mutual

funds with an insurance wrapper like fixed and variable annuities and

guaranteed investment contracts. Bank branches have played a limited role in

the U.S. Bank channel accounting for the relatively small 13 percent share in

United States Mutual fund market.

Apart from USA, Europe is dominant region for Mutual Fund Industry. The

European countries like Luxemburg, France, UK, Ireland and Italy are

amongst top 10 countries in terms of Mutual Fund industry asset size. These

five countries together manage 27.4 percent of total mutual fund assets of the

entire world. This makes European Mutual Fund distribution channels

important to our study.

39

As shown in the table below, mutual fund distribution through bank branches

dominates in countries such as Germany (80 percent), France (70 percent), and

Spain (61 percent), while U.K. distribution concentrated among independent

advisers (See Table 2.2). But Italian distribution roughly split between bank

branches and independent sales forces. Overall, contrary to US, European

mutual distribution is dominated by bank channel.

Table 2.2 – Share of various Mutual Fund /Insurance distribution

channels in European Union

USA Germany United

Kingdom France Italy Spain

Bank 8 80 10 70 43 71

Full service brokers 31.2

Dedicated Sales Force 25

Independent Sales force 20.3 14 50 44.1

Discount Brokers 8.6 6

Direct Channels 31.9 15 1.1

Others 30 11.8 29

Compiled from: Ingo Walter (1999)2 “The Asset Management Industry in

Europe: Competitive Structure and Performance Under EMU”

A closer look at United Kingdom shows that Investment Management

Association (IMA) disaggregates Mutual Fund (referred as Unit Trusts) flow

data by investor type and distribution channel into the seven Categories. From

retail investor‟s perspective, IMA classifies distribution channels into four

types.

1) Direct investment from Mutual Fund Company

2) Independent Financial Advisor;

3) Tied sales force;

4) Private clients - refers to portfolio management services offered by

banks, stockbrokers and law firms

The table 2.3 below describes each channel in detail.

40

Table 2.3 – Mutual Fund distribution prevalent in United Kingdom

Channel Description

Direct

investment

All sales and repurchases where the unit holder places the

deal directly with the Mutual fund company. This type of

business is likely to arise as a result of "off the page"

advertising, direct mail-shots or spontaneous customer

response to newspaper editorial coverage or fund

performance rankings.

Independent

Financial

Advisor /

intermediary

All sales and repurchases of unit trusts where the order is

placed through an Independent Financial Adviser /

Intermediary. Such advisers will normally be members of

a recognized professional body

Tied sales

force

All sales and repurchases of units in question where the

order is placed through a company's Direct Sales Force or

tied agents. It is important to remember that tied agents

could, for instance, include a bank or building society

branch selling units on behalf of a unit trust management

company from a different parent group.

Private

clients

All sales and repurchases of units arising as a result of

orders from an in-house private client discretionary

portfolio management service. . These could be execution-

only or advisory services, or they could even take the form

of discretionary services whereby the provider may trade

on behalf of the individual investor.

Aslam, John (2010)3 has classified Mutual fund distribution channel as a direct

& indirect distribution channel. Lakshmikutty Sreedevi and Baskar Sridharan

(2003)4 also observed distinction of channels in the developed markets as

personal distribution systems and direct response systems. Personal

distribution systems include all channels like agencies of different models

and brokerages, bancassurance, and work site marketing. Direct response

distribution systems are the method whereby the client purchases the

insurance directly. This segment, which utilizes various media such as the

Internet, telemarketing, direct mail, call centers, etc., is just beginning to grow.

In a nutshell, when it comes to insurance distribution channels one-size does

not fit all Dumm & Hoyt (2002)

5. Multiple distribution channels are the key

feature of insurance as well as mutual fund distribution.

2.3 Mutual Fund / Insurance Distribution Channels in India

Categorizing distributions channels in India is a difficult task, in particular

given the relatively poor disclosure by AMFI & SEBI of distribution activity

in the mutual fund as well as life insurance industry (as compared with

41

disclosure of performance data). Daniel Bergstresser, et al (2004)6 has also

encountered with this problem while conducting study on Mutual Fund

industry in USA.

As per IRDA, Insurance (ULIPs) products are sold in India through various

channels like agents, corporate agents (including banks), brokers, referral &

direct channels. As per AMFI, mutual fund distribution channels are classified

as corporate agents (including banks) and individual agents. As far as direct

channels are concerned, mutual fund companies are exploring various ways to

reach directly. Direct channels like mutual fund company‟s offices, websites,

telephone, mobile, ATM kiosks are evolved in the recent past. All these

channels and channel intermediaries are common for both insurance (ULIPs)

and mutual funds. Again distribution structure is changing and embracing

newer and newer ideas increasingly. Both the industries are observing

emergence of innovative distribution channels. A prominent channel has

emerged in the form of banks. Both AMFI and IRDA do not report data

separately for the bank. They have included banks as a corporate channel.

As researcher has already discussed how bank as a distribution channel is

evolving worldwide. This phenomenon is gaining its importance in India also.

Karunagaran (2006)7 concludes that going by the present pace, bancassurance

would turn out to be a norm rather than an exception in future in India and it

would be a „win-win situation‟ for all the parties involved - the customer, the

insurance companies and the banks. Syed Shahabuddin (2008)8 bank channel

has slowly realized its own potential and is now emerging as a big player for

mutual fund industry. Considering this, one should accord bank as a separate

distribution channel.

In a nutshell, need for multiple distribution channels is obvious for both

Mutual funds and ULIPs as low level of penetration of both the products,

diverse needs of customers, low level of awareness amongst the customers,

increasing number customers emphasizing service.

But the way Distribution intermediaries as classified by the regulators are

increasingly becoming obsolete as newer and newer distribution channels are

emerging.

In this dynamic set up, researcher would classify Mutual Fund

distribution intermediaries for the purpose of study as below: -

42

1) Individual Mutual Fund agents / Individual financial advisor /

Brokers.

2) Institutional or Corporate Agents (Group of people working

together as a company or partnership firm, Mutual fund branch

offices, National or regional level organizations operating through

branches, Distribution houses, etc)

3) Banks.

4) Emerging distribution intermediaries (all those channels which are

not covered by Sr. No. 1, 2, 3)

After classifying Mutual Fund / Insurance distribution intermediaries in India,

researcher will now define the term “Retail investors” in next section.

2.4 Definition of Retail Investors

Retail investors are referred in various ways like non institutional investors,

small investors, individual investors, non professional investors, household

investors.

Stefan Bender (2006)9 a retail investor is an individual who buys and sells

securities for their own behalf not for an organization. Retail investors (non-

professional investors) typically trade in much smaller quantities than

institutional investors. Retail customers define the end of the distribution

chain.

AMFI reports mutual fund folio data periodically in which data is shown for

three types of investors i.e. corporate or institutional investors, HNI (High Net

worth Individuals), Individual (small / retail) investors. AMFI terms those

individuals whose mutual fund portfolio is more than Rs. 5 Lakhs as HNI

(High Net worth Individuals). From this, researcher can make out that retail

mutual fund investors those investors who invest less than Rs. 5 Lakhs in

mutual funds & other similar products.

In a nutshell, retail investors are those investors who exhibits following

characteristics; -

1) Their investments are in small amounts (in terms of volumes and

value) on behalf of themselves.

2) Total investments made in Mutual funds are less than Rs. 5 Lakhs.

3) Objectives behind investing are personal or family.

43

2.5 Role of Mutual Fund distribution intermediaries in relation to retail

investors

Taking a leaf from previous subsection one can easily classify these

distribution channels into direct and indirect channels. Indirect channels

include independent financial planners, Individual financial agents (IFAs),

banks, tied agents, brokers. Direct channels will be Mutual Fund Company

itself, NTF supermarkets, etc.

In India, indirect channels (comprising individual agents, corporate agents

including banks) are the dominant channels but a lot of direct channels are

emerging. Mutual fund investors prefer indirect channel as against the direct

ones. Globally, in most of the countries investors initially use indirect

channels and then slowly shifted towards the direct channels. Even today, in

the sophisticated markets like USA investors prefer indirect as against direct

channels.

John Aslam (2008)10

further studied possible reasons behind Mutual Fund

investor‟s propensity to engage financial advisors and found that behavioral

influences as well as knowledge plays vital role. These influences are

tabulated (Table 2.4) as follows: -

Table 2.4 – Influences for engaging advisor while purchasing Mutual

Funds

Behavioral Influences Knowledge Influences

1) Investor desire for convenience

rather than low cost in fund investing;

2) Influence of fund and distributor

advertising and marketing on the

investor;

3) Investor feelings of inertia rather

than action;

4) Investor feels the need to combine

financial services “under one roof”

5) Investor has feelings of insecurity

rather than confidence;

6) Investor feels the need to validate

fund decisions before transacting;

7) Investor feels the need for a referee

in spousal disagreements over investing

and money;

8) Investor tries to time the market,

especially short term;

1) Investor is a novice rather than

experienced fund investor;

2) Investor has proven inability to

select high-performing funds;

3) Investor has a lack of knowledge

of and/or appropriate education in

fund investing;

4) Investor has inadequate time to

do the necessary “homework” prior

to transacting; and

5) Investor has certain knowledge

of advisor who is a successful

investor to manage his/her fund

investments.

Compiled from – John Aslam (2008)9

44

In short, investors engage advisor for variety of reason like convenience,

inertia, non confidence, indecisiveness, inability, lack of knowledge, advisors‟

advertising and marketing, advisors past performance, lack of time, etc. Many

of these reasons are relatable with Indian retail investors. Victoria Leonard

and Michael Bogdan (2007)11

also found two prominent reasons behind using

advisors one is investment and planning services offered by them and other is

advisor‟s expertise.

To explain the role of Mutual Fund distribution intermediaries in India,

researcher has to go through the fine print of the guidelines given by insurance

as well as mutual fund regulators. Association of Mutual funds in India

(AMFI) made a comprehensive guidelines and the code of conduct (titled

AGNI i.e. AMFI guidelines and norms for intermediaries – refer Appendix D)

so that all those engaged in the business of selling and marketing of mutual

fund schemes follow professional, healthy and best practices for the sustained

benefit of all concerned – investors, intermediaries and the Mutual Fund

Industry as a whole.

AGNI endorses that investors are diverse in terms of their needs; they can

broadly be classified in three categories:-

(i) Those who want product information, advice on financial planning

and investment strategies.

(ii) Those who require only a basic level of service and execution

support i.e. delivering and collecting application forms and cheques,

and other basic paperwork and post sale activities.

(iii) Those prefer to do it all themselves, including choice of

investments as well as the process/paperwork related to investments.

To cater these investors AGNI has listed two types of services an

intermediary should offer to their investors (See Table 2.5).

The cardinal principle of AGNI is “ensuring that the clients’ interest is

protected”.

As per our definition mutual funds includes Unit Linked insurance products, it

will be essential to study the regulation in relation to it. IRDA has stated these

guidelines under two acts i.e. Insurance Regulatory and Development

Authority (Licensing of Insurance Agents) Regulations, 2000), IRDA

45

(Insurance brokers) Regulations 2002. IRDA (Insurance Brokers) Regulations,

2002 laid down the comprehensive guidelines pertaining to client‟s

relationship, sales practices furnishing of information explanation of insurance

contract renewal of policies claim by client, documentation. Again the act

categorically states that “Every insurance broker shall follow recognized

standards of professional conduct and discharge his functions in the

interest of the policyholders.”

Table 2.5 – List of the Investor services included in AGNI

Basic

Services

- Assisting them in filling application forms,

- Submission of application forms along with

cheques at the respective office/s,

- Delivering redemption proceeds and

- Answering scheme related queries investor/s may

have.

Value

added

Services

- Product information and advice on financial

planning and investment strategies.

- Understanding client‟s need

- Recommends asset allocation/specific

investment/s that are in tandem with the

investor‟s needs.

- Investors may also receive information on

taxation, estate planning and portfolio

rebalancing

- Make them aware about the

changes/developments in market conditions

- the emphasis is on building an ongoing

relationship with the investor/s.

Both the regulators are explicitly stating that intermediaries should

“recommend schemes appropriate for the client‟s situation and needs”.

Intermediaries should avoid commission driven malpractices such as:

recommending inappropriate products solely because the intermediary is

getting higher commissions there from, encouraging over transacting and

churning of mutual fund investments to earn higher commissions, even if they

mean higher transaction costs and tax for investors.

Apart from this intermediaries should provide full and latest information of

schemes, highlight risk factors of each scheme, forwarding forms and cheques

within the time frame prescribed in the offer document and SEBI Mutual Fund

Regulations.

46

Data released by IIMS Dataworks indicates that the low take up of retail

mutual fund investment in India has as much and more to do with low

awareness levels among smaller retail investors.

Das Bhagaban, Ms. Sangeeta Mohanty and Nikhil Chandra Shil (2008)12

,

Manoharan, et al (2006)13

observed that majority of the retail investors are

getting the information from distribution intermediaries. Even in the

developed markets like USA, distribution intermediaries are considered as best

source of information by more than half the investors Gordon J. Alexander, et

al (1998)14

. As per by IIMS Dataworks report15

on “Market Scoping for

Mutual Funds in India”, 32.4 percent of the Mutual Fund investors‟ source for

their mutual fund awareness is agents and banks.

Considering that distribution intermediaries are regarded as prominent source

of information, they should ideally be responsible for investor education.

Summarizing the role of distribution intermediaries

After discussing what role mutual fund intermediaries are playing worldwide

and what role is expected by regulators in India. Now researcher would define

the “the role of mutual fund distribution intermediaries” which will be focused

in the study.

Researcher will split the role of mutual fund distribution intermediaries into

four components. As the scope of each component is large, researcher has set

boundaries for each component as follows: -

1) Role of intermediaries in Educating Investors / Customers - Investor

education is very broad term, researcher limits it to whether basics of

investing (risk, return, liquidity, taxation) have been explained by the

intermediary or not. Apart from this, researcher will study investors‟

overall perception towards education by intermediaries.

2) Role towards Building Relationships & Creating Loyalty – Researcher

will study perceived relationship strength and the level of loyalty

towards intermediaries. Researcher will study various relationship

marketing factors and will explore the basis of relationship

development.

3) Role as a Service Provider – Apart from understanding the need

hierarchy of investors‟, researcher will also study the nature of services

47

i.e. basic / transactional, advisory and information offered to the

investor by the intermediaries.

4) Role as Value Creator – Value is core element of any service. Value is

also one of the three pillars of relationship marketing. Researcher

would explore how these intermediaries are adding the value? What

are the value additions these intermediaries are making?

2.6 Understanding retail investors

Researcher found numerous research pertaining to behavior of mutual fund

investors like Dorn Daniel, Huberman G (2005)16

; Kenneth A. Kim and John

R. Nofsinger, (2003)17

; Bailey, Warren B., Kumar, Alok and Ng, David,

(2010)18

; Veld Chris, Veld-Merkoulova V.Yulia (2007)19

. Lot many

researchers studied expenses and cost associated with mutual fund investments

viz Miller, Ross M. (2005)20

; Barber, Brad M., Odean, (2003)21

; Haslem, John

A., Baker, H. Kent and Smith, David M., (2007)22

; Houge, Todd and

Wellman, Jay W. (2006)23

. Bulk of research has taken place about mutual fund

manager‟s portfolio decisions and performance like Mark Grinblatt, Sheridan

Titman, (1993)24

; Kosowski, Robert (2006)25

;Blake, David (1996) 26

;

Lewellen, W., et al (1977)27

; Sirri Eric, Tufano Peter (1998)28

, Bluethgen,

Ralph, Gintschel, Andreas, Hackethal, Andreas and Mueller, Armin, (2008)29

.

It shows that, study undertaken is novel one would throw light on relationship

marketing between retail investors and distribution intermediaries. Before

moving towards reviewing literature pertaining to relationship marketing, let

us understand MF retail investors with specific focus on India.

Sebastian MÄuller and Martin Weber (2008)30

observed that less-

knowledgeable fund customers mainly choose traditional distribution

channels, implying that they seek assistance from a financial advisor who has

an incentive to recommend actively managed funds. In contrast, more-

knowledgeable fund customers believe to have some fund selection ability,

select their funds more often on their own and rely more on internet channels

thereby avoiding sales commissions. It was suggested that the value of

financial advice should be investigated in greater depth as well. As this study

was conducted in more sophisticated markets, findings are shocking.

T.R. Rajeswari, Prof. V.E. Rama Moorthy (2001)31

reveals that the most

preferred investment vehicle amongst retail investors is Bank Deposits while

48

MFs ranking fourth in the order among eight choices. The survey further

reveals that the scheme selection decision is made by respondents on their

own, and the other sources influencing their selection decision are News

papers and Magazines, Brokers and Agents, Television, Friends suggestions

and Direct Mail in that order. Further 44 percent of the respondents reported

that they use internet facility to know more about MFs while 56 percent

reported that they do not have access to Internet. Further, 37.43 percent of the

respondents prefer to get the routine/special information like daily NAV,

dividend, bonus, change in asset mix etc., through automated response system

while 53.71 percent prefer personal communication and 8.86 percent have no

preference.

Similar sort of study has taken in 2006 in Mumbai city by Ms. Kavitha

Ranganathan (2006)32

. She found that Preferred Mode of Communication in

Mutual Fund Investing among Individual Investors. The survey reveals that,

29 percent of the respondents of Mumbai city use Internet facility to know

more about MFs. Another 29 percent of respondents prefer to get routine or

special information like NAV, dividend, bonus, change in asset mix by

personally visiting the office. While 30 percent of the respondents prefer to

telephone the office and 12 percent in the survey have no preferences. The

results of the study show that almost equal importance is given to all modes of

communication.

Das Bhagaban, et al (2008)33

observed that majority of the people (35 percent)

are investing with the objective of capital growth, followed by Tax saving (28

percent) and only 17 percent are investing for the Retirement plan. 52 percent

of the investors ranked LIC as number one, 33 percent ranked ICICI as

number two and 15 percent ranked HDFC as number three in Indian insurance

industry. 40 percent of the investors are in view that Newspaper and

magazines is the main source of information, whereas only 6 percent get

information directly from company. Male investors are more as compared to

females in Indian retail market. There are many sources from which investors

get the information regarding availability of various investment avenues. The

most popular information source among retail investors is found to be the

newspaper (40 percent). Again 32 percent of the investors identify agents, 15

percent identify friends, and 7 percent identify distribution houses as their

49

main source of information, whereas only 6 percent get information directly

from the company.

More appropriate description of MF retail investor is made during household

investor‟s survey 200434

as conducted by Society for Capital Market

Research & Development. A subtle point brought out by survey is that retail

investors are not sufficiently familiar with mutual funds. In relative terms,

there is much more unfamiliarity with mutual funds than with the share market

among the retail investors. Unfamiliarity with an investment type affects the

investor‟s confidence level.

2.7 Emerging forms of distribution MF & insurance intermediaries

globally

Globally, asset management companies are making unprecedented entry into

capital markets and becoming integrated financial services companies. This

made them, to revisit their strategies and distribution is not exception to it. As

we have seen earlier, in many countries multi pronged distribution approach is

used. This section will discuss various emerging distribution channels

developed pertaining to insurance and asset management industry.

Telemarketing Channel – Telemarketing is the process of selling, promoting,

a product or service over the phone. This channel posses several advantages

like human interaction facilitates two way communication, immediate

feedback, large coverage and cost effective. This channel has emerged in the

countries where tele-density is higher and telephone usage is also higher. It

has emerged in Thailand, Indonesia, and Vietnam. In Philippines, insurance

companies bundled the life insurance products with mobile sales. Such kind of

bundling tactics will not be possible in case of asset management industry. But

surely telemarketing is useful for asset management companies to reach

deeper in the market place.

Virtual Channels – Electronic kiosks, internet, mobile in increasingly used by

financial services companies to increase brand awareness. Now these mediums

can also be deployed as distribution channels. Lot of non life insurance

products such as travel insurance, motor insurance, health insurance are sold

through kiosks. These kiosks can be installed in convenient location such as

malls, hospitals, airports, etc.

50

As, Australia and South Korea both have high populations of internet users,

internet as distribution channel has developed significantly. Internet channel is

significant in attracting youths. Still many investors prefer to discuss product

and its suitability with financial advisor or agent. Companies are also

employing online financial advisor on 24/7 basis.

Worksite Marketing – Worksite or workplace marketing is the distribution

financial products at the workplace, paid for by employees, but facilitated and

endorsed by the employer. Worksite marketing is effective in well developed

and well regulated markets. Worksite market is prevalent amongst insurers in

Malaysia, Thailand, and Australia. Countries such as Singapore, Hong Kong

and Taiwan are likely to be markets where this channel will experience growth

in near future.

Other forms of distribution channels –

a) Mall-assurance – Financial services are increasingly exploring the

possibilities of selling financial products in supermarkets and retail

chains. In South Korea, ING sales insurance via Tesco while in

Philippines, Generali Insurance sales through SM group retail chains.

b) Selling through Shops – Companies are setting up shops to sell variety

of financial services. Life plaza Holdings has 143 insurance shops

across Japan and has 40000 visitors per year.

c) Direct Response TV (DRTV) – Korean insurance companies are

selling insurance through DRTV since 2003. They label it as

“homesurance”. CIGNA has used DRTV channels in New Zealand and

Taiwan.

d) Social Media – In UK, companies are using social media network to

sell less complex products.

Schwab and Fidelity are two biggest examples of NTF (no transaction fee)

supermarkets. Conrad S. Ciccotello, Jason T. Greene, Lori S. Walsh (2005)35

documented in detail the evolution of another forms of Mutual fund

distribution i.e. NTF supermarkets. Rather an NTF supermarket acts as both

financial institution and marketplace acting as an intermediary between

investors and the mutual fund company. NTF supermarket does not get any

compensation directly from the investor for buying or selling the fund.

51

Instead, the Mutual fund Company pays the NTF supermarket for “listing” the

funds in this unified marketplace, as well as for servicing customer accounts.

NTF supermarkets offer brand recognition which is beneficial to small,

specialized MF companies to market and distribute their highly differentiable

products. These NTF supermarkets allow Mutual Fund companies‟ to maintain

the product focus while reducing shopping costs for investors. Conrad S.

Ciccotello, et al (2005)36

also observed that these supermarkets also have

implications for industry structure as investors increasingly rely on

supermarket brand while determining the fund to purchase.

From the above discussion, it was observed that markets around the world are

embracing newer and newer channels in financial services domain. The table

2.6 summarizes status of various distribution channels across various nations.

Table 2.6 - Status of emerging distribution channels globally

Country

Telemarketing Virtual Worksite

Marketing

Mall

assurance

Direct

Response

Television

Australia M M G

China E E E

Hong

Kong M G E

India G E E E E

Indonesia E E E

Japan M M M

Malaysia E E E

New

Zealand M G G E

Philippines E E E G

Singapore G G E

South

Korea M M E G G

Taiwan G M E E

Thailand E E E

Vietnam E E E

M – Matured, G – Growing, E - Emerging

Compiled from: - A report titled, “More than one approach - Alternate

distribution models in Asia Pacific” 37

, Prepared by Deloitte Touché

Tohmatsu, 2010

2.7 Summary

Thus, this chapter has underlined that distribution intermediation in both

Mutual funds and insurance is dynamic and classifying them is difficult. For

52

the purpose of this study, researcher classified mutual fund distribution

intermediaries; will follow the same classification while conducting this

research. Researcher also found that retail investors are referred with various

terms ended discussion with working definition of retail investors.

An entire section is devoted for discussing the probable role of distribution

intermediaries. Researcher defined role for the purpose of this study as it was

observed that “role of distribution intermediaries” is very broad concept. The

penultimate section reviewed some literature pertaining to Indian retail

investors. In the last section researcher glanced through various emerging set

of distribution intermediaries prevailing in global markets. With this

researcher would conclude this chapter to move forward to study relationship

marketing at length in the next chapter.

53

References:

1. Lovelock, C. H. (1983). Classifying services to gain strategic

marketing insights. Journal of Marketing, Volume 4, pp. 9-20

2. Walter, Ingo. (1999). The Asset Management Industry in Europe:

Competitive Structure and Performance under EMU. In Jean

Dermine & Pierre Hillion (Eds.) European Capital Markets with a

Single Currency. Oxford: Oxford University Press

3. Aslam, John. (2010). Mutual Funds: Conflicted Distribution and the

New Total Expense Ratio Construct. The Journal of index investing,

Winter 2010, pp. 65-74

4. Lakshmikutty Sreedevi & Sridharan, Baskar. (2003). Insurance

Distribution in India: A Perspective. Retrieved from

http://unpan1.un.org/intradoc/groups/public/documents/apcity/unpa

n023814.pdf

5. Dumm, Randy & Hoyt, Robert. (2002) “Insurance Distribution

Channels: Markets in Transition”, Proceedings of 38th

Annual

Seminar of the International Insurance Society, Singapore

6. Daniel Bergstresser, John Chalmers, Peter Tufano (2004), “The

Benefits of Brokers: A Preliminary Analysis of the Mutual Fund

Industry”, Working paper retrieved on December 14, 2009, from

http://www.haas.berkeley.edu/groups/finance/Brokerpercent20benefi

tspercent20Aprilpercent204percent202004.pdf

7. Karunagaran (2006) “Bancassurance: A feasible strategy for banks

in India?”, RBI occasional Papers, Volume 27, No. 3, pp 125 -162

8. Syed, Shahabuddin (2008) “Evolving distribution strategies –

reaching out to retail investors”, Financial Planning Journal,

9. Stefan Bender (2006) “Frankfurt Retail FX Overview, Implications

& Discussion” ECB Foreign Exchange Contact Group,

10. John Aslam (2008), “Why do mutual fund investor employ financial

advisors?”, Journal of Investing, Winter 2008

54

11. Victoria Leonard and Michael Bogdan10

(2007), “Why Do Mutual

Fund Investors Use Professional Financial Advisers?,” ICI Research

fundamentals, Vol. 16, No. 1, pp

12. Das, Bhagaban; Mohanty, Sangeeta and Shil, N.C., (2008) “Mutual

Fund vs. Life Insurance: Behavioral Analysis of Retail Investors”,

International Journal of Business and Management, Vol. 3, No. 10,

pp 89-103

13. Manoharan, Kannadhasan,(2006), “Risk Appetite and Attitudes of

Retail Investors‟ with Special Reference to Capital Market”

Management Accountant, Vol. 41, No. 6, pp. 448-454

14. Gordon J. Alexander, Jonathan D. Jones, Peter J. Nigro (1998)

“Mutual fund shareholders: characteristics, investor knowledge, and

sources of information” , Financial Services Review Vol.7, pp 301–

316

15. IIMS Dataworks (2007), “Market Scoping for Mutual Funds in India

2007”, Noida : Author

16. Dorn Daniel, Huberman G (2005),Talk and Action: What Individual

Investors Say and What They Do, Review of Finance (2005), Vol. 9,

pp 437-481, retrieved from http://www.econ-

pol.unisi.it/labsi/papers2006/Huberman.pdf

17. Kenneth A. Kim and John R. Nofsinger, (2003), “The Behavior and

Performance of Individual Investors in Japan” Seminar proceedings,

held at SUNY-Buffalo, Hong Kong Polytechnic University

18. Bailey, Warren B., Kumar, Alok and Ng, David, (2010) “Behavioral

Biases of Mutual Fund Investors” , Journal of Financial Economics

(JFE), retrieved on September, 19, 2010, from SSRN:

http://ssrn.com/abstract=1108163

19. Veld Chris, Veld-Merkoulova V.Yulia (2007), “the risk perceptions

of individual investors”, retrieved on July 16, 2010, from

https://dspace.stir.ac.uk/bitstream/1893/335/1/the-risk-perceptions-

of-individual-investors-revision-may30.pdf

55

20. Miller, Ross M. (2005), “Measuring the True Cost of Active

Management by Mutual Funds”, Retrieved on June, 19, 2008, from

SSRN: http://ssrn.com/abstract=746926

21. Barber, Brad M., Odean, (2003), “Out of Sight, Out of Mind: The

Effects of Expenses on Mutual Fund Flows”, Retrieved on June, 19,

2008, from SSRN: http://ssrn.com/abstract=496315

22. Haslem, John A., Baker, H. Kent and Smith, David M., (2008)

“Performance and Characteristics of Actively Managed Retail

Mutual Funds with Diverse Expense Ratios.” Financial Services

Review, Vol. 17, No. 1, pp. 49-68,

23. Houge, Todd and Wellman, Jay W., (2006), “The Use and Abuse of

Mutual Fund Expenses”, Retrieved on January 31, 2009, from

SSRN: http://ssrn.com/abstract=880463

24. Mark Grinblatt, Sheridan Titman, (1993), “Performance

Measurement without Benchmarks: An Examination of Mutual Fund

Returns”, Journal of Business, 1993, vol. 66, No. 1, pp 47-68

25. Kosowski, Robert (2006), “Do Mutual Funds Perform When it

Matters Most to Investors? US Mutual Fund Performance and Risk

in Recessions and Expansions” Retrieved on August 1, 2009, from

SSRN: http://ssrn.com/abstract=926971

26. Blake, David (1996), “Efficiency, risk aversion and portfolio

insurance: An analysis of financial portfolios held by investors in

United Kingdom”, The Economic Journal , Vol. 106, No. 438,

27. Lewellen W G, Lease Ronald, Schlarbaum (1977), “Patterns of

investment strategy and behavior among individual investor”, The

Journal of business, Vol. 50, No 3, July 1977, pp 296-333

28. Sirri Eric, Tufano Peter (1998), Costly search and mutual fund flows,

Journal of finance, Vol. 53, No.5, Oct 1998

29. Bluethgen, Ralph, Gintschel, Andreas, Hackethal, Andreas and

Mueller, Armin, (2008), “Financial Advice and Individual Investors'

Portfolios”, Retrieved on March 9, 2009, from SSRN:

http://ssrn.com/abstract=968197

56

30. Sebastian MÄuller and Martin Weber (2008) “Financial Literacy and

Mutual Fund Investments: Who Buys Actively Managed Funds?”

retrieved on 25 January 2011 from http//ssrn.com/abstract=10993305

31. T.R. Rajeswari, Prof. V.E. Rama Moorthy (2001), “An Empirical

Study on Factors Influencing the Mutual Fund/Scheme Selection by

Retail Investors”, Capital Market Conference 2001 (December 20-

21, 2001) organized by IICM.

32. Kavitha Ranganathan (2006), “A study of fund selection behaviour

of individual investors towards mutual funds - With Reference To

Mumbai City”, Indian Institute of Capital Markets, 9th Capital

Markets Conference Paper, Retrieved from SSRN:

http://ssrn.com/abstract=876874

33. ibid

34. Society for Capital Market Research & Development (2004),

“Household investor’s survey 2004”, New Delhi: Author

35. Conrad S. Ciccotello, Jason T. Greene, Lori S. Walsh, 2007,

"Supermarket distribution and brand recognition of open-end mutual

funds", Financial Services Review, Vol. 16, pp 309-326

36. ibid

37. Deloitte Touché Tohmatsu (2010), “More than one approach -

Alternate distribution models in Asia Pacific”, United Kingdom :

Author

38. Association of Mutual Funds in India (2002), AMFI guidelines and

norms for intermediaries (AGNI), Mumbai:Author

39. Insurance Regulatory and Development Authority (Licensing of

Insurance Agents) Regulations, 2000), as available on IRDA website

40. IRDA (Insurance brokers) Regulations 2002, as available on IRDA

website

41. Website of Investment Company Institute USA, www.ici.org