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
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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
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http://unpan1.un.org/intradoc/groups/public/documents/apcity/unpa
n023814.pdf
5. Dumm, Randy & Hoyt, Robert. (2002) “Insurance Distribution
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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
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