While many foreign mutual fund houses are exiting India, finding it unviable to run businesses profitably, we are now seeing new domestic fund houses entering in the game. Mahindra Asset Management Company, which is a wholly owned subsidiary of Mahindra and Mahindra Financial Services (MMFS), recently received the approval of the Securities and Exchange Board of India (SEBI) to start operations.

For years, the mutual fund industry has failed to expand markets beyond the top 15 cities in the country. Most of its business comes from the Western region, however, the trend has changed lately. In the last Financial Year (FY), smaller cities accounted for about 44% of the new business. Newly launched Mahindra Mutual Fund has chalked out a unique strategy to grow. It has decided to focus on semi-urban and rural areas. Its parent company MMFS has a presence in more than 2 lakh Indian villages. It seems that Mahindra Mutual Fund aims to bank on this network and wants to extend its existing client relationships to managing investments (from offering loans).

In the initial phase, the fund house has come up with total four schemes namely--Mahindra Mutual Fund Bachat Yojana, Mahindra Mutual Fund Kar Bachat Yojana, Mahindra Mutual Fund Bal Vikas Yojana, and Mahindra Liquid Fund.

Let’s look at them one by one...

Mahindra MF Bachat Yojana is an open ended debt scheme—this scheme endeavours to invest upto 70% in debt and money market instruments with a maturity of less than or equal to 1 year. The scheme mandate allows the fund manager to invest up to 30% in debt securities with an average maturity of 1 year.

Mahindra Mutual Fund Bal Vikas Yojana—is an open-ended balanced scheme. The scheme mandate allows the fund manager to invest in equity in the range of 45% to 75%. The scheme may take upto 55% exposure to debt.

Mahindra Mutual Fund Kar Bachat Yojana—this is an open-ended Equity Linked Savings Scheme (ELSS). This scheme will have a minimum of 80% of its assets in equity at all the time.

Mahindra Liquid Fund—it is a liquid scheme that will invest predominantly in short-term debt instruments with a residual maturity of around 91 days.

Will this strategy work?
Interestingly, Mahindra Mutual Fund has not announced the launch of a vanilla equity scheme yet. It seems the fund wants to launch products with low-risk grades first. The balanced fund will assume lower risks than a plain equity scheme will. In the debt category too, the fund house is looking to invest only in a short-term debt which carries lower interest rate risk as compared to the long tenured debt securities. Liquid funds carry significantly lower risk. It is likely that even the ELSS scheme of the fund house may carry a predominantly large cap portfolio—looking at its benchmark index, Nifty 200.

Briefing the media about the strategy of the AMC, MD and CEO of Mahindra Asset Management Company said that, “Our idea is to explain the investment opportunities to customers in our priority markets in their own language starting with the product names. Among our prospects, there are both, the service class as well as self-employed occupational groups. We have created a product for each customer profile.

“We believe that helping each such group of customers to understand the role of a specific mutual fund product in his or her life will be the key to our success.”

Although there’s nothing significantly different about the product line of the Mahindra Mutual Fund, it seems the fund house has done its homework. It appears they have identified the need to educate the potential investor, view that PersonalFN holds true for years. They entered the market with a definite plan to capitalize on the customer relationships its parent company has created over the last two decades.

However, it remains to be seen how its schemes perform. If Mahindra Mutual Fund achieves any success with these strategies, many may follow suit. The competition for gaining rural market share may intensify in times to come.




 

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