Demand Estimation (Mutual Fund [India])

- Gagan Pareek

-- WE School PGDM 09-11

India Statistics

Asset Under Management (in Billion)2005 – 2009

AUM Growth Rate comparison across Globe

2005 2006 2007 2008 20090

1000

2000

3000

4000

5000

6000

14962319

3590

53854933

AUM INR Billion

AUM INR Billion

China

Brazil

Russia

Japan

France

USA

UK

Europe

India

0% 10%

20%

30%

40%

50%

60%

70%

63%

21%

11%

10%

4%

4%

2%

3%

29%

AUM Growth Rate (CAGR 04-08)

AUM Growth Rate (CAGR 04-08)

-- Source CII Mutual fund summit 2009

India Statistics

AUM to GDP Ratio Growth Net Mutual fund Saving of India (value terms) Vs entire globe

2005 2006 2007 2008 20090%

2%

4%

6%

8%

10%

12%

14%

16%

6%

8%

10%

15%

11%

0.320000000000001

99.68

IndiaWorld

-- Source KPMG website mutual fund Research paper

Demand estimate of Mutual fund when minimum investment amount is = 5000/- INR –IIMS Datawork

Threshold P/I Ratio 0.05 0.6

 

No of household

s (mn)

Population (mn)

Consumption ratio

Total customer household

s (mn)

Market to be captured

(HH mn)

Annual House hold

income range (in

'000)P/I (Average income for the range )

Under Normal Conditio

ns

Stock Market Fear,

Illiterate Folks (40%)

Available

PopulationLower Upper

Low Income 31.28 172.05 0.00% 0.00 31.28 0.00 90 0.111111111 0 0 0

Aspirants 62.56 344.1 0.10% 0.06 62.50 90.00 200 0.03448275962.50107

273 37.5006436425.0004

2909

Middle Class 85.50 470.27 0.32% 0.27 85.23 200.00 1000 0.008333333

85.23002473 51.13801484

34.09200989

High Income 8.34 45.88 1.18% 0.10 8.24

1000.00 10000 0.000909091

8.243384727 4.946030836

3.297353891

Total 208.55 1147 1.60% 0.43 208.11      155.97 62.39 93.58

Average price of ref

5,000.00

Value Units

Universal demand 208.55million units

Current hold 0.43HH mnPercentage of mkt captured 1.60%

Potential market 93.58HH mn% potential market (max) that can be optimistically captured 44.87%

~ 45% populati

on is target market

Demand estimate of Mutual fund when minimum investment amount is = 1000/- INR –IIMS Datawork

Threshold P/I Ratio 0.05 0.6

 

No of household

s (mn)

Population (mn)

Consumption ratio

Total customer household

s (mn)

Market to be captured

(HH mn)

Annual House hold

income range (in

'000)P/I (Average income for the range )

Under Normal Conditio

ns

Stock Market Fear,

Illiterate Folks (40%)

Available

PopulationLower Upper

Low Income 31.28 172.05 0.00% 0.00 31.28 0.00 90 0.022222222

31.28181818 18.76909091

12.51272727

Aspirants 62.56 344.1 0.10% 0.06 62.50 90.00 200 0.00689655262.50107

273 37.5006436425.0004

2909Middle Class 85.50 470.27 0.32% 0.27 85.23 200.00 1000 0.001666667

85.23002473 51.13801484

34.09200989

High Income 8.34 45.88 1.18% 0.10 8.24

1000.00 10000 0.000181818

8.243384727 4.946030836

3.297353891

Total 208.55 1147 1.60% 0.43 208.11      187.26 74.90 112.35

Average price of ref

1,000.00

Value Units

Universal demand 208.55million units

Current hold 0.43HH mnPercentage of mkt captured 1.60%

Potential market 112.35HH mn

% potential market (max) that can be optimistically captured 53.87%

~ 54% populati

on is target market

Reasons for slow growth of Mutual fund :

Low customer awareness

Lack of financial knowledge

Inferior distribution and limited banking services in the rural regions

Segmentation

Flexible Market Offering :SIP Use Psychographic

Segmentation Homogeneous Preferences:

IT folks ready to take risk ..High Purchasing Power

Rural place folks… Assured ROR Niche marketing… HNI and FII,

Government Local Marketing … Banners Individual Marketing…finance

Professionals , CA…

Types of Mutual fund Customers

Ta rge t M a rk e t 1 b i l l io n

unaware Aware

Not tried

Negative Opinion

Neutral

Favorable opinion

Tried

Rejected

Not yet repeated

Repeated

Loyal to other brand Switcher Loyal to

Brand

Loyal

user

Regular use

r

Heavy use

r

Correlation of GDP Growth Rate with AUMDiscounting for GDP Growth Rate association

Comparison with US Market

Mutual funds AUM grew by 96% between the end of 1997 and June 2003 and as a result it rose from 8% of GDP to 15%

Considering the GDP

correlation and corporate investment from both Indian as well foreign investors, growth is expected 15% to 22% depending for lower to higher side of economy growth

Total expenses less than 1% Vast variety i.e. Diamond,

currency, metal ETF, Kids MF, bear market fund

8%8%

16%

11%

54%

3% Mutual FundPPFInsurance fundCurrency Bank DepositsClaims on Government

Indians Investment Profile

Action plan

Introduce simple products that have features of capital protection with returns that are higher than traditional products and limit market risk

Focus on creating a mutual fund for commodity market.

Focus should be more on Woman .. Financial decision makers

Selling through Post Office and Rural Banks, Retail stores, mutual Fund

Inculcate basics of Mutual fund as a subject into school curriculum

Introduce Red Bus portal concept

$THE END