Is single product strategy correct for such a diverse economy like India?
Bikramaditya Ghosh, Asst. Prof. ISME
Being a Private Banker for almost eleven years, a dilemma has been observed among my peers. All the Banks or, Investment Houses has a dedicated Department named as “Product”. They carry out all the R& D work and, at the end come out with something which is called a Universal product for a huge demography like INDIA. This is a humble attempt to find an apt answer to my quest for the correct product or product mix for the diverse risk appetite of this diverse country. Can one universal product be used for such a vast and diverse demography or many specific products are needed, depending on ethnicity, regional preferences & more importantly Tax Laws.
The Country in consideration here is India. The time horizon is from 2001 till date. It is been carried out as an unbiased data interpretation of several non correlated information from credible sources. This study is to justify certain investor behaviour is in relation with ethnicity, convenience and Tax in a dynamic scenario. The conventional method of constructing similar or sometimes absolutely same products across this varied geography & demography is put under scanner. This study is done with the purpose of fuelling thought of investor specific financial product line or solution.
Unfortunately very few works has been recorded in the said field.
Some help however is derived from the Article “Factors that affect mutual fund investment decision of Indian investors “,published in International Journal of behavioural accounting & finance on 23rdJanuary 2012. 
Mutual Funds generally used to launch products based on market capitalization in mind. Starting from Zurich Top 200 (Later converted as HDFC Top 200), to Birla Sun life Frontline Equity Fund, the focus seemed straightforward on the Market Capitalization. This was a tried & tested formula until mid 2000. Thematic Funds & Sectoral Funds came into picture recently. These were based on either a Theme, AGRI( Agricultural machine makers, Chemical Plant making pesticides, Pharma Companies , who are focussed on the AGRI products e.g. Himalaya etc), Infra ( Infrastructure- as a broad theme including Earthmovers, Cement, Steel, Iron Rods, Automobile, Electricity, Power Companies etc), or, a Sector like Banking, Oil & Gas , Media & Entertainment, FMCG etc. Also, in late 2000, they came up with Asset Diversification with including different classes, which either have no correlation whatsoever or have negative correlation over a long period, such as GOLD Vs Equity. Reliance AMC came up with familiar theme “Natural Resources” in 2008 to join the thematic bandwagon.
Sundaram Rural India had a clear focus theme of AGRI as a broader space.
From 2001, when the 10 year G Sec Yields started to fall rapidly , under a lot of economic pressure in the Debt market, all the distributors found Income and Gilt Funds as an easy substitute to promote. Falling Yield was generating Capital gain in those segments, for a brief (Feb-April 2001) period.Again as the Yield stabilized focus automatically shifted to Dynamic Bond Fund and Dividend Yield products.
But, nobody in their thoughts have never taken into account a fact that our country is diverse, so, be the buying behaviour of the investors. India saves the highest, but invests the least, Why? Study reveals that barring 2001-02 & 2007-2008 all other years since 1980 the Savings rate of our country is steadil
y growing while the investment rate is lower than the savings rate.
y growing while the investment rate is lower than the savings rate.
There are so many diverse ethnic groups present here with age old thought process which in turn directs them to their unique but distinct buying behaviour. Bengali being a prominent ethnic group , not only in India but worldwide after HAN of China. It is being observed that majority of this community are risk averse. They prefer Less Gains over Huge Potential Gain, associated with equal amount of downside. They prefer the word “Guarantee “over the word “Indicative Yield”.
An Interesting study happened as a major global player Fidelity came to India in 2005. They promoted their Flagship product Fidelity Equity Fund more to Western India than their southern counterparts. The first office was started in Mumbai on end 2004. After that Kolkata, Ahmadabad, Pune & Chennai office opened.[i]It is evident that before an Asset management Company opens office it does a detail survey on the market where it wanted to operate. Leaving Kolkata, which was supposed to cater to entire East including the seven sister states, Chennai was the other office, started early to cater the entire south. After two years from launch they found more potential in South as they opened both Hyderabad & Bangalore along with their North Head quarter in Delhi.
Another very interesting investment story comes from Shillong, the Scotland of the Eastern India. Since the “khasi” tribe, like some scheduled tribes in India has a “Tribal Card”, through which they are exempted from all sorts of Taxes U/S 10(26) of Income Tax Act 1961.
Lots of Businessman in Khasi Garo & Jayanti Hills of Meghalaya has invested big money into Nifty Linked Debentures, with Capital Protection & Gap Guarantee (NLD); compared to their big brothers in cities like Delhi & Mumbai. They primary reason for this big investment was primarily due to the fact that, the entire Debt taxation for NLD is exempted. So, their effective rate of return is substantially higher. Also, they prefer Capital safety with higher return over the conventional FD rates. Had the case would have been normal, then the higher Debt Taxation would discourage those investors to mobilize wealth , much alike their big brothers in Metro cities.
In September 2007, TVS launched (Mr. Gopal Srinivasan) its first private Equity Fund, with a clear cut diversified approach. Response in North, West & East were lukewarm, however they mobilized a substantial business from Southern Region[ii]. Their strong presence in South, and leveraging their strong brand Equity made this possible. So, there are clear indications of regional & ethnic bias while positioning an investment product. Also, the conservative nature of the VC investors (business families) who tend to take cautious steps and stay away from stakeholders from outside added fuel to this demand.
Life Insurance Corporation of India (LICI) is very strong in the state of West Bengal for long now. A small town, called Tamluk (historic Tamralipta) in Midnapore district, have traditionally given huge business to LICI and among the TOP “High Premium Collecting Areas”. The reasons could be proximity to LICI Agents than Banks and Cash deposition facilities of LICI.Midnapore being a fertile landmass for Rice production, some of the farmers are Cash Rich. Awareness about Bank Accounts, Pan Cards have yet to reach them. So, the convenient way to save wealth is through LICI. The source of this wealth is from “Pan Leaf” growing & “Building the Body of the State run Buses”.
Analysis & Findings
It is been observed that the product driven myopic approach of the Mutual Funds & the “flavour of the season” driven distribution by the consultants & distributors never matched with regional, ethnic sentiments and neither linked to Tax differentiation across the country.
It is a well known secret but not cared for. May be the regulators do not allow such concept.
It may open up Mass Customization in Financial Products too, like the Sports giants like Nike or Puma. 
It has been observed that personalization brings in attachment and it matches with the ethnic bent of the subconscious.
From this brief attempt one thing is clear, that the pattern of the buying behaviour is as diverse as our country. Within the limited scope of the study it was observed that the purpose of investment in a vast demography like ours is surely not a function of one or two factors. Place to place time to time the factor varies. It can be Tax, can be ethnic preferences, can be convenience, can be availability of investment wisdom etc. But as uniform products do hit the market frequently the attributes of the products cannot be matched with such a diverse audience. So, either suppression of information happens from distributor’s side or the sales volumes do suffer for the manufacturer, making the cost of the product very high.
It is however observed that if products are designed by keeping ethnic groups & regional bias in mind then sales volumes will never be a question, and correct sale will also ensure customer satisfaction.
5. “Factors that affect mutual fund investment decision of Indian investors “, published in International Journal of behavioural accounting & finance on 23rd January 2012. Subject Accounting and Finance Issue Volume 2, Number 3–4/2011