The next wave of growth in India will come from the rural markets. Presently India is facing a crisis in the infrastructure sector. Once the growth story embraces this sector, the biggest gainer will be the Indian villages. Government policies and employment generation programs will also improve the standard of living of rural masses by enhancing their per capita income. How can an ordinary, presently low-income earner, Indian become rich? The answer to that question is as simple as it is routine: Start by saving and investing something regularly, even modest amounts, in anticipation of big returns in the future. If an Indian villager will look for big returns it cannot come from the traditional sources like bonds or insurance. Any investment instrument which can be offered needs to be linked with the equity market but the returns have to be assured. There must be no risk to the capital invested. Looking at all these aspects a special type of mutual fund has to be designed for the rural Indian market. The per capita income is below Rs.50 per day for a huge chunk of the population. So keeping their standard of living, risk profile, awareness towards such instruments, etc. the concept has to be very unique. It’s very difficult on their part to accept any instrument which can require even an iota of their wealth. The device needs to be backed up by some assurance from a trustworthy sponsor like the government or reputed business houses like Birla or Tata. For a player who has low recognition in the rural market it is difficult for the rural masses to accept it.
In the initial stage, the mutual fund can be introduced for as low as Rs. 200 to join; this variant of mutual fund can be targeted to daily wage laborers and landless farmers as they have the ability to pay that small sum up front when they get their wages or remuneration. They have surplus cash whenever they get their pay and will be willing to invest it if the terms and conditions are simple. To keep the depositor involved and interested in the process of making money from the savings, the mutual fund needs to bring in the option of adding to their investment in increments as small as Rs. 20 and as frequently as daily or weekly.
The next point of concern lies in redistribution of the returns as they understand simple things like the value of their money doubling in 5 years. This is possible considering a modest return of 14-15 % compounded annually over a horizon of 5 years. The money can be tripled in less than 9 years at the same interest rate. They can understand this concept better than the complicated NAV for MF. Generating this kind of returns will not be a daunting task for the expert fund managers who are at presently generating much higher return than that.
For this MF, information technology will play the most vital part. Instead of making it too complicated by involving paper work, chip embedded cards can be issued to all the investors. The rural population is familiar with such cards like Kisan credit card, etc. These cards will store all the information regarding the investor and all the addition to the fund can be easily made without any paper work. The investor should be allowed to check the value of his/her investment. Different schemes can be made based on the requirement of the investor. The minimum time period for exit should be 3 to 5 years for any scheme. The people who start investing for the marriage of the son/ daughter or retirement planning, etc can remain invested for a longer period of time.
There should not be any entry load for the fund but exit load of around 3-5% should be imposed. We can make this instrument a unique one where the investor can see his money grow and be encouraged to invest more money. The surplus money is generally wasted because it is difficult for them to find rational avenues for spending this money or to invest them in a cogent manner. The investment opportunity should be made as trouble-free and effortless as possible.
People in rural areas should be educated about such instruments with the help of Gram Panchayats and other influential people in rural areas.
There are many complexities involved in the model. Keeping in mind the basic framework suggested above we can work upon the idea of such a MF by presenting the idea among the people who have crystal clear knowledge about the conditions prevailing in the rural market and those who are competent enough to chalk out the intricacies of the MF. I am sure this mutual fund has the potential to see the light of day and also show the rural Indians some light at the end of the long tunnel.
Written By: Vineet Patawari, IIM Indore
In the initial stage, the mutual fund can be introduced for as low as Rs. 200 to join; this variant of mutual fund can be targeted to daily wage laborers and landless farmers as they have the ability to pay that small sum up front when they get their wages or remuneration. They have surplus cash whenever they get their pay and will be willing to invest it if the terms and conditions are simple. To keep the depositor involved and interested in the process of making money from the savings, the mutual fund needs to bring in the option of adding to their investment in increments as small as Rs. 20 and as frequently as daily or weekly.
The next point of concern lies in redistribution of the returns as they understand simple things like the value of their money doubling in 5 years. This is possible considering a modest return of 14-15 % compounded annually over a horizon of 5 years. The money can be tripled in less than 9 years at the same interest rate. They can understand this concept better than the complicated NAV for MF. Generating this kind of returns will not be a daunting task for the expert fund managers who are at presently generating much higher return than that.
For this MF, information technology will play the most vital part. Instead of making it too complicated by involving paper work, chip embedded cards can be issued to all the investors. The rural population is familiar with such cards like Kisan credit card, etc. These cards will store all the information regarding the investor and all the addition to the fund can be easily made without any paper work. The investor should be allowed to check the value of his/her investment. Different schemes can be made based on the requirement of the investor. The minimum time period for exit should be 3 to 5 years for any scheme. The people who start investing for the marriage of the son/ daughter or retirement planning, etc can remain invested for a longer period of time.
There should not be any entry load for the fund but exit load of around 3-5% should be imposed. We can make this instrument a unique one where the investor can see his money grow and be encouraged to invest more money. The surplus money is generally wasted because it is difficult for them to find rational avenues for spending this money or to invest them in a cogent manner. The investment opportunity should be made as trouble-free and effortless as possible.
People in rural areas should be educated about such instruments with the help of Gram Panchayats and other influential people in rural areas.
There are many complexities involved in the model. Keeping in mind the basic framework suggested above we can work upon the idea of such a MF by presenting the idea among the people who have crystal clear knowledge about the conditions prevailing in the rural market and those who are competent enough to chalk out the intricacies of the MF. I am sure this mutual fund has the potential to see the light of day and also show the rural Indians some light at the end of the long tunnel.
Written By: Vineet Patawari, IIM Indore
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