In many industries, both services and manufacturing, it’s an old saying that companies should offer not products but solutions. While this phrase is at least three decades old, it has taken on a new life and a real meaning over the last few years. Even the ownership of a car--the quintessential product--has been transformed into a service and thus a solution by the likes of Ola and Uber. In fact, X-as-a-service, with many different values of X, has almost turned into a cliche of modern technology-driven businesses.
Observing this, I find it quite strange that this phenomena appears to have escaped the notice of India’s mutual funds. Decades of answering investors’ queries and suggesting solutions to their savings and investment problems has left me with an acute awareness that people want solutions to specific issues they have in their financial lives, but mutual fund companies merely provide products.
Typically, people will narrate actual requirements and ask something like, “I need Rs 15 lakh after three years to make a down payment for a house,” or “I have Rs 20 lakh from a property sale which I want to invest for five years.” Only a tiny number will ask, “I need to invest in a mid-cap fund,” or “Which is a good aggressive hybrid fund?” And yet, if you explore the websites of mutual fund companies, they are geared to provide answers only to the latter set of questions. The conversion from actual customer-needs to the products is left for someone else to do!
Which brings us to the question of who that someone else is. The conventional answer, blessed by the fund companies themselves as well as the regulator, is that this is the job of investment advisors. However, the conventional answer is unsatisfactory because of a wide variety of reasons that we are all familiar with. In fact, not the least of these reasons is that it’s even harder for an investor to choose a good advisor than it is to choose an appropriate fund. When one chooses a fund, at least there is a brand and a publicly available track record, unlike in the case of an advisor. Therefore, this conventional answer is actually a solution that is worse than the problem.
This idea that everyone’s investment solution has to be personalised by an advisor is actually a nonstarter. This is neither required nor affordable nor is it possible on a large scale. Instead, what we need is for mutual funds to start offering solutions to common financial needs that investors have. After decades of interaction with savers, I’m firmly convinced that the actual problems to which people want solutions follows a Pareto distribution. No more than 20 or 30 ‘solutions’ would be the answer to almost all financial problems of crores of people. And it’s these solutions that should be offered by mutual funds as a layer on top of their normal products.
Here’s a concrete example. Suppose you come into a sum of money which you want to keep and grow for a certain period of time and then use for something. Let’s say you have Rs 20 lakh which you will need approximately ten years from now. The ideal way to do this, which would combine safety with high returns, have three distinct steps. One, invest all the money into a debt fund. Two, start a monthly STP so that over about two years, all of it gets transferred to an equity fund. Three, two years before you need the money, start an SWP so that it gradually comes back into your bank account. There can be some minor variations but this is the right way to do it.
This is an actual, real-life problem and its solution. Why isn’t this available as a standardised service? I hope someone can answer that question.