Usually small business owners prefer re-investing their profits back in their businesses. Even if they invest in capital markets, they prefer to do so directly through stocks. In such a scenario, let us see how Rajkot based IFA of Megafina, Sandeep Gandhi dealt this challenge.
Journey to become an advisor
Gandhi started his journey in financial distribution business by selling primary market issues in 1989 as IPOs were a big rage then. However, Gandhi realised that the equity markets were beset with many problems such as information was often patchy and delayed; it was an era of physical transactions and investing was a cumbersome long drawn process. All this made IPOs and direct equity investments too complicated and opaque.
Meanwhile, he noticed that his personal investment in mutual funds was delivering attractive returns reinforcing his interest in mutual funds. His research on mutual funds convinced him further that mutual funds are better suited for retail investors as they are more transparent, professionally managed and well regulated. Convinced, he entered mutual funds distribution in 1997.
Key challenges
A major hurdle faced by Gandhi was the attitude of the small business owners who comprised the bulk of his clients in direct equity and IPO markets. Most of his clients are small business owners and direct equity investors. They would often assert, ‘My business gives me 18% CAGR return why should I invest in mutual funds?’ or ‘XYZ stock has given me 100% return, this scheme has only given 14%. Why should I invest in it?’
To overcome these objections, he explained to them that every business has its cycle. For instance, a stationary shop is mostly profitable when schools reopen. The shop owner invests in new books to sell and if something goes wrong, the owner will incur a loss. He made them realize the importance of diversifying across businesses to reduce concentration risk and encouraged them to invest a small portion of their investible corpus in mutual funds.
However, the major challenge for him during his initial days was to convince his existing clients who invested in stocks to switch to mutual funds. To make them understand why mutual funds have an edge over direct equity, he asked them to compare overall portfolio returns of direct equity to mutual funds. To their surprise, many clients realised that their direct investments in stocks were not giving the returns that they thought were. This encouraged most of his clients to start investing in mutual funds.
Developing the distribution network
When ICICI Prudential Mutual Fund started its operation in Saurashtra and Kutch region, they sought Gandhi’s help in expanding their distribution network. Gandhi approached stock-brokers and sub brokers and encouraged them to become mutual fund distributors by pointing out the huge potential and vast opportunities in the MF space. This lead to nearly 100 new distributors joining the MF industry as distributors.
Additionally, he has worked on strengthening IFA community through training. He was the first president of advisory association, Saurashtra and Kutch Independent Financial Advisors Association (SKIFA). The association works on sharpening skills of the advisory community by holding knowledge sessions. Among a few topics covered at recent sessions are GST and dealing with wealthy. The association has over 200 members in Rajkot, covering 90% of IFA in the city.
Currently, Sandeep caters to around 500 families with assets under advisory of over Rs.150 crore in mutual funds.
Convincing small business owners and direct equity investors to invest in mutual funds have helped Sandeep become one of the largest distributors of Rajkot.
