Private sector mutual funds are increasingly realising their limitations in reaching out to a larger number of customers for their various schemes. To overcome this, they are resorting to tapping the strong distribution networks, even if they belong to the state or state-owned companies.

Prudential ICICI Asset Management Company, a leading private sector mutual fund with assets over Rs 5,997 crore under management, recently tied up with India Post, part of the department of posts, for distribution of its latest product, the child care plan.

Prudential ICICI Asset's child care plan was launched by the minister of communications, Ram Vilas Paswan, at a function held in Mumbai recently. To mark the launch of the scheme, Mr. Paswan gifted away units of the plan to 20 needy children belonging to the "Serve the Children" organisation, to help secure funds for their higher education.

Speaking on the occasion Lalita Gupte, joint managing director, ICICI, pointed out that children and child-care are integral to ICICI's corporate policy. She said, "The real purpose of mutual funds is to enable an investor to grow his wealth and plan for future. This is an ideal that is central to the values at Prudential ICICI. With the child care plan we hope to enable people to put their children through college and allow them to be whatever their dreams tell them to be."

Corroborating her, Garth Jones, managing director Prudential Corporation Asia, pointed out that various child care plans of Prudential Corporation, which came into being in 1848 and is the largest insurance company in UK, expedited its success and the tradition continues today.

He said, "The world over Prudential has listened to the needs of millions of people and helped them achieve their dreams. The launch of the Prudential ICICI child care plan and the partnership with India Post are two exciting initiatives that underscore Prudential's long term commitment to the dynamic Asian region. The financial security and depth of expertise of Prudential ICICI allied with the unique reach of the post office holds tremendous potential."

Prudential ICICI Asset Management is the third mutual fund in the country to tap the vast branch network of post offices for selling its product. Only a couple of months back IDBI-Principal Asset Management Company created history, when it became the first private sector company to forge a distribution partnership with India Post for selling its schemes. SBI Mutual Fund followed suit by entering into a similar relationship with India Post thereafter. To begin with Prudential ICICI will get to use 42 post offices located at Bangalore, Delhi, Mumbai, Chandigarh and Chennai among others to sell the child care plan. Gradually over a period of time it plans to extend the availability of the units to over 1,000 post offices.

Speaking to domain-b on the subject of its partnership with the postal service, Shailendra Bhandari, managing director Prudential ICICI Asset Management Company, admitted that one of the biggest challenge facing private sector mutual funds in the country lies in increasing penetration.

He said, "We believe post office is poised to be the distribution channel of the future due to its extensive reach and its proximate relationship with millions of people across the country. Mutual funds in India can never expect to achieve such physical proximity to customers on their own."

Expressing similar views Ms. Gupte said given its logistics the alliance with India Post is the best thing Prudential ICICI Asset Management Company could have achieved. She said, "Distribution is the most important channel for the success of a financial product and India Post will provide us with the required channel."

Garth Jones emphasized that the post office had a very definite role to play in the future of the financial industry and many countries the world over have been deliberating on this important aspect of service by post office. He lauded India's efforts in this direction and said, "India, under the leadership of Ram Vilas Paswan, has a forward looking policy on the subject and this will help us to render top class service to our customers, which is a hallmark of success of any business."

While one can understand the urgency of mutual funds to enlarge their reach, one is surprised at the speed with which the department of post has acted, forging three alliances in a short period of three months. Clearly, the postal department is worried about its sustenance and that of its 6 - lakh employees, given the fact that it has been posting losses for last several years. With traditional sources of revenues like the budgetary support gradually diminishing if not drying up, the department is eager to tap whatever revenue source it can. "The future is at risk" Mr. Paswan told domain-b.

With over 150,000 branches under its belt, reach and distribution are two major strengths of the postal department, which is what it is encashing. Mr Paswan told domain-b that the alliance would help the postal department earn a commission of anything between 0.50 per cent and 1.50 per cent and contribute a fair amount to its revenues over a period of time.

"These mutual funds do not have a network. We have that, which is what we are encashing. The market is about the size of Rs 600 crore to Rs 700 crore and we will try and capture a major part of it", he said.

He pointed out that in a democracy like India's, it was difficult to raise postal rates. "Last year a furore was raised and the opposition bought down the house, when the price of post card was increased by merely 50 paisa. The department continues to lose heavily on the post card given the fact that it incurs a cost of Rs. 3.50 by the time it is delivered to the addressee. There is no alternative but to tap various sources of revenues", he said. Corroborating his views, Aparna Mohile, member (infrastructure and financial services) Postal Services Board told domain-b, "Our losses are not due to our inefficiency. It is due to the government's policy of opening branches in distant places and offering our services at very low rates."

The changing face of Indian post offices is not an isolated case. It is a global trend, which is catching up with the Indian postal department as well. World over, post offices are evolving into multi-dimensional, one stop financial institutions and the Indian post office is very much a part of this trend.

Said BN Som, post master general, " This is very much part of a global trend. We are harnessing our traditional expertise in money related matters and by using an unparalleled reach and strong distribution network, accessing a potential market that no other institution can tap."