"Innovation is a way of life in our rapidly evolving financial world," says Ved Prakash Chaturvedi, chief executive officer of Tata Mutual Fund (TMF). He should know what he's talking about, given that TMF has used dollops of this attribute to recently cross the Rs5,000 crore milestone for the year. In an industry that expanded by 40-50 per cent, TMF clocked almost 400 per cent growth, thanks to a variety of innovative strategies.
Real innovation, be it in thoughts, processes, approaches or strategies, has emerged as the key driver of economic growth in every segment of the financial sector. "It is the mantra for success," says Ian Watts, the managing director of Tata AIG Life, part of the private-sector brigade that is redefining the rules of the game in India's insurance business. For the second year in succession Tata AIG has achieved 100 per cent year-on-year growth, in no small measure due to the emphasis it has placed on weaving innovation into the fabric of the organisation.
Tata AIG is not unique in this regard. Innovation is no longer seen to be the responsibility of some remote research and development department; instead, the endeavour is to make it a part of the core competency of every organisation.
Tata AIG scored a big hit thanks to the innovation culture it had been trying to cultivate. It came by way of its Mahalife Gold policy, which carved a profitable niche for itself in the market for basic life insurance products. Mahalife Gold was the first whole life insurance cover that guaranteed an annual 5 per cent tax-free return on the sum assured. This distinctive offering, which plugged a vacuum in the market, is now the company's flagship product.
TMF has got on a similar success track with its recently launched Tata Equity P/E (price/earnings) Fund, the first of its kind in the market. This is an open-ended equity scheme that aims to invest at least 70 per cent of its net assets in shares whose trailing P/E ratios are less than that of the Bombay Stock Exchange index at the time of investment.
This fund is exclusively positioned to identify suitable investment opportunities by analysing the stock market on the basis of the price-to-earnings ratio of various scrips, and to invest in companies that show the potential of realising good value. "Innovations such as these have laid the foundation for our growth," explains Mr Chaturvedi, "and we are constantly working to introduce similar products."
Innovation is not always about breakthrough inventions; sometimes it's about doing things differently. Until about four years ago most monthly income funds had an equity exposure of around 15-20 per cent. TMF decided to launch its Tata Income Fund with less than 10 per cent of an equity portfolio. "We chose this product design as it assured more stability and regular dividends. Today, we have a track record of 48 months of uninterrupted dividend payments. The fund's growth, from Rs20 crore early last year to Rs500 crore currently, proves the loyalty of our investor following," says Mr Chaturvedi.
In the case of Tata Equity Opportunity Fund, a significant part of the profit generated has been remitted to investors as tax-free dividends. This unusual and innovative practice and secured tremendous customer faithfulness for the fund. The fund corpus has grown from Rs10 crore to Rs300 crore currently.
Likewise, the choice for health insurance in the Indian market was limited before Tata AIG's HealthFirst policy changed the equation. It was the first health insurance plan with life cover that provided a complete cover for prolonged hospitalisation. The unique feature of this policy is the lump-sum allowance paid, irrespective of the actual medical or hospitalisation expenses. Furthermore, HealthFirst is renewable till age 65, with premiums increasing only once every five years.
"We are committed to fulfilling the insurance and retirement planning needs of individual and corporate customers in India," says Watts. "It's our constant effort to be the first in the industry to design and expand our product suite as well as distribution channels to ensure we meet this objective."
The process of innovation is not only about leveraging intellectual capital; it is also about managing technology in a way that enhances profitability. That means using technology to learn more about customer needs and behaviour in order to develop stronger relationships. After all, success in the financial services sector depends to a large extent on nurturing customer relationships.
Most financial services companies have begun utilising the internet as a tool for transactions and as a communication channel for redressing grievances. Tata AIG has entered a strategic alliance with Indiatimes to manage queries pertaining to its policies and services, and this facility works round the clock.
Mobile phones are another medium of communication that works well for Tata AIG. All that the consumer has to do is key in 'life' and send an SMS to 8888. He or she receives an SMS response from Tata AIG within a minute, requesting a name and telephone number where he or she can be contacted. All possible queries and details of the application procedure are then delivered to the customer.
TMF also uses technology to deliver information to its investors in a seamless manner. Every morning the company's fund management team has a conference call with its sales team from all branches across India. This helps the sales people understand vagaries of the market on a daily basis.
Such an exercise is repeated later in the day with the fund's investors. An update on debt markets is sent to all key investors and distributors every day through email. "Come bulls or bears, we want our investors and staff to know that we care," says Mr Chaturvedi.