Fixed income was not considered to be lucrative for many distributors, especially those who were catering to retail investors until the 2008 market crisis. Thanks to the growing importance of goal based planning and asset allocation approach, many distributors have realised the importance of diversification. Today, many distributors are actively selling debt funds to their retail clients.
This is evident by the growth in assets under management and investor accounts in debt category. For instance, the retail debt (liquid, gilt and debt) AUM has grown from Rs. 8,976 crore in March 2009 to Rs. 52,887 crore in March 2016, shows AMFI data. Similarly, the folios or investor accounts have grown from 27.26 lakh to 74 lakh during the same period.
Here we meet Sandeep Garodia of Suvridhi Capital Markets, a Kolkata-based advisor who realised the importance of debt in an investor’s portfolio at a very early phase in his career. Sandeep has been championing fixed income since year 2000, when he set up his advisory practice. Today, he manages Rs. 750 crore AUA, 75% of which consists of debt AUA.
So what has made distributors like Sandeep focus on debt as a category? With equity markets experiencing phases of volatility/ downturns since 2000, investor’s preference for safety over volatility has led to many distributors propagating debt funds. “I have observed that investors have become aware about risk profiling. This is a good trend because they will invest according to their risk profile and understand the risk-return trade-off. Overall, investors are slowly getting more mature creating a very healthy environment for both investors and advisors,” observes Sandeep.
Distributors and AMCs have worked tirelessly to promote the benefits of debt funds among investors, who otherwise prefer to park their savings in bank fixed deposits. Also, AMCs are holding training events to help distributors get a better understanding of debt funds.
“There is a lot of awareness created by fund houses about the benefits of debt funds. We have also constantly educated our investors about the advantages of debt funds,” says Sandeep. He says that he has been able to convince a lot of his clients to transition from FDs to debt funds. According to Sandeep, another beauty of fixed income is that it has helped him onboard first time MF investors, especially those with a lower risk appetite.
The option of staggering investments with SIPs has also worked wonders for Sandeep to channelize investments in debt funds, especially among retail clients. Sandeep has been recommending SIPs in debt funds to his clients whose investment horizon is up to three years.
The Budget 2014 increased the minimum holding period for debt mutual funds to qualify for long-term capital gains tax to 36 months. Nevertheless, this has not made debt funds and FMPs (more than 3 year tenure) unattractive since they can still beat FDs offer indexed capital gains, which bank deposits do not offer. “Investors have accepted the fact that they have to invest with a longer time horizon in order to get good returns. It’s simple, if your risk profile shows that you can’t invest in equities we would rather have the client diversify in debt. We explain to them that just because of changes in taxation one can’t avoid debt funds. We suggest equity for a long term investment horizon. Anything up to three years, we recommend debt funds, and equity subject to the risk profile. We also explain the indexation benefits in debt funds,” says Sandeep.
Sandeep says that besides explaining the benefits of debt funds to clients he makes sure that he also explains
to investors risks associated with fixed income. “We meet them on a monthly basis and discuss their investments. We don’t call and regularly update them unless something major happens which could affect their investments. We give them a broader picture about how debt funds work and how interest rates impact debt funds. Regular communication with clients has helped us manage downturn,” says Sandeep.
Also, Sandeep believes that the current regulatory framework in which debt funds operate has made them relatively safer.
So how does he go about shortlisting funds for his clients? “I first review the performance of the fund, then the process, the fund manager (learn about his investment ideology and track record) and then finally the brand,” says Sandeep.
Sandeep largely attributes his success to his focus on fixed income. He says that the reason why bank FDs constitute a huge portion of Indian’s saving pie is because investors prefer safety. According to Sandeep, debt funds provide an excellent opportunity for advisors to get first time MF investors in mutual funds which offer safety, liquidity and returns.
Over his 16 years career, Sandeep has institutionalised his practice and expanded his business to various parts of the country. Today, he has eight offices in Bengaluru, Mumbai, Guwahati, New Delhi, Jamshedpur, Ranchi and Varanasi. “We have maintained a consistent approach in advice and customer service in all our branch offices. We have employed CAs (chartered accounts) in all the branches. These 32 professionals meet and advise clients according to their requirements,” says Sandeep.
Sandeep has a long term vision for his business. “I believe, to grow I need to scale up. To achieve this, I need to meet more people and understand their goals and priorities. This, in turn will help me retain my existing clients and acquire new clients. Lastly, we need to diversify our offerings to grow,” believes Sandeep.
Sandeep’s success story in championing debt funds is a good case study for distributors who wish to strengthen their fixed income business.
