What is your roadmap for IDFC MF for the next three years?
We feel we are still in the early phase of our journey of encouraging savers to invest in mutual funds. Currently, there are just under 2 crore unique investors in the mutual fund industry. Considering the number of PAN cardholders and customers of banks and insurance companies, we have a long way to go.
To convert savers into investors, we add value through well-designed products and convenient services. We are focussed on offering solutions that are not very different from their expectations.
We recognise the role of distributors in the growth of the mutual fund industry. We will strengthen our relations with distributors by providing them with tools and ideas that can help them grow their business. We believe that distributors are best placed to convert savers into investors.
Finally, our product and customer experience has to be consistent and meet clients’ expectations; only then would it be a win-win for all stakeholders.
How do you intend to regain your position among the top 10 in terms of AUM?
Ranking is one of the rewards for good work. We believe that if customers and distributors are happy with our services, there will be a good outcome.
More importantly, we look at quality of growth instead of focussing on industry ranking. For instance, we focus on growth in long term assets (equity, hybrid and non-cash debt assets). This may also mean letting go of periods of growth when we prefer to be cautious. For instance, our recent approach of staying with high quality fixed income assets while anticipating macro and sector-specific challenges, even if it meant not participating in the rapidly growing Credit market.
AUM growth of IDFC MF remained flat last fiscal. What are the reasons for this?
If you look at our equity net sales, we have seen healthy inflows. However, some marked-to-market loss has offset this gain. While Sensex and Nifty reached high levels last fiscal, they were driven due to a rally in just a few stocks. The broader markets are yet to catch up.
However, the combination of all our moves did not fetch us the best results. We take this as an opportunity to go back to the drawing board, and see if we need to rework our strategy.
Margins of AMCs have reduced post TER cut. How would you ensure that the profitability of the fund house remains intact?
Today, one cannot say that there will be no impact on profitability. Now it is a question of how AMCs refine their business model to sustain growth in the long term. To cushion the impact of TER cut, we will look at reducing cost and increasing efficiency in various heads, be it marketing, operations and so on. We are also in talks with our distribution partners to share the impact of TER cuts.
Since the TER cut is applicable across the industry, aggregate market forces will lead to optimisation. I think revenues will settle down at a level where it is sustainable for both distributors and AMCs. Investors will benefit from economies of scale, and both distributors and AMCs will have to look at increasing volumes to achieve sustainable growth.
You must not forget that if something is good for investors, it is good for AMCs and distributors in the long run.
While many AMCs have either opted to pass on the entire TER cut to distributors, others have absorbed some portion of the cut. What will be the approach of your fund house on this front?
There cannot be a one-size-fits-all approach. We have been discussing this with our distribution partners. Working together and finding middle-ground that can help us all grow is what we are looking at.
How do you think distributors can grow their business in an all trail era?
Clearly, for distributors having reasonable scale, all trail is the best model. The trail model takes care of all stakeholders – if investors see growth in their investments, it benefits AMCs and distributors as well.
However, new and budding distributors will have to put working capital to sustain their business. Like any other business, the distribution business too will have a break-even point.
Some new distributors may look at reducing costs by joining larger organisations like a network of distributors.
Experts believe that ban in upfront commission may discourage new professionals to take up distribution business and shift the focus of existing distributors to other products. What do you think?
That’s always a choice for distributors. In my view, the industry has seen several inflection points. For instance, in 2009 when entry load was banned, some distributors left the industry. However, those who decided to continue and build their mutual fund distribution business are now very successful. They have done so well. That is why I strongly believe that commitment and persistence will pay.
SEBI has been pushing fund houses to promote direct plans among investors. How do you plan to keep the interest of distributors aligned and at the same time promote direct plans?
Direct plans are meant for investors who know what they want. In my view, where is the need to ‘promote’ direct plans among investors when they already know what they want? As an AMC, we focus on providing access and convenience to all investors who would like to invest – across all our plans.
With the emergence of direct plan sellers like paytm money and ET money, how will it impact distributors selling regular plans?
Emergence of such new platforms is good not just for investors, but also for AMCs and distributors selling regular plans. They are bringing new customers to the industry. Some of these investors may start with direct plans but as their portfolio reaches a meaningful size, they may seek the help of professionals. Low cost in itself may not always be a winning strategy. Winners will be those who provide better value.
How do you plan to deepen your engagement with distributors?
There are three key areas we are focusing on for our distributors. Firstly, we aim to augment their knowledge about our products, the industry and financials markets. Our objective is to keep them updated.
Additionally, we share learning and customer research to help advisors deal with behavioural biases. We have developed excellent content in this area. For instance, our ‘Money Wisdom’ series which is developed in partnership with leading author and behavioural expert Rolf Dobelli.
Finally, we help them will tools that can help them grow their business. We want to help them establish and build their practice.
