Your fund house had over 15% AUM growth in FY 19. What led to this growth?
Post re-categorisation we had many product white-spaces to be filled. We were absent in many mainstream categories such as smallcap, multicap, balanced advantage fund, arbitrage, ultra short-term etc. AMCs are often criticised for being pro-cyclical i.e. more funds are launched when markets are doing well. We thought of launching products at a time when it was difficult to raise money in NFOs but at the same time, we could sense the investment experience of those investors would be much better.
How do you plan to sustain this growth?
Growth can be sustained by two factors – better performance and deeper engagement. Our focus has been on both. Performance is something that we can’t control but our belief is that if you take care of the process, the outcome will take care of itself. This coupled with deeper engagement, be it physical or digital, is the key to sustained growth.
AMFI has asked you to suggest measures to attract new distributors. What would you recommend, considering commissions have reduced?
Trail income has changed this into an annuity business. It aligns investor and distributor interest quite well. We see there is a huge supply gap on the distribution side since the number of investors having MFs is a small population compared to the opportunity size. As awareness and penetration increases, there will be a need for many advisors/distributors and there is no dearth of opportunity.
Experts believe that the ban on upfront commission may discourage new entrants to the distribution business and shift the focus of existing distributors to other products. What is your view on this?
That may not be entirely true. Market forces adjust to new realities. In the last decade or so we have seen many changes in the MF industry: Removal of entry load, introduction of direct plans, capping of upfront commission, TER reduction and more recently removal of upfront commission. Change is a constant and eventually we will have to move on. We cannot wish it away, so embracing it rather than resisting it the next best option.
Coming specifically to MFs, one needs to understand that this is a repeat engagement product. Beyond a point there is diminishing marginal utility for other products in one’s portfolio unless the bedrock/core portfolio is anchored around MFs.
Since the commission structure and incentives of distributors are more or less similar across fund houses, how will you ensure that you continue to get good business from your top distributors?
I think it would be a mistake to premise it only on commission. It does not give you sustainable competitive advantage. In a fiercely competitive business, what gives us an edge is our brand. We believe people like to get associated with our brand and in the financial business, where the currency is trust, this is a great advantage to have. That is not easily replicable.
Clients and distributors like to be associated with our brand and it is a big door-opener for us. We will continue to enhance and leverage our brand.
In your opinion, how can distributors grow their business in an all-trail era?
Like I mentioned earlier, the objectives of the investor, distributor and asset manager are more congruent now than earlier. Deferred gratification was always seen as a virtue in the financial world, as it allowed your money to compound over long periods of time. With trail commission it may potentially reduce unnecessary churn and it aligns well with investor interest. For distributors, it becomes more of annuity income and their income also compounds along with market moves and it also compounds incentives, building up a large AUM book.
Of course, it has caused dislocation/disruption in the short term since their current income streams and business overheads may be more attuned to upfront commission in some cases. So the heavy lifting has to happen in the first 12 to 18 months of transition from upfront to trail; but distributors need to understand that all-trail is beneficial in the long run.
SEBI has been pushing fund houses to promote direct plans among investors. How do you plan to promote direct plans and align interests of distributors at the same time?
One thing I would like to state upfront is that this was, is and will significantly be an intermediated business in the future. I don’t see a contradiction between direct and distribution and both will co-exist. It is a choice that clients have. Take the case of pizzas. If you wish to have a pizza you have two choices: a) DIY – do it yourself i.e. get all the ingredients and bake it yourself or b) simply order one. If you are a direct customer and you know how to make your own portfolio, the client should have the option of doing so; but if you feel the need for assistance, you will have to pay for advice/fulfilment/service. There will be both kinds of customers, and they are mutually exclusive.
The investments business is less about investment management and more about investor management and that’s where the distributors play a key role. For those investors who are savvy and wish to do it themselves, we need to give them an equally credible alternative and I don’t see any contradiction here.
We have seen the emergence of direct plan sellers like Paytm money and ET money. How do you think it will impact distributors selling regular plans?
Like I said earlier, the client segments are different. We don’t live in a binary world. Direct and regular can co-exist in harmony. Clients have to choose what suits them; we cannot deny them options. Direct options are not meant only for the HNI category. Even in retail, there will be clients who may want to opt for direct and such platforms cater to them.
Direct plans have been around for over 5 years. We have still seen a growth in regular plans. This is because the opportunity size is very large, clients and distribution is still at a nascent stage; MF penetration is still quite low. That’s what excites us when we look ahead. We have miles to go.
