AUM of HSBC MF has grown 8% over the last financial year. What are the reasons?
Last fiscal, we raised healthy money from two new equity funds launches – HSBC Equity Hybrid Fund and HSBC Large & Midcap Equity Fund.
The reasons for these successful outcomes are several. We always make sure that our investment products are in line with our investors’ need. They need to add value. Investors who came into our HSBC Equity Hybrid Fund in October 2018 have seen healthy returns in their portfolios over the last 6 months and that helped. It is a big boost to our team that we delivered the right products at the right time.
Looking at the NFO from a distribution perspective, we were able to engage with many new distribution partners and that benefited not just the NFO, but our other funds as well. We saw significant flows coming in our existing equity funds. An important learning from the whole experience is that engagement with investors and our key distribution partners should be the highest during volatile times such as these.
How do you plan to sustain this growth?
We are part of a global business with a very strong domestic franchise. All that we need to do is deliver on our investment strategy, stay true to the label, communicate continuously with our distribution partners and the business momentum will only grow.
We ensure that we invest our investors’ money in accordance with the funds’ mandates and our rigorous investment philosophy. We ensure that each product is indeed distinctive and that we don’t try to flood the market with products that do not have compelling propositions. Sticking to principles and discipline is the best way to build a franchise.
In FY 2019-20, we will be offering a few more NFOs, especially in the fixed income space as we seek to complete our product suite, but NFOs alone are not the way to grow the business. We will continue to engage with our existing set of key distributors to grow each of our unique products and in the process grow our businesses together with them.
At all times, we will remain relevant and responsive to the needs of our investors and build a stronger distribution network to reach out to our investors. We truly believe that if we build the franchise the right way, scale will happen over time.
What is your roadmap for the company three years from now?
Starting with our distribution partnerships, we want to continue to be the ‘global knowledge partner’ and provide our global and local views backed with data and analysis so that they can better interact with their clients. We are very clear that distribution partners are our first and foremost stakeholders and so the content and quality of content reaching them through various means – through the website, WhatsApp and email – are a reflection of what their clients in turn would like to receive. There are multiple competing information sources that our partners have. It is for us to deliver such content which our partners and their clients can use to make informed decisions.
In terms of products, we are working on completing the liquidity suite as well as on thematic equities where we are currently engaging with our partners to better identify what we believe should be a long-term sustainable strategy rather than a short-term flavour of the day.
The digital journey is an ongoing one and the objective is to continually upgrade the experience for all stakeholders, both external as well as internal.
Margins of AMCs have reduced post TER cut. How would you ensure that the profitability of the fund house remains intact?
Similar to developed markets, emerging markets like India too will continue to face regulatory pressures to lower costs in the interest of end investors. Recent changes such as no upfronting , reduced TER, etc. have turned out to be far more dramatic than anticipated. This has led to lowest cost of investing for the investor and the landscape has changed for all stakeholders. The impact of reduction in revenues needs to be shared across all stakeholders for it to be equitable.
I truly believe that our country’s growth trajectory continues to be strong and our industry should also continue to get the benefit of rising volumes to offset lower margins. There will clearly be short-term challenges since margins have decreased effective April 2019, and volume growth to compensate will materialise over time. There is hence pain and all stakeholders will have to absorb their fair share of this pain.
I believe this will catalyse a lot more focus on technology and a lot more collaborative efforts between asset managers, distributors, banks and fintech players to find ways of reducing the overall cost of delivering our products to our investors. Innovation is going to be vital as we move into a lower cost environment.
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?
We have observed that most asset managers have passed on entire or partial TER cut. We are well aware of the external situation and have taken a conscious call to support our partners during this challenging period. We would like to be with our partners and help them grow their business and investor reach. For now, we are pleased to advise that we will not be making any significant changes in our remuneration on existing assets.
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?
Currently, there is enough room for everyone. To put things in perspective, despite the phenomenal growth in the past 5 years, AUM to GDP is still only 11%. The number of unique investors is only 2 crore. So the opportunity is enormous and indeed multi-decadal. India has got a relatively low number of advisors relative to the country’s population. Also, there is a level of complexity in investing which creates the need for a financial advisor. At HSBC MF, we too offer a full-service online solution platform, which helps investors invest in our schemes within minutes, in paperless environment and in the most user-friendly manner. This platform also assists our RIAs successfully help their investors transact in our products. Our platform offers the operational ease of direct investing to matured/expert investors and also helps investors who are guided by their advisors.
With the emergence of direct plan sellers like Paytm money and ET money, how will it impact distributors selling regular plans?
As with all else, he who owns the last mile, i.e. the investor’s hand, will be the king or queen. What is going to be disruptive in a positive way are the new multi-product platforms coming in. E-commerce in India is growing rapidly and more importantly the trust factor has been established very rapidly. Today, no one bats an eyelid before purchasing online and paying upfront for it. This was unthinkable a few years ago. The online aggregators are not driven by the conventional norm of revenue maximization per transaction kind of model. And the uncertainty that this creates is because no one has experience of this kind in the fund intermediation space so far. The objective of the platforms is to acquire customers and build a sticky ecosystem, which will feed traffic to the other verticals. The user interface and experience are excellent.
So the only way to compete is by providing greater value. In this regard, I am reminded of the UK Retail Distribution Review interview with retail investors, who had no access to personal advisors due to cost issues and are now users of robo advisors. And one of them when asked, said that whilst he was happy with the advice, he greatly missed speaking to at least one person who could reassure him that he was making the right decision. So building that relationship of trust with our clients is the only defence that we all have. Hence, I strongly believe that he who owns the last mile, i.e. the investor’s hand, will be the king or queen in these changing times.
In your opinion, how can distributors grow their business in an all-trail era?
These are difficult times for the industry and distributors will have some pressure on revenues. This however presents a great opportunity to distributors to partner with fund houses with smaller scheme sizes. We believe, well managed smaller sized funds will be the right solution for distributors in the coming period. If you do an analysis of fund performance, you will see that it becomes more challenging for large funds to consistently deliver the same performance to investors, hence addition of relatively smaller sized funds in their investors’ portfolio should be looked at by distributors. For the right review of small sized funds, distributors should focus on 4Ps – pedigree of the fund house, process followed by the investment team, performance and product offerings by the fund house to suit every investor category. Encouraging more long term disciplined investing through SIPs is critical. None of this takes away the fact that in the short term there will be some pain, but in the long term an all-trail model significantly benefits distribution partners over manufacturers.
Experts believe that the ban in 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?
The size of the wealth market and the potential it offers is too big for any serious professional to ignore. If everybody were to start selling insurance what do you expect distributor commissions for insurance sales to be? So the key question for a new professional to answer would be: is he really serious about making a difference to his or her client or is he in it only for short-term gain. If it is the latter, then we will see the exit of some, but the really interested will stay and prosper. Be it the banning of upfront commission, capping the TER, reclassification of schemes and introducing the rules for TRI benchmarking, SEBI has taken a number of decisions to align investors’ interests with mutual fund investments. The comprehensive impact of the abovementioned changes for each stakeholder is likely to occur in the next few quarters and years. So, while there could be initial hiccups, I am confident that trail commission will be very rewarding for distributors.
How do you plan to deepen your engagement with distributors?
Our model is to be a knowledge partner and deliver value. To do so we may not be able to engage with the entire universe of distributors but we will be much focussed with our chosen partners and deliver our capabilities through every medium available.
What are the three key trends that you foresee in the mutual fund industry?
First is the financialisation of the economy. These are early days and the combined impact of the Indian rack of mobile phones, Jan Dhan accounts and Aadhar will only accelerate this process. Over time, all such reforms will result in a significant increase in savings and change in investment behaviour towards more rewarding avenues. The financialisation trend has a long way to go and will certainly have huge positive impact on the mutual fund industry.
Second, to give credit to our industry and AMFI, the drive towards SIP has been phenomenal. Mutual Fund SIP accounts in India stood at 2.62 crore and the total amount collected through SIP during March 2019 was Rs.8,055 crore. SIP AUM has more than doubled since FY 2016-17. Retail investors are more comfortable with the SIP route and there is little reason to believe this trend is going to change given the way our GDP growth is projected.
Third, a key trend will be the digital revolution. As both the government and the private sector move rapidly to spread high-speed connectivity across the country, this increased and easy availability of connectivity and growing knowledge about online transactions will lead to existing and even prospective investors’ shift from offline to online investing platforms on a large scale.
The fourth and perhaps the most important trend is that we are an era of low inflation and relatively higher real returns. Investors hence will look for asset classes that provide higher real returns, and to my mind there is no better financial instrument than mutual funds to do so. So the need for both manufacturer and distributor to educate the growing young population is critical and constitutes one of the biggest wealth opportunities worldwide.
