Akshay Gupta, MD & CEO of Peerless Mutual Fund, says that the distributors can be winners if they sell solution-based products.
What is your view on the new regulations issued by SEBI yesterday last week?
There are basically two regulations that SEBI has announced – one on debt valuation and the other on advertising code. With regards to debt valuation, earlier the industry used to amortise securities below 91 days and have a matrix based valuation for over 91 days. Here also, there was a range provided called mark-up and mark-down.
But now, as per SEBI’s revised guideline, industry will have to also consider the daily traded prices (if available on various public reporting platforms) for fair valuations. We are in the process of proposing changes to the existing regulation and we have zeroed down on ideas that will determine fair valuation. We would have hoped that AMFI and SEBI discuss and standardise the process for all AMCs but that does not seem to be the case. Essentially, it has to be fair to the customers and also simple to execute.
As far as the advertising code is concerned, it has made our life easy as we are not required to provide a very detailed disclaimer in the advertisements. Earlier, we were required to state statutory details... all that is over now. It has to be a simple advertising of the product representing the product details truthfully.
So no statutory warnings required at all? Is it only a 14-worded risk factor to be mentioned?
Correct, as per our interpretation.
Moving on to equity, how do you think that the equity market would be performing this calendar year?
When talking of the equity markets, we should remember what happened in Nov and Dec last year. A lot of FIIs jumped in to buy Indian equity because equity valuations were fair. Those inflows and RBI steps to ensure that rupee does not depreciate further led FIIs to start buying left, right and centre for one and half months which resulted in 20 percent appreciation in equity market along with 10 percent appreciation in rupee.
So, some of the FIIs have made 15 to 30 percent return in equity in terms of dollar. That kind of return is tremendous according to them.
Currently, my sense is that now things would be range-bound because rupee appreciation is over and fundamentally nothing much has changed. Oil price is going up every day, policies paralysis continues, policy execution is not happening and situation in terms of politics looks pretty grim. So, I do not see a one way upward movement in Nifty the way it happened in last one and half months. I think we will see it settling down somewhere near 17000-18,000 unless there is a political equation change due to UP elections and any indication on how Europe would be tackled.
Coming back to Peerless, we see a huge part of the retail AUM contributed by tier II and tier III cities. How did you manage to do that?
Well firstly, we are still very small in terms of retail AUM compared to other AMCs. But whatever little we have, is mainly contributed by tier II, tier III town because of our focus and Peerless’s brand name.
Peerless has always being a tier II, tier III player. It has never been a tier I player as it was earlier selling small saving deposit schemes and focussed on spreading its wings in rural and semi-rural areas. Consumers have huge trust in the company and over the years we have been able to develop the trust. It was very simple concept - approach the same customers or their references and in same region where Peerless is known so that we do not spend much money in building the brand.
For instance at Ghatal, a small place in West Bengal we have 500 agents and our brand is quite popular there. We are also quite famous in the back waters, i.e. Kerala in south. We could have penetrated those markets more but the major impediment was that most of our consumers do not have Pan Cards. And bank accounts it is an essential document needed for MF investment. Otherwise, we would have been much bigger in retail.
Our focus was and is tier II, tier III cities, opening of branches in areas where other AMCs are not present. So, we developed our strategies according to our target market, like printing multi-lingual forms and call-centres. Our 360 degree approach was around multiple language set-ups so that we can easily get through our target audience. Under multiple languages apart from Hindi and English, we have Bengali and Malayalam and now we are planning to add other languages.
How does Peerless plan to overcome this challenge of your target customers not having pan cards and bank accounts?
We have tried to educate them about investment. We have put them on to some agencies which will help them in making pan cards and we have also tied-up with some banks to ensure that they have proper banking account. But, we can only be facilitators... we cannot do anything more...
What are your expansion plans?
We are already present in 35 cities with a hub and spoke model. We try to be in the areas which are untapped with maximum one to two other fund houses being present. We do not want to be present in an area where 40 funds are already present. What is the point of being present in such places and wasting capital on brand building? To create a brand takes years and crores and why should we spend when we have such an extensive untapped market.
From a distributor’s point of view, their business confidence seems to be at a low in recent months – on account of a combination of falling equity markets and new SEBI guidelines. What do you see is the road ahead for mutual fund distribution over the next three to five year?
Markets are always volatile by nature. We cannot do anything about it... There are few things that we keep on telling the distributors;
Point 1: If India does well, equity market will perform.
Point 2: We try to deliver solution based products. We have a child plan where 65 percent of the asset is allocated to debt and 35 percent is allocated to gold and equity. We have been overweight on gold for last one and half years. We have managed to get good returns on this product.
We are managing gold and equity in that product very dynamically and that was what we charge the scheme for. We have managed to out-perform the benchmark considerably. Therefore we suggest to our agents to sell such solutions because their target audience who invest Rs10,000 to Rs 50,000 does not understand ETF, mid-cap and small-cap and such market related complicated terminology. They can easily relate to solutions.
After all, it is our responsibility to give them good returns and good solutions.
Point 3: We continuously educate our IFAs on selling such products and develop their capability to recommend suitable products. We tell them to produce volume with such products and avoid churning because in the long run, it will help them to get much bigger share of the investor’s wallet.
Even today if you see the amount of money parked in saving accounts in India is huge. It is almost equal to rupees seven lakh crores, which is three and half time the size of retail AUM in India.
People have to be educated and have to understand the scope of investing. Pre 2008, distributors and AMCs were getting overboard about compensation, distribution brokerage, contests and various other types of below the line activities. Regulation will only get tighter and will get more customers friendly. Why are retail customers not so open to mutual fund industry? As an industry, we were very short sighted between 1998 and 2008. Now, we need to maintain balance. We have to tone down our expectations and be long sighted because investing and building customer loyalty is a game of patience.
Part 2 of this interview >>>
