In a two-part series with
Cafemutual, A. Balasubramanian, CEO of Birla Sun Life Mutual Fund shares the progress
of his fund house in 2012 and its plans to reach beyond the top 15 cities.
How was 2012 for Birla AMC?
Our investment performance was very good - both in debt and equity last year. We were able to increase our asset size in debt funds because of the superior performance. Some of large funds like Birla Sun Life Frontline Equity, BSL Dividend Yield Plus have outperformed the BSE 200 Index by 2% to 4%. We are happy that our equity funds did well which also resulted in improving our long term performance as well.
We recorded the second highest AUM growth in the industry last year. Our actively managed debt funds, especially the Dynamic Bond Fund became a leader. It manages Rs 14481 crore today which makes it the largest actively managed duration based debt fund in the industry. As a result, we were able to move up the pecking order to become the fourth largest AMC.
Apart from fund performance, we focused a lot on service initiatives. We introduced a mobile investing technology for our investors. Also, we launched ‘click in’ which allows distributors to accept submit applications. We did the pilot project for this in Cochin which was a success. We are planning to scale it up now.
We also revamped our website. It is now rich in content and we have received good feedback from both online investors and distributors.
How was the response to your campaign on Recurring Savings Plan? Will fixed income schemes continue to be a driver for the industry in 2013?
Fixed income funds will continue to be driver of growth for the mutual fund industry. A large section of investors across the country invest in fixed income funds now. We are trying to draw investors into mutual funds by introducing fixed income funds first. Based on this philosophy, we introduced this campaign through which we tried to get investors into asset classes which deliver reasonably good returns. Once they are comfortable with these schemes, we rope them in equity funds based on investor’s asset allocation. The market will also be driven by interest rate movement which will help build size in long-term products. Historically we have seen that when interest rates become favourable, HNIs and retail investors participation in fixed income funds goes up. This year too we will see a similar trend where money will flow into actively managed debt funds. We will focus on duration based funds in 2013.
I expect an increased participation in equities from investors because 2012 has been a good year for markets. This is the second time investors are missing an opportunity to participate in the markets. The first was in 2009 and second in 2012. You can’t time the market. Equity markets give returns when investors are in invested in the bleak time. The good returns in 2012 have pulled up the long-term performance of equity funds which were otherwise lagging behind fixed income schemes. SIP returns have also been better posting returns of more than 13% over a three and five year timeframe. So investors should stick to SIPs. People start realizing when interest rates fall and their fixed deposits yield lesser returns. At that time the importance of equity is increasingly felt by investors. Ultimately asset allocation has to play an important role and it will lead to more people participate in the market rather than just chasing returns.
In the context of additional TER in B-15 cities, what are your plans to expand your geographical reach? Could setting up offices beyond top 15 cities be a costly affair for AMCs?
We try to expand our reach every year. That is our continuous focus. The market has to be underpenetrated and it has to have potential. If both these criteria are fulfilled then only we can add a branch there. We have ramped up our branches since 2008. Today we have about 92 branches. We have identified three to four districts in each state where we plan to set up our branches.
What factors do you evaluate before setting up a branch?
We look at the population, per capita income, and proximity of a district to connect with the number of villages. If we can cover three to four cities/towns within an area of 100-150 km then that becomes a potential market for us. We also look at bank deposits of people in that area.
Each market has got its distinctive feature. For instance, people in South buy more equity than debt. There are certain markets where people like fixed income schemes.
Are you also taking into consideration the break-even time in these markets?
Generally it takes two to three year to break-even. If the market has a potential then break-even is not an issue. Even if it takes four years, we are ready to spend time and effort to penetrate these markets.
We have sales representatives in certain locations where we don’t have our branches. We have 25 market representatives in various locations that use our click-in tool to send applications. These representatives will actually drive the market. We are looking to rope in 20 more such representatives. We will expand our reach through a combination of representatives and branches. We are also looking at empanelling more distributors with us. We will focus on roping in distributors from smaller towns who can sell simple products.
Have you seen any shift from normal plans to direct plans in your schemes?
Some of our institutional investors have shifted to direct plan. They anyway invest and redeem every day. Some self-directed investors have also shifted. Those who are dependent on advisors have not shifted to direct plans because their asset allocation has been decided by advisors.
There are a lot of corporate investors who are also dependent on advisors. Advisors provide a host of services to these corporates. Those corporates will continue their relationship with advisors. Retail investor’s dependency on advisors is very high and it will continue.
