LIC Nomura Mutual Fund is making a comeback. After losing assets in its debt funds, the AMC is getting its act together and aims to reach Rs 10,000 crore by March end. Nilesh Sathe, Director & CEO, LIC Nomura Mutual Fund talks to Cafemutual about his roadmap for the fund house.
You introduced additional features in your tax saving unit linked insurance scheme (ULIS). How has been the response from investors?
We got at least 1000 new customers after adding the additional features in ULIS. There are only two such products in the market and we definitely have an edge over them. Since it is an open ended scheme, we expect to get more inflows over a period of time.
What was your strategy to reach out to RGESS compliant investors? How much are you planning to collect from the NFO?
The response has been reasonably good. Many employers don’t allow you to refund tax which is already deducted so getting new customers was difficult in February and March. We focused on LIC employees. We are confident of exceeding Rs 10 crore minimum collections by a handsome margin and should collect Rs 20-25 crore from the NFO.
Your sponsor LIC has a very big distribution force. Are you looking to leverage this force to make a contribution to the mf business?
I can’t enroll the entire 10 lakh LIC agents to sell mutual funds because of certain restrictions. Not all LIC agents are equipped to deal in mutual funds. Out of the 30,000 distributors working with LIC Nomura, around 28,000 are LIC agents. Insurance companies are not allowed to sell mutual funds. The fee to become insurance agent is Rs 250 whereas in the case of mutual fund it is Rs 3000. The commission structure in insurance is higher as compared to mutual funds. So many LIC agents don’t see mutual funds as remunerative enough. Also, mutual funds are not the first priority for many investors. Because of the uncertainty factor, insurance becomes the first priority. So selling insurance is comparatively easy as compared to mutual funds.
So are you looking to broad base your distribution force beyond LIC agents?
Yes, we have recently tied up with a few public sector banks and are planning to get more such PSU banks to sell our schemes. A lot of IFAs have become inactive. So the entire industry needs more distributors. Distributors are needed to counsel investors since financial literacy is not very high in India. If there is a shortage of distributors, people may not invest in mutual funds at all and if they do, they may invest in wrong schemes.
What is your current market share in B-15 cities/towns and how much are you targeting to increase it to?
An increased TER of 30 basis points is not sufficient for AMCs to spread beyond top 15 cities as there are costs involved in setting up offices there. We have an advantage as our agents are spread in every nook and corner of the country. More than 15% of our business comes from B-15 cities. So, our profit margins will go up slightly.
You have said earlier that LIC MF is planning to launch overseas ETFs. Tell us more about it. Which markets will these ETFs track? Is there a demand for such ETFs in India?
We are looking to list Nifty and debt ETFs in US to begin with. Overseas investors will have confidence in our ETFs if they are listed on their exchanges.
Your debt funds are doing well. How are you planning to improve your equity funds performance?
Our equity fund performance has improved a lot lately. Majority of our schemes are outperforming benchmarks now. We have put our systems and processes in place. We have increased due diligence before investing in any stocks. We have recruited two fund managers and a research associate in our equity team who come with considerable experience. So, we hope to further improve our equity funds performance.
Any new funds in the pipeline…
We are planning to launch a capital protection fund. We have got approvals to launch 14 FMPs and we have already launched three of them and we will launch five more FMPs by March end. The money in FMPs is sticky since they have a lock in period and the fund manager is able to deploy the money immediately. Once investors are confident about FMPs they keep coming back. We could add more features to our ULIS going ahead. With this we should be able to rank among the top 10 – 15th largest AMCs going ahead. With Nomura joining us, our fund house should become stronger in delivering what we have promised.
Over the last few years, LIC MF has lost assets and market share. What are your plans to regain this market share?
We lost market share for two to three reasons. The NAVs which we were declaring in our liquid funds were much higher than what others were declaring. So investors earned more and they kept money with us. We realized that we could not afford to do this and thus we rationalized the NAVs. As a result of this, corporate investors started leaving us. There were no restrictions on banks investments in mutual funds earlier. The RBI later imposed restrictions on bank’s exposure in mutual funds. So each bank had investments worth Rs 3000 – Rs 4000 crore in our liquid funds. Now their exposure in our funds has come down to Rs 400 crore. Some banks are sponsors to AMCs so they like to invest with their own AMCs.
It is not that we lost assets because of any misdeeds. We had good relations with banks and thus used to get a greater share of bank investments. Investors look for brand image and returns. We could not generate reasonably good returns and as a result the flight of investors started. We are working on it. Our liquid fund portfolio which had shrunk to less than Rs 2000 crore is now almost at Rs 4000 crore. We are planning to increase it to Rs 10000 crore by end of March.
How are you going about conducting investor awareness campaigns mandated by SEBI?
We are planning to talk about mutual funds in regional newspapers in B-15 cities. We are tying up with some newspapers to hold investor education seminars.
Are you looking to tap new cadre of distributors?
Yes, it is a great advantage for us. Insurance agents also qualify to sell mutual funds and now the 10 year experience has also been done away with. This will definitely help us add more distributors. But it is not so easy. Insurance agents are allowed to sell ULIPs from day one but these new cadre of distributors can’t sell equity funds. The definition of simple products needs to be expanded. Too many rules deter people from doing business.
What is your roadmap for LIC Nomura MF for the next two years?
When I took charge in April 2012, we realized that unless our AUM reaches Rs 10,000 crore it is not poised for a takeoff. AMCs with less than this Rs 10,000 crore mark are often ignored. So the first target I had set was to reach Rs 10,000 crore. We are already at Rs 7500 crore now and I’m quite hopeful of reaching Rs 10,000 crore by March end. There are some customers who have a mandate that they will not invest in a fund house which has less than Rs 10,000 crore assets. So once we reach Rs 10,000 crore it will be easy for us to reach Rs 20,000 crore.
Do you think smaller fund houses find it even more difficult to reach Rs 10,000 crore?
Customers have some sort of attraction for big fund houses. People feel that there is risk if the fund’s size is small. Once your AUM increases, the marketing team too gets confidence to talk to investors.
