Vikaas Sachdeva, CEO, Edelweiss Mutual Fund says that introduction of a ‘free look’ period in mutual funds might help AMCs gain the confidence of first time investors.

How would you evaluate the progress of your fund house in the last two years?

We have redefined the metrics of how we want to grow. The conventional metric has been AUM. Today, assets define your ranking and the perceptions people have about a fund house. So, the general tendency is to increase the AUM. The fastest way to grow your AUM is through fixed income products, which we initially started with.

We have developed a metric called ‘Equity Equivalent AUM’ for measuring our growth. (Four units of debt equal one unit of equity, five units of ETFs equal one unit of equity, 100 units of money market funds equal one unit of equity and so on). We have also looked at other parameters like fund performance, number of investors and ticket size of investors to gauge our progress.

We have concentrated on the HNI segment largely. Going retail will be a success if we have more HNIs on board. For instance, if Rakesh Jhunjhunwala buys Escorts shares then the focus suddenly shifts to the stock. It is not that Escorts has suddenly become a great company but it has evolved. But an investor who is supposedly smarter than the average investor is investing in a stock then that particular stock attracts people’s eyeballs. Retail investors tend to follow MNIs and HNIs. You always look up to someone who is more successful in investing.

We have also innovated in products. We have come up with products that are relevant to investors, core to us and differentiated from the competition. We have a very smart product called Gold S.A.F.E. PMS (Systematic Accretion From ETFs) which follows a quant method. A lot of people are taking interest in it now.

We are building a high quality organization. A high quality organization does not necessarily mean high costs. We have kept our costs under control. We have invested in training people and getting the right people on board. We have not spent a lot of money by opening up branches indiscriminately. Our single minded focus is to help our channel partners get HNIs in equity funds. In the last three years we have moved from being swayed by the market to grow irrespective of the market. On the Equity Equivalent AUM basis we have seen growth in the last 15 months.

What are your current priorities?

The first priority is to ensure that our fund performance remains intact. The second priority is to train our people so that they are able to pick up the opportunities available in the market. The third priority is to keep our costs in control. The fourth area where we are working is to come up with differentiated products.

What new products are in the pipeline?

We are looking at launching a variety of products. We are working on three products at this juncture – PMS, equity and debt. Our debt fund is targeted at fixed deposit investors.

You launched Beta Overlay Over Mutual Funds (BOOM) PMS based on quant model recently. How has been the response from investors?

This product was a little ahead of its time. We have kept this product on the backburner till the logistics are in place. One of the key tenets of this product is that it uses large cap funds and keeps them as margins with the exchanges to invest in Nifty Futures. The list of stocks in NSE Futures keeps changing.  If an investors chooses a portfolio of stocks and if the stocks go out of the index then we run into trouble.

What according to you are the reasons for the slow take off of quant funds in India?

The quant model runs across all our funds – PMS and equity. The initial impression which people had about quant was very negative. We demonstrated through our performance that quant model works. We are getting a lot of enquires from distributors. It is just that the market situation is very bad. Distributors are selling our Absolute Return Fund to HNIs. It will take some time for retail investors to take a shine towards this fund.

The falling rupee is dragging down the markets while the bond yields are surging. What would be your advice to investors?

Today everywhere you invest there is a risk – be it gold, equity or debt. Equities have plummeted and the market could go down further from here. The money is moving to FMPs. If you have a three year time frame then equities is the best asset class.

What are your plans to reach out to B-15 cities/towns?

We currently have offices in four locations and the fifth office is coming up in Bangalore shortly. We are also looking at setting up a branch office in Indore. But we want to get the right talent first.

How are you going about creating investor awareness which is mandated by SEBI?

We are educating investors through mailers and face to face interactions. Recently, SEBI came out with circular telling investors not to invest in any entity which is not registered with SEBI. We drafted a mailer of this circular and emailed it to everyone. We try to do things differently. I have suggested to SEBI to bring the facility of ‘free look’ period in certain categories of schemes, for instance in liquid funds. This might help investors get comfortable with mutual funds. Investors can be given an exit route in 15 days without charging any exit load if they have a bad experience. For the first time investors, the one year exit load can be applied after 15 days in equity funds.

People are not investing in mutual funds due to a variety of reasons. Paperwork and lack of basic information are the two main reasons. The third reason could be because of low comfort level. We can address this by introducing the ‘free look’ period.

How do you plan to broad base your distribution network?

We have identified the opinion makers at each location. We are looking to work smaller national distributors and private banks that have got into this business recently and are looking to expand very fast. We are also keen to work with other big national distributors but they have AUM criteria.

AUM is like a market capitalization of a company. If you have a large AUM then your scheme expenses go down. We are doing a good job of keeping our scheme expenses under control. So I don’t need to have Rs 10,000 crore of liquid fund to justify our existence.

What is your near term roadmap for the fund house?

We will focus on performance till we have the distribution capability. Every month we are empanelling more and more distributors. We have been showcasing our performance to distributors. We have survived the tough times. Once the tide turns we’ll be the ones leading the change. Smaller AMCs have nothing to lose.