What priorities have you set for Union KBC MF?
We have two key priorities at this juncture. The first priority is to increase our assets in the retail category. Our strategy is to reach out to first time mutual fund investors. More than 90% of people in India have not invested in mutual funds. So the opportunity is huge. So far we have been reaching out to people primarily through our branch network. We are gradually expanding our distribution force. Our second priority is to achieve scale rapidly in the institutional segment.
How are you convincing people to invest in mutual funds, especially those who have never invested in MFs so far?
We are trying to introduce them to low risk products. We are introducing capital protection funds to these investors. In such funds there is an expectation that capital is protected and there is a good chance to make money through equities. These are ideal for people who are investing in mutual funds for the first time.
How are you building your institutional business?
We are consciously trying to focus on risk-adjusted returns. We don’t aspire to be on the top of the performance list. If you are on the top performers list consistently then we believe you can end up taking undue risk. We try to strike a balance by providing returns which are better risk-adjusted.
There have been many stress points in money markets lately. We can’t avoid risk completely. The only way to avoid risk is not do anything but that’s not possible. We try to identify and manage risk as best as we can. We are trying to reach out to new investors like SMEs in the institutional segment. Once you reach a certain size it becomes easier to grow further. Our parentage gives comfort to investors. At the end of the day everything boils down to the quality of your portfolio.
Do you plan to bring some of your KBC ‘s international fund of funds to India?
Yes, we are planning to launch international fund of funds as well as offshore funds next year. We have not zeroed in on the specifics of these funds yet.
Are you also seeing a lot of redemption in equity funds at your fund house?
Like other players, we too get redemptions. We are a relatively recent entrant in this industry. The redemptions are not as severe as compared to our peers. Our net sales are positive. We are doing better than what we did last year in terms of gross and net sales. The conventional wisdom has been that investors enter when equity markets go up. However, we are observing that existing investors are exiting at every rally.
Our investors have to be happy with our products. Investors can’t be happy if they don’t make money on a regular basis. To address this concern we introduce our Trigger Fund. The fund will wind up earlier if it delivers a growth of 30% or in three years. When the markets go up nobody advises clients to redeem. Investors see the appreciation on paper and they don’t do anything. They are happy as long as the NAV goes up but they don’t exit either. When the NAV goes down they start complaining and redeem.
As an AMC, it is in my interest to hold on to the money as long as I can since we earn a fee on assets. That’s a very narrow approach. If at the end of three years, the fund doesn’t perform then investors won’t be happy. AMC earns its fee but investor loses out. To counter this we will wind up this fund (Union KBC Trigger Fund) once the NAV appreciates 30%.
AMCs can flourish only when investors start making money. Companies
which have grown big have delivered value to their investors. Gimmicks work in
the short term but won’t take you too far.
How are you
leveraging your bank network?
We have activated 2900 branches so far. We keep getting business from these branches. The challenge is to keep getting business from these branches on a regular basis. We are working towards it. We are offering transaction facility in our schemes through Union Bank ATMs. Any Union Bank customer can invest in our schemes through ATMs after doing a one-time registration with the fund house.
What are your
plans to expand beyond the top-15 cities?
We support SEBI’s vision. As a young company it’s a part of evolution for us. We have to start with the low hanging fruit first. We have to tap the top 15 markets first to some extent before we can expand aggressively in smaller towns. Having said that, we get a good portion of sales from B-15 cities. In FY2012-13, 36% of our SIPs came from B-15 cities. Our inflows from B-15 compare well with the inflows from top 15 cities.
How are you
trying to broad base your distribution force?
We are working towards empanelling more IFAs. IFAs will play an important role in expanding our distribution network. IFAs are well established in their local area and command a great respect from people. People have faith in them. Even I invest through an IFA whom I also consider a friend. No other channel commands such respect and faith.
When do you plan
to break-even?
The margins in the industry have squeezed. The cost of distribution has increased. The last four years have been challenging for the industry. We are looking to break-even in the next four to five years. We can achieve that sooner if conditions are favorable.
Does the exit of foreign players create a sense of fear in your foreign sponsor (KBC)?
Union Bank which owns the majority stake in our business is among the top five PSU banks in India. They started this venture to offer a complete range of services to their customers. KBC is a 50-year-old asset manager. It has 37% market share in Belgium. We are fortunate that we have committed sponsors who understand our business. In my view the market offers scope for many more AMCs. India has great potential. Just because the conditions are difficult today we think that there are too many AMCs operating in India. Our market can perhaps accommodate 100 AMCs.
But every new AMC starts with the top 10 cities which are already tapped by existing players….
There is certain degree of polarization. That is also a reflection of the challenges faced by us in the last three years. That will change. Mutual funds are great products which are tax efficient, liquid and transparent. I see no reason why we will not get retail investors back in the industry. AMCs can have different business models. It becomes a problem if all the 44 AMCs are chasing same distributors and same investors. We have added more than one lakh folios last year and 65% of them are first time mutual fund investors. So we are not eating into anybody’s business. We have achieved this in one of the most challenging conditions in the market. Our market offers enough scope for more AMCs. You just have to get your business model right.
Are you looking for inorganic growth?
It takes huge amount of managerial time to integrate. We would invest
our time and resources to grow our business. I see enough opportunity going by
the way we are growing. I’m not saying that we’ll never do it but at the moment
we are not pursuing it.
How are you going about the SEBI mandated investor awareness programs?
We have adopted one district under AMFI’s District Adoption Program. You can’t educate people by showing them one hour PowerPoint presentation. Somebody has to sit across the table and make them understand the importance of financial planning. The role of an advisor is important here. Thus we try to reach out to more distributors and train them so that they can educate investors.
