After acquiring Fidelity, L&T launched its first equity fund L&T Emerging Business Fund which collected Rs. 230 crore. Kailash Kulkarni, Chief Business Officer, L&T Mutual Fund in an interview with Cafemutual talks about how his fund house is trying to make its mark in the industry.
It’s been more than a year since L&T acquired Fidelity. How has this acquisition strengthened L&T?
This acquisition was a complimentary fit for our business. The erstwhile L&T MF was very strong in corporate segment while Fidelity was strong with banks and large distributors/IFAs. Fidelity had a large share of its assets in equity while L&T had largely debt assets. The acquisition gave us a good mix of debt and equity. With access to all distribution channels we were able to grow quickly. The industry’s assets grew by 11% last year while we grew by 63%.
L&T brand is strongly associated with 'engineering and construction'. How are you leveraging this strong brand recall to your advantage in the investment management arena?
In the last five years L&T Financial Services has also made a pretty decent progress. Today, people know that we are in multiple businesses including home loans. There is high level of involvement with various group companies, including the parent company to see how we can leverage each other’s strengths to grow our business. In terms of getting leads, the brand L&T opens doors for us.
How was the response to your recent NFO L&T Emerging Businesses Fund?
This fund automatically becomes open end at the end of two years. In a closed-end fund you give back whatever you have collected. This is a perpetual product in our portfolio. We did not had a small and mid-cap fund in our product basket. Thus, we launched this fund to fill our product suite. Small and mid-cap funds take time to deliver results. Hence, having a lock in was desirable. This innovation was liked by distributors.
It was a pretty successful NFO. We collected nearly 17,000 applications from 340 districts. Close to 1400 distributors participated in this NFO and the fund collected Rs. 230 crore.
How was the retail participation in this fund?
Out of the 17,000 applications received by us, around 7% participation was from corporates. Thus, retail participation was very high.
Can you throw some light on the investment strategy of the fund?
The fund will focus on five themes which we believe will play out well in the next few years.
The fund invests at least 50% of the portfolio in small cap stock stocks. Small cap stocks will comprise of companies beyond top 200 companies based on the market capitalization.
How many IFAs are empaneled with L&T MF and how are you trying to expand your distribution force?
We have close to 12,000 IFAs empanelled with us. A large number of insurance agents do not sell mutual funds. We motivate these agents to take NISM certification and explain to them the benefits of mutual funds. Insurance agents have their captive clients who can also invest in mutual funds.
Do insurance agents find the commissions offered by mutual funds attractive?
They don’t find the commission attractive vis-à-vis what is offered by insurance products. Insurance agents get a one-time incentive whereas mutual funds incentivize agents on an ongoing basis. The commissions offered by mutual funds beat what is offered by insurance products. The trail commission offers a ride on the market. As the market grows trail commission also grows. We explain this concept to insurance agents.
What is your current B15 AUM share and how are you planning to expand your reach there?
Approximately 20% of our AUM comes from B15 cities. We have presence in 40 locations beyond the top 15 cities. Our engagement levels in these branches is very high. We received good number of applications in our recent NFO from smaller cities/towns.
Many smaller players are finding the going tough with some of them even exiting business. Do you think there is still scope for organic growth in the mutual fund industry?
Yes, there is tremendous scope for organic growth in this industry. We have hardly 4% of population investing in mutual funds. Most of the average middle class population in this country still don’t invest in mutual funds.
Is it feasible to grow organically given the kind of regulatory headwinds the industry is facing?
I honestly don’t think there are any regulatory challenges. I think these challenges are more in our mind. Regulatory changes have brought in more transparency in the industry. Transparency is always welcome. People will not perceive it to be wrong.
People are becoming savvier with their investment decisions. They are today conscious of post-tax returns which they were not looking at earlier. As time goes by, the younger generation will start investing in mutual funds with the help of technology.
Are investor education programs helping you get investors?
If we talk to investors about asset allocation then it works better. Investors want safety. They equate mutual funds with risk. So we educate them about debt funds. Also, sentiment drives the kind of participation you get in investor education programs. We have seen greater participation from people in the last three months because of the positive sentiments in the market.
What is your roadmap for L&T MF for FY14-15?
We have a long way to go. We have to be delivering long term consistent returns for investors. We want to engage with distributors on a higher level. We are currently the thirteenth largest fund house. We would like to break in to the top ten slot in the next few years. Also, enhancing customer experience is a big focus area for us.
