Suraj Kaeley, Group President (Sales & Marketing), UTI Mutual Fund says that upfront commissions are needed to expand the market and encourage more distributors to join the industry. He feels that the industry has to strike a fair balance between supporting distributors and protecting the interests of investors.
As the head of marketing and sales, what are your key priorities?
As we celebrate 50 years of operations, we are assessing our areas of strength and are looking where we can fill the gaps. My first priority is to refresh the brand. The brand ‘UTI’ needs to relate to the younger generation. Also we want to enhance our investor services capability.
UTI has a good market share in B-15 cities/towns. How do you win the confidence of advisors and distributors in B-15 cities?
Any financial product needs to win the trust of investors. We have been operational for five decades now. This alone works well for our brand in B-15 cities. Investors and distributors in smaller towns are quite familiar with us. Our extensive presence in B-15 cities helps us connect with advisors.
Moreover, we have more than 400 business development agents (BDAs) spread across the country. This has also helped us reach out to areas where it is not possible for us to have a physical presence. Also, we are working with banks to increase our footprint.
How are you trying to enroll new cadre of distributors? How many new cadre of distributors have you enrolled so far?
We have added more than 500 new cadre of distributors so far. However, these distributors are yet to contribute meaningfully to us.
I think engaging more with the existing distributors will give us good results. Just the presence of a branch in B-15 city helps us get walk in prospects who empanel with us as distributors.
UTI is one of the oldest fund houses in the country. With other private sector players gaining market share in terms of AUM, how are you trying to keep up with competition?
Mutual funds as a category has to grow first. There is scope for many more players to come in. We have to get out of the monopolistic mindset. To expand this market, we need ten more UTIs. The industry needs to work together to expand the market. So we have to expand the pie first and then think about growing the market share of UTI.
The distribution landscape is undergoing a change. Many online mutual fund platforms have come up in the recent past. How do you see the growth of such platforms?
A channel need not be categorized by the technology or the set of customers it serves. They are just delivery mechanisms. Customers are the best judge as to which medium they are comfortable with. As an AMC, we have to make our schemes available through different mediums to investors.
As of now we don’t know which channel is preferred the most by investors. Investor preference will decide which channel becomes popular. For instance, R&Ts have started providing common account statement (CAS) because there has been a demand from investors.
What activities have you undertaken to engage with distributors?
There are many AMCs which provide product and market training to distributors. More than product training, we are more focused on skill building of IFAs. Building skills involve working closely with them and helping them grow their business. For instance, we do joint calls with advisors, help them with the sales process, etc.
There seems to be some renewed interest in equity mutual funds. Equity mutual funds have seen net inflows of Rs. 33,790 crore YTD September. Do you think equity funds will continue to attract investors even if the market corrects?
There were six market corrections from 2003-08. So, it is difficult to time the market. Investors are now more optimistic than they were before. I think this trend will continue.
Are you seeing investor interest waning in debt funds after the changes in tax structure of debt funds? Are you trying to come up with alternate solutions for debt fund investors?
The first driver of a market is the returns. Taxation is a secondary factor. Removal of tax arbitrage has come as a dampener for corporates.
We have not seen any slowdown in corporate sales and the size of the fixed income market in fact is growing. The changes have affected the one-year FMP category. The changes bode well for the industry because now we can focus on building long term assets. Now, we have to design products which are competitive on a pre-tax basis. Overall, we believe the changes will strengthen the industry.
Why is there a sudden rush of closed end equity funds? Can’t fund houses get investors in their existing open end funds?
The investment strategies of these closed end funds are different from open end funds. For instance, UTI Focused Equity Fund takes concentrated bets on stocks which we feel can deliver good returns in the next three years. We can’t take such calls in an open end structure.
The sales of all closed end funds is not more than 15-20% of the total sales clocked by the industry. It’s not that NFOs are 35-40% of overall sales which was the case in 2007. This criticism was valid in 2007, not now. In fact, existing funds are receiving larger inflows than new funds.
AMFI has mulled a proposal to ban upfront commissions. Are you in favour of banning upfront commissions?
Any pricing structure will have a set of unintended consequences. If we pay more upfront then we have to make sure that mis-selling doesn’t happen. If you adopt an all-trail model, then you are suggesting that the new distributor has to bring in more capital to start his/her practice. For a new IFA, building trail income can take time and not all IFAs have the wherewithal to pull it off.
If we want to expand the market then we should pay upfront commissions. We can always debate as to what is a fair amount of upfront commission. ELSS have always been offering three year upfront commissions. But nobody has ever questioned this.
I’m not necessarily in favour or against upfront commissions. The industry has to strike a fair balance between supporting distributors and protecting the interests of investors. There is a claw back of commission if investments are redeemed before one year. So there are mechanisms to check mis-selling. We can work out a solution rather than make decisions emotionally.
What trends to do you see picking up?
There are opportunities across categories. I think the industry is not promoting SWPs in big way. The industry has been focusing largely on wealth creation but investors have different needs. We need more solution based products because people invest with a certain objective. Also, there is a need for more alternate asset classes.
