Rajiv Shastri, Managing Director & Chief Executive Officer, Peerless Fund Management Company talks to Cafemutual about his plans, commission structure and more.
What is your roadmap for Peerless for the next two years? What are the goals that you have set for yourself?
We have a sound institutional franchise. Our focus is to build on the institutional franchise and make deeper inroads in the retail business. In the initial years, our growth will primarily come from institutional business. At the same time, we are laying the foundation to grow our retail business.
Many banks and national distributors prefer to sell the schemes of AMCs which manage Rs. 10,000 crore and more. How do you plan to reach this number?
Unfortunately, some in distribution industry focus on total AUM as a primary parameter to decide on whether they engage with an AMC or not. It makes life easier for them as it saves them the effort of analyzing 44 AMCs. But the large AMCs also grew their business from scratch and so will we. We will continue to engage with banks and national distributors and keep them informed of developments at our end.
In this crowded MF space, how are you trying to differentiate yourself?
We differentiate ourselves by the manner in which we invest. We have only one equity product which is Peerless Equity Fund. We have repositioned it as a long term investment vehicle which is not wedded to short term index outperformance. It is more focused on creating real wealth as opposed to nominal wealth. Nominal returns can be easily generated in India because our inflation is close to double digit. As a result, beating the index by 3-4% creates nominal wealth, but not real wealth. However, most funds in India are focused on beating the index even during short to medium term. Most Indian indices are based on market capitalization of companies. As such, they include companies which are already successful. So, market capitalization based indexes are backward looking. Some stocks which rise sharply enter the index and then move out of index. This drags down overall index performance. As such, it is not necessary that all the stocks in the index will continue to do well in future. Our focus in on investing in companies which are likely to do well in future.
Also, we are exploring the possibility of changing Peerless Child Plan into an asset allocation fund. The new fund would invest close to 20% in equity, 20% in gold and 60% in debt. You could ask why we will invest in gold when the gold returns have not been good; our analysis reveals that gold should not be merely seen as how much return it can generate - you need to see to what extent it can reduce the risk in the overall portfolio. The objective of asset allocation fund is to generate superior risk-adjusted returns and not to outperform other asset class.
How many active distributors do you have currently and how are you planning to expand your distribution force? Do banks and national distributors sell Peerless MF funds?
Currently, we have 2500 active distributors working with us. We will have a graded expansion. Our team tries to reach out to 50 to 60 distributors every month. Our main focus now is to work with IFAs. Over the next couple of years, we will be covering the entire distribution network.
Peerless has a good presence in B15 towns. How do you plan to leverage your sponsor group company's network?
We are already leveraging our sponsor’s network in B15 cities. We get a large chunk of retail business from B15 cities. We need to intensify these efforts. Our presence in B15 cities is something we are very proud of. We get 40-75% of retail AUM from B 15 cities.
The Saradha scam was exposed in Bengal where your fund house is headquartered. Has it changed people's perception about investments, particularly mutual funds?
People know that Peerless has never been a chit fund. It was a deposit taking company which has honored all its deposits. As such, it enjoys a very good reputation in its traditional areas. When the RBI said that RNBFC’s can’t accept deposits, Peerless had investments backing its deposits. We have repaid all those deposits on maturity. We have kept more than 100 branches open purely for the purpose of repayment. By the end of March 2015, all Peerless deposits will mature.
We feel that one of the major reasons why these scams happen is a lack of investor education of how returns are actually generated. Investor’s perception about financial services does get damaged due to these scams. We have been educating investors about safer instruments of investing which are well regulated. Such scams do affect investors psyche.
Do you think the investor awareness initiatives are yielding any tangible results?
Our concern with investor awareness programs (IAP) is that there is no tangible measure of evaluating the success of IAP. We need to know whether the audience attending the program are existing investors or new. We need to arrive at a model where there is some element of tangibility. We need to know whether people have actually understood what we have communicated through IAP. We are discussing some models with SEBI.
Peerless discontinued upfront commissions from October 2014. How has been the experience so far?
Distributors know that they will benefit more from all-trail model and are very happy with our commission structure. New distributors who have come on board recently are also happy. The AUM of Peerless Equity Fund has grown from Rs. 35 crore in September to Rs. 57 crore currently. We can see that the response is good.
Are you planning to launch any new funds?
We are planning to launch three to four products next year. We plan to launch a mid-cap fund, ELSS, another equity fund and a debt fund.
A lot of AMCs have launched closed end funds. Would you also consider launching a closed end fund?
We feel that closed end funds are not beneficial to investors in a significant way. Whatever can be achieved in a closed end fund can be achieved in an open end fund as well. So we don’t see the need to launch any closed end funds.
