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Bank-sponsored MFs tap own customers

Bank-sponsored MFs tap own customers
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First Published: Mon, Jun 06 2011. 10 31 PM IST

Updated: Mon, Jun 06 2011. 10 31 PM IST
If you visit your agent’s office next week with a desire to invest in Union KBC Equity Fund (UKEF), the latest equity offering in the market, don’t be surprised if the agent turns you away. The latest fund house to enter the Indian mutual funds (MF) industry Union KBC Asset Management Co. Ltd’s first offering, UKEF, closed its new fund offer on 3 June. Fresh subscriptions will be allowed from 17 June.
There’s nothing new about the scheme. But what sets the asset management company (AMC) apart is that in the initial years, its schemes will be available mainly through Union Bank of India’s (UBI) branches. Increasingly, bank-sponsored fund houses are piggybacking on their parent bank’s branch network for retail penetration. UBI holds a 51% stake in Union KBC AMC; the remaining 49% is held by KBC Asset Management NV, a Belgium-based fund house.
Piggyback on network
Ever since the capital market regulator, the Securities and Exchange Board of India (Sebi), abolished entry loads in August 2009, fund houses have been finding it tough to compensate distributors. As a result, MFs have started looking inwards; towards customers of its in-house firms and sponsor companies.
Union KBC AMC seems to have gone a step ahead and is believed to be not really encouraging empanelling new distributors. “Though we are open to speaking to distributors, we are not actively soliciting them on the retail side. We are banking on about 1,000 branches of UBI, to start with, to sell our schemes,” says G. Pradeepkumar, chief executive officer, Union KBC AMC. “In the initial years, Union KBC AMC will not actively empanel outside distributors. Union Bank will be its main distributor and we expect to collect around 90% of its collections,” adds Vivek Mhatre, general manager, retail and third party products distribution, UBI.
Among existing AMCs, SBI Funds Management Ltd and Axis Asset Management Co. Ltd see a significant chunk of their inflows come from State Bank of India (SBI) and Axis Bank Ltd, respectively.
Out of Rs909 crore that Axis Equity Fund (AEF)—Axis AMC’s first equity offering—collected in its NFO period in December 2009, Axis Bank mobilized around Rs700 crore or 75-80% of the amount. Out of 138,000 investors of AEF, 95,000 came through the bank’s network. Karan Datta, national sales head, Axis AMC, says: “Of the total inflows that we get in our long-term schemes, such as in equity and monthly income schemes, Axis Bank used to contribute up to 75% in the initial months. That has come down to 65% now because other distributors have also started selling us (our schemes) and hence their share has marginally gone up. But as long as Axis Bank contributes about 65% of our assets, we are happy.”
Between August 2009 till date, SBI Funds Management’s assets under management (AUM) has grown by Rs7,616 crore; the third highest among all AMCs. Says Srinivas Jain, chief marketing officer, SBI Funds Management: “Almost 30-35% of our AUM comes from SBI, up from about 22% a couple of years back. Till about five years back, less than 10% of our AUM used to come from SBI. Of course, our overall AUM figures have also gone up.”
Building capacities
Unlike private sector banks that have well-established departments for selling third-party products, government-owned banks have only recently started to catch up.
Union KBC has been conducting extensive two-day training workshops and sessions for bank employees in the past six months, prior to UKEF’s launch. “So far, we have covered most of the 1,000 branches of UBI that we want to work for us. We have trained them on aspects such as what an MF is all about, why systematic investment plans should be used as a tool to create long-term wealth, asset allocation as a concept and so on,” says Pradeepkumar, who claims to have travelled across India along with the team to monitor these workshops.
He adds that of the approximate 30 million clients that UBI has (those who have a savings or current account), if the fund house can tap at least 10% to start with, they would have “tapped the huge potential”.
Government-owned banks are also looking to ramp up their capacities. According to the Khandelwal committee report on human resource issues in government-owned banks, at least 100,000 employees will retire from these banks over the next five years; combined manpower of these banks, as on early last year, stood at about 700,000. The committee was appointed by the government and led by Anil Khandelwal, former chairman and managing director of Bank of Baroda; it submitted its findings and recommendations in June 2010 which is still under government’s consideration.
Mhatre says that UBI is losing about 2,000 employees on average every year through normal retirements and the situation is likely to worsen in the next five years. “Much of the fresh recruitment will reinforce the sales force and they will be available to sell third-party products such as MFs,” he says while also claiming that the average age of the bank’s employees should eventually fall below 40 years, against around 45 at present.
The pitfalls
Not all are convinced about the government-owned banks’ ability to sell MF schemes. A former chief executive of a bank-sponsored fund house, who didn’t want to be named, said that MFs still need to engage a lot with their parent banks to ensure that schemes are pushed to the right customer and at the right time. “The banker is not a very good sales guy as he is not used to go out and poach customers. Typically, 80-90% of the times, a customer walks in the branch to get his usual banking work done. Only the rest 10% of the times, they will have the time to listen to what the bank has to offer him additionally,” he said.
Falling distributor commissions is a worry. However, the main clientele for Union KBC AMC would be the UBI’s own clients. Mhatre expects that good trail commissions will supplement the income coming from MF distribution.
On the other hand, SBI’s present management isn’t too enthusiastic about selling MFs despite putting up a good show last year. “As agents and distributors are no longer pushing MF schemes, bank-sponsored funds have some advantage. But the advantage is limited because ever since the entry load ban, MF distribution has lost its charm. We only get 0.5% as commission on the quantum of investment in MFs, while we have margins of around 3% in our core business that is lending. MFs’ contribution in fee-based (other income) income, too, is very small,” says SBI chairman Pratip Chaudhuri.
“When I offer a client MFs, I have to offer her all the products; she will decide what to buy. Besides, IDBI AMC doesn’t have a wide array of products, other AMCs have, say, 20 schemes,” says K.C. Jani, executive director, IDBI Bank Ltd, who claims that they sell a “nominal figure” of IDBI schemes.
The CEO of a fund house we spoke to says that a lot also depends on the bank chairman’s policy about the vision of the bank, hinting at how SBI seems to be singing a different tune these days under Chaudhuri’s wand, compared with his predecessor.
What you should do
Just because your bank wants to sell an MF to you doesn’t mean you should invest in it. Most government-owned banks do not impose any charges on you yet, but a wrong investment can cost you much more. Ask for a complete bouquet of funds your bank has on offer and choose the one that gives you maximum comfort in terms of track record, pedigree and is a good fit for your needs.
Illustrations by Shyamal Banerjee/Mint
Abhishek Anand contributed to this story.
kayezad.a@livemint.com
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First Published: Mon, Jun 06 2011. 10 31 PM IST