How has your first year been? In hindsight, would you have done anything differently?
Given the quantum and frequency of regulations ever since we launched, there wasn’t much that we could have manoeuvred or done differently from what we did.
In terms of product launches, we got it right. We launched institutional debt products (liquid and ultra short-term funds), which are typically the mainstay of the industry till date and will hopefully remain a large part of the industry in the coming years. The institutional segment has grown almost 10 times in the past 10 years. We are also focusing a large part of our bandwidth on that space.
We will also focus on the retail segment. But it comes with challenges in the current environment. And we hope that those challenges are reduced because right now pure retail traction has reduced significantly. The reason being the viability of the retail seller’s business model has become a question mark.
The Securities and Exchange Board of India (Sebi) wants MFs to reduce dependence on the institutional segment. How do you ensure the business remains—as you put it—viable, yet keep your dependence on institutions in check?
In the near term, it’s a big challenge. It is a question that has been unanswered for a long while now. But on a long-term basis, the distributors will have to reorient themselves the way the manufacturers (fund houses) have done. They will have to reorient their cost structure, objectives of running the business and readjust the sales and profits they want to achieve.
In other words, distributors will have to offer solutions, rather than just products. They have to become advisers. Customers are willing to pay as long as they value their advice. And the value will come only when the right solution is sold and is not motivated by commissions.
That said, in the near term, it is a tough proposition. People are trying to reorient models. The number of daily transactions has come to 40%, but SIPs (systematic investment plan) have increased. What has happened that distributors don’t have the time and financial viability to service customers on a daily basis. SIP is a one-time sale and the right solution for the long term.
Why haven’t you launched an equity fund so far? Instead, you have focused mainly on your existing hybrid fund.
We don’t want to confuse our customers with terms like mid-cap, large-cap, flexi-cap; these are all market-related terminology that the layman doesn’t understand. We’re very clear that we want to offer solutions to the people we cater and we will develop such solutions and try and offer products that serve their needs.
One of our retail products was a child plan and the other was a regular income scheme, something like a monthly income plan (MIP). These are goal-oriented products designed to work as a solution.
The biggest issue that the MF industry faces today, as against, say, the banking or the insurance industry, is that we are still a push product. The reason is simple: we don’t sell pull-based products. We are all trying to sell fancy market-cap linked or fancy terminology products.
We will launch an equity fund when we are ready to launch a solution or a theme. Equity funds are important; we’re looking for at least one in our basket because there are some business propositions that you can’t ignore. Even though solution or goal-oriented products should be the way forward, at the end of the day, we are also in a competitive business and need to have certain basic products. So we will have an equity fund, a long-term debt fund, we will hopefully start a fixed maturity plan, we will look at an infrastructure fund some time over the next one year, but the focus is going to be on solution-oriented products.
What you call a solution-based product is after a normal MF scheme, isn’t it? A child plan, for instance, looks like any other MIP. Do you devise the product any differently? Or is solution-based selling just a new way to sell an old scheme?
Look at the construct of the product (child plan). We invest 60-80% of the corpus in debt, between 5% and 35% in equity and between 5% and 35% in gold.
What does one need in a child plan? It is a long-term horizon product. The investor needs growth with some sort of stability. Growth should not be at the cost of stability. The scheme should enable the parent to withdraw after, say, two years, even if s/he has invested for the next five-year time horizon; s/he should not get a negative return. Hence, we devised a dynamic asset allocation product depending on the market levels of equity and gold, and at the same time having at least 60% in debt. This brings us back to reorientation of business models.
Kayezad E. Adajania