Piyush Surana Chief executive officer, Daiwa Asset Management (India) Pvt. Ltd
There is a lot of noise from the Securities and Exchange Board of India (Sebi) that the committee formed to look into the so-called revival of the mutual funds (MF) industry will look at some kind of distributor compensation. Is that good news, especially for smaller and newer fund houses such as Daiwa?
I don’t want to comment on matters which have any regulatory context so I will stick to what I see as the facts. The last five years have seen the dynamics of this industry undergo a sea change. The margins have come down due to increasing levels of competition, changes in rules and higher costs. Business break-even for new companies has shifted out two-three years at least. MF distributors have also seen a significant reduction in their revenue.
Given this situation, any measure taken to promote the industry is welcome. It is equally true that for the growth of the industry an investor should also believe that he is being provided a decent value proposition.
Shinsei AMC which was acquired by Daiwa started under a no-load regime. If the Sebi committee recommendations are accepted, how would your business model change to suit changing times and perhaps make up for lost time?
We see our business more as a start-up. Our current business model was created in the changed environment and does not rely only on revenue from our domestic MF business.
About the effect on our model, I don’t see any point in hazarding a view till one knows what is in the works. Broadly, any additional revenue for the product pipeline would assist the spread of MFs as a product.
What about the problem of penetration? Is your parent company willing to help open new branches and hire additional headcount across India?
I think this country is too large for individual firms to open branches in all places where funds are sold. Besides, penetration has to increase through distribution channels. The branches and headcount are essentially to service the distribution channel.
While servicing distribution channels will certainly require an extension of one’s organization, this could be done in other ways too. A hub and spoke model, wherein the spokes need not necessarily be AMC branches, could be adopted. Alternatively, there is the possibility of a non-physical model.
We are currently present in seven locations. Our parent company is willing to open branches and hire additional headcount as required.
What challenges do you face compared with bank-sponsored AMCs since Daiwa is not sponsored by an Indian bank with branches nationwide?
Bank-sponsored AMCs have access to the distribution network of the bank. Another advantage is the perception of security associated with a bank. We rely just on our relationship with third-party distributors.
What are your growth plans in the next three years?
It is natural for us to play to our strengths in the short run. We see growth in revenue coming from the advisory business; we provide advisory services to our parent organization’s products. Currently, our domestic MF plans revolve around completing a standard product suite with a few differentiated offerings and increasing our investor base.