BackMere advertisements aren’t going to bring in investors: Chandresh Nigam
Axis asset management company chief executive Nigam talks about the fund house's journey
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Among the new breed of fund houses launched after the market crash of 2008—or just before that—Axis Asset Management Co. Ltd has been the most successful. The fund house turned five in the first week of October 2014. It turned profitable for the first time in financial year 2013-14 and is now India’s 12th largest fund house in terms of assets that it manages. Chandresh Nigam, its chief executive officer, tells the tale of the fund house’s journey so far, where he admits that being a bank-sponsored fund house helps.
You got a head start five years ago due to Axis Bank Ltd’s support. In hindsight, how important was that? And does the bulk of your sales still come from Axis Bank?
It was extremely important and continues to be so. Obviously, the share of Axis Bank in our total business has come down significantly. Of the total collections that our first retail product (Axis Equity Fund) got, almost 80% came from Axis Bank. While collections from the bank continue to grow, its share in our overall collections pie has gone down to less than 60%. If we knock off our closed-end products, it will probably be less than 35%. We have diversified across a large number of distributors; we have grown well. We’ve got good traction with independent financial advisers (IFAs) and a large number of national distributors (ND).
Does this in any way influence the popular belief that entry barriers in the mutual funds (MFs) industry have gone up and only those funds houses with certain strategies or a distribution back-up can enter the industry?
Like in any other business, distribution is important here, too. Great businesses have failed on account of lack of distribution and communication strategy. Anybody getting into this business has to think about how they are going to distribute. MFs will not become a pull-product for many years. Mere advertisements are not going to bring in investors. That’s also probably not the right way (to distribute). Like how doctors are needed to advice patients; self-medication can be dangerous.
Call it distribution or advisory; there is a strong role for them. Also, understand that building distribution takes time. Even after five years, we are still not really through; we’re probably engaging with only 25% of the IFAs, maybe about 50% NDs and a few banks. We still have some way to go. In that kind of a scenario, if we didn’t have someone like an Axis Bank, it would have been tough.
The industry is largely dominated by the biggest five to eight firms. The bigger ones are making profits, but several mid- and small-sized fund houses are struggling. In an industry obsessed with size, do you think it’s worth it to be of any other size other than top five to eight firms?
Globally, most large markets have many companies—some of these are big firms and many are medium-sized niche ones. While the big fund houses enjoy scale, brand, wider product suite and strong existing relationships, niche firms with strong asset management capabilities in different asset markets or strategies, too, thrive.
In India, while there are a number of fund houses, the top 5-6 AMCs have a share of over 50% and the share is rising further, marginalizing the smaller players. So your question is pertinent. Smaller AMCs have to decide their strategy; do they see themselves getting into the top bracket or do they need to differentiate and build strong niche capabilities?
With the strong progress Axis has made in the business over the past five years, we believe we are on our way to be in the top tier of asset managers
Some closed-end funds launched in the past 18 months or so aim to pay frequent dividends to ensure that investors get their returns soon. As a former fund manager yourself, do you buy this strategy?
As a fund manager, I think the only good thing about closed-end funds is that you have money for a reasonably long period. If we are running a mid-cap kind of a strategy, we wouldn’t have to worry about day-to-day liquidity. Now, to make it more acceptable to investors, some fund houses say that, well, in three years, you may not get your principal back, but if we have any earnings, we’ll pay dividends.
That’s a fair offering. However, the same option happens to be there in normal open-ended funds as well. The purpose or objective of a dividend plan is to pay out dividends.
Debate has now started on the second big wave of change: abolishing upfront commissions. What are your views on this? Do you think they should be abolished?
I am a firm believer that for sustained strong growth in the business, the interests of all the three stakeholders in the industry—the investor, the distributor and the AMC—should be perfectly aligned.
Right incentivization of distributors is a key component of such an alignment. High upfront commissions in some cases can lead to unaligned incentive structures and possible mis-selling. Hence, reducing or abolishing high upfront commissions, even though this may affect short-term business prospects, but overall is the right way forward.
I do realize that such a move will affect the small distributors. Therefore, as an industry, we will need to ensure reasonable cash flows to avoid existential issues coming up.
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