SBI Mutual Funds is one of the oldest fund houses. What went right in the past few years to help catapult it among the top five asset managers (as per assets under management)?
We have invested well in the fund house. The core of this was in the investment team. About 4-5 years ago, we felt that there was a need to have structured templates, and at the same time give the fund managers and research analysts adequate freedom. We have now created a set up where the fund management team structure is flat—everybody has the right to contribute and the atmosphere became congenial. Along with this, a robust research mechanism and strict risk templates meant that the investment committee was focused on consistency and beating the benchmark. This helped us in ensuring better performance across schemes.
We have an independent risk department that feeds information on attribution analysis to fund managers. Another change was the way we approached marketing. A conscious effort was made to make sure that people on ground had full information about the performance of our schemes. There is a focussed attempt on part of the sales team to ascertain market share in the location they are operating in.
Which distribution channel has worked well for you? How has the digital channel impacted your mix?
Independent financial advisers (IFAs) have worked well for us. We are able to stand out due to the consistent performance of our schemes.
Digital is a default option, so it has to happen. However, when it comes to the investor, digital is an execution platform. The investor also needs confidence about investing money and there needs to be someone who can handhold the investor. In this respect, the IFA channel works well. Having said that, we are also witnessing certain markets where the concept of paying fees is gaining traction as investors don’t mind paying, and alongside that they use direct plans for investing. These trends are emerging in pockets.
What matters most is that there is a blend of digital and physical advice. We have recently launched our distributor app to help distributors increase their reach. To tap the market-making opportunities, you have to think about digital to reach out to the maximum number of people at the lowest possible cost.
What role does Amundi play in the joint venture (JV)? (SBI Mutual Funds is a JV between SBI and French fund management company, Amundi.)
Amundi is good with exchange-traded funds (ETFs) and market research. They contribute in terms of thought process and risk management. Passive investing is increasing in India. Our Nifty and Sensex ETF assets have grown to about 10,000 crore; they are able to help us manage these assets.
We also get the opportunity to showcase our products overseas. They help showcase our products in certain geographies, and we offer advisory services to their India-focused funds.
Many new regulations have come in over the last year. How does this impact business?
The positive side is that the regulator listens. The Association of Mutual Funds in India also allows for free and fair exchange of thoughts. It is an important part of the ecosystem where the industry can talk about changes. The regulator also convenes a meeting of chief executive officers (CEOs), where the effort is to engage and find out what is happening on ground.
However, when people meet, the perspective is different. A CEO will be more concerned about aspects which impacts his company. The regulator probably has a helicopter view and can be more futuristic. So long as the deliberations happen with an open mind and the regulator welcomes ground-level difficulties and tries to collaborate for solutions, it works.
Immediately there could be pain, but eventually these changes can be useful.
The most pertinent change is now distributors will have to declare commissions. If this leads to change in investor behaviour, is the industry equipped to handle it?
All consumers know that intermediaries have a cost. The difference is that this cost will now be quantified as an absolute number instead of a percentage, which may optically look large. As long as distributors are in a position to create value for investors, there shouldn’t be a problem. Today we are in a situation where people acknowledge the technicality of investing and are willing to pay for advise.
Globally these changes are happening. May be we are trying to move too fast, but if you see when mobile technology came into being, we leapfrogged ahead of many other countries. It’s similar here, may be the industry hasn’t matured and we are moving ahead. These are early days and all stake holders will eventually mature.
The number of systematic investment plans (SIPs) has increased manifold for the industry. Was there a consensus in the industry to focus on this or has it evolved by default?
There are two reasons. Firstly, SIPs feature in almost all investor awareness programmes. So, it has become well-entrenched in the mind of investors that they have started thinking about it as a product rather than a feature. Secondly, there has been financialisation of savings over the past 2-3 years. People are moving away from real estate and gold, and are seeing merit in market-linked investments. They also realise that volatility is part of such investments, and that SIPs can be used to address this well.
The SIP book has grown for the industry and for us as well. We were at 140 crore of SIPs a year ago, which increased to 280 crore by the end of financial year 2015-16. We are now close to 300 crore. The number of folios has grown from around 0.5 million to around 1.2 million. So, if we want to bring more retail investors into the equity culture, it’s the best way.
What do you prefer between asset management and banking?
Asset management as an industry is one which remains under scrutiny by the peer group and the regulator. This kind of glare brings in a lot of discipline and sensitivity towards performance.
But the industry suffers on the distribution side. Banking products are older and have higher acceptability; one doesn’t have to introduce the product. One has to start with the introduction in asset management. Just about 1% of the Indian population invests in mutual funds, hence, the scope is large.
In asset management, the challenge is in market making, and in banking it is market sharing. In banking, it is possible to offer alternate products as systems are digitised and the know-your-customer mechanism works well. While the asset management industry still struggling with some digital matters.
Further, being a market-regulated product, there are apprehensions for first-time investors, which is not there in banking.
Learnings from both sides can be applied, and it is not an either or situation.