What has helped you grow to around Rs50,000 crore in AUM in about 6 years?
There are two parts to how we grew and built a name. When you start a business there is an idealistic question about what is it that you can do differently from others, which means defining the purpose. For us, it was customer centricity.
It’s not just about products, rather the entire internal setup is in line with that objective. It’s a cliché to say that we want to ultimately add significant value to customers. But internalizing that is the key. For example, the heart of this business is the creation and management of a product.
How does one create a product with customer centricity? For us if the product doesn’t provide a platform for risk-adjusted returns, we won’t do that. For example, sector funds are a product where we feel that the risk-adjusted returns aren’t suitable.
One has to have a long-term focus rather than look at just the current sentiment. What really distinguishes us is the amount of work we do around risks. Many of our initial clients hadn’t seen any equity exposure in their portfolios till now, hence appropriate fixed-income solutions were also needed. In equity, the objective has been to focus on risk-adjusted returns. This has to be followed through with the investment philosophy, process and the people in order to deliver the promise.
We have made a conscious choice to not focus on individual fund managers and have an institutionalized process. This is important so that operationally, the strategy doesn’t change with every change in the external environment.
Lastly, communication is important. Communication has been more product centric. We have tried to change that and speak more in the customers’ language. Some of these thoughts were new when we started in the industry but it has worked well.
Axis Bank continues to be a large part of your distribution channel—isn’t that a risk in itself?
We have been asked this question many times. With our first product, around 80-85% was probably from Axis Bank but our reliance has since shifted. If you consider the flows today, up to 80% is actually from non-Axis Bank distributors. It’s a trend that will keep going. Axis Bank is anyway one of the larger distributors in the industry. As we open up more channels and expand market share, gradually the mix is likely to change but it is a slow process. As Axis Bank grows, our business with them is also likely to grow. At the same time, we would like to see the non-Axis Bank distribution grow faster as the base is relatively smaller.
Have you consciously focused on retail customers to grow your business?
There are two or three segments in the market. There are suitable products for each segment and we are equipped with those. The only thing we avoid is focusing on the wrong objective in a category. For example, we don’t aim to have short-term returns in equity funds. Our initial success has been more with the retail segment. From an asset manager’s perspective, this works well as generally the persistency numbers are better for this segment. Also, servicing and doing well for a larger client base is more satisfying.
Internally, we don’t have AUM targets. Rather, we focus on customer accounts. Today, we have around 2 million customer accounts. Institutional focus is also there and we are probably present in 70-80% of the institutional accounts in the industry. But yes, our success in retail may be thanks to the communication we have focused on.
Moreover, the 2 million accounts are spread across channels—the contribution from Axis Bank is around 40%.
Fund management is also about skill, which gets reflected in the products. When fund managers change, how do you neutralize the risk of this change in skill set that can impact the product and its returns?
We have been talking about something called the system alpha (alpha is the additional return over an index return, achieved as a result of active fund management). When we started, there was a conscious call to be process oriented, have active risk managers and have an execution strategy in place. The system of philosophy, strategy, process and risk management—if you put this framework together and get a good team to execute it—itself helps.
If you plug in a reasonably good fund manager into this equation, our expectation is that she will be able to deliver alpha. Once you have this framework, the fund manager, for example, can’t question the analyst about missing a stock that rallied in the last two months, because once the system is in place, the universe is clearly defined. This helps you remain focused and remain relatively insulated from people entering and exiting the system. Once the culture and process is set, it is simple for a person to fit in.
The launch of your Children’s Gift Fund focused on the concept of long-term savings and investments rather the product itself. Did the strategy work?
We were always convinced about the product because of the need it satisfies for the customers. Nevertheless, we did a survey from which we found that 83% of the respondents said that their financial priority is children’s education.
It was interesting that while for the parent a child’s future is the most important aspect, most were unprepared to deal with it. This is where the concept came into being.
People don’t really know how much is required and what is actually required and our entire communication was then geared towards this. The campaign was then to make people aware that what you may be thinking about your child’s future, the child may not be thinking the same.
It’s no longer just about doctors and engineers, there are many more options in today’s world. (While) we got a great response, it was limited as we weren’t able to reach out to many. But wherever we go and talk about it, it’s met positively. To convert this into reality through the product is something that’s taking longer than anticipated.
This is partly thanks to the long KYC (know-your-customer)process. It has to be made easier for the investor to enter the product.
Do you think customer centricity has been covered completely from a regulatory perspective? Will the changed landscape impact the advisory channel negatively or is it an opportunity?
By and large, the industry has been customer centric. There may have been a segment that isn’t so, but like in any other industry, this segment will wither away. We are of the view that the proposed change was a bit early and we needed to prepare.
That has been addressed as the proposed amendments now provide for a reasonable amount of time to adopt the change. How do we prepare for it? We know that intermediation is required for advice and for navigating through volatility. There is value to be added by the adviser. The challenges will be there, irrespective of regulation. Execution, like filling of application, is going to be commoditized through technology and the adviser has to think about where value is getting added.
We had started a programme of making well-wishers out of advisers, to bring value to the customer.
There is a great opportunity to add value as the penetration of mutual funds is still low. We are seeing some of this happen already.
Lisa Pallavi Barbora