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Business News/ Money / Calculators/  Having UBI as a distribution partner has paid off well
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Having UBI as a distribution partner has paid off well

About 70-75% of our investors are first-time MF investors.

Sanskrut Kumar/MintPremium
Sanskrut Kumar/Mint

Volatile markets and tough regulatory changes during the past five years have forced mutual fund houses, especially newer ones, to tweak their strategy. Launched in 2011, Union KBC Asset Management Co. Pvt. Ltd (Union KBC AMC) took a decision to sell its own schemes, predominantly through Union Bank of India’s bank branches. The bank is one of the AMC’s two sponsors holding 51%; the other one being KBC Asset Management NV, a Belgian fund house and whose first venture outside Europe (its usual territory) was this Indian fund house. We spoke to Union KBC AMC’s chief executive officer, G. Pradeepkumar, to find out the AMC’s logic on taking a different path and whether it would work.

When you started Union KBC AMC, you said that you would sell your schemes largely through the branches of your in-house distributor, Union Bank of India (UBI). Did that experiment work?

UBI was not our sole, but predominant, distribution partner. Our experiment paid off. As the 43rd asset management company (AMC) at that time, we knew we could not fight it out with the larger AMCs. We did not have the resources to do so.

Spending more money in a difficult market is a sure shot way to quick death. We were—and still are—one of the best capitalized fund houses in the Indian mutual fund (MF) industry. But we had to use the capital wisely. Our only way out was that we spend more time. We had to do something different and were clear that we had to find our own space. The market is not saturated, but still, we couldn’t have shown track record because we were and still are a new company. So we thought of a distribution model that was predominantly dependent on UBI.

UBI has at least 30 million bank accounts spread across 3,500 branches. A cursory glance on the data of these accounts showed that only a tiny fraction of people had invested in MFs. My bigger plan is that in the next five years, if we (the fund house) could tap even 10% of this, that will give us 2.5 to 3 million unique clients, which could be one of the largest client base in this industry. It will not happen automatically. But there are many places where banks command huge respect from clients, particularly government-owned banks that are like family members and financial advisers. So if UBI, for instance, pushes our products to their clients saying “it’s a good product please do invest", it carries a lot of weight. Also, as a result, I have customers from the hinterland already. I have, for example, more investors from Lucknow than from Bangalore or even Ahmedabad. So we have gone to places where many others may not go. About 70-75% of our investors are first-time MF investors. As a result, we have not dented into any of our competitor’s business. Also, we try to protect our margins. We don’t launch products where we don’t make money.

If your margins are so important to you, why has your fund house launched fixed maturity plans (FMP) of late? On the contrary, fund houses like Canara Robeco Asset Management Co. Ltd had once told me that they avoid launching FMPs because fund houses don’t—or hardly—make any money on selling FMPs.

Some fund houses say that it’s better to still launch FMPs—even if AMCs don’t make money—to give a taste of MFs to investors, pull them in and then try and sell them higher revenue (for the fund house) products like equity funds. Do you believe in this approach?

That is wishful thinking in my view. You are saying that somebody will come today to me because I go out of my way, I stoop completely and offer him everything I have and stand naked on the street? Frankly, I think if you do that, people will not respect you. Investors won’t respect us if we build that kind of reputation.

Investors don’t come to know particularly; high commissions are meant more for the distributors.

Eventually people do come to know. Besides, if such an FMP comes up for redemption, distributors will expect me to pay the same kind of high or unreasonable commission, again. They will say “you did it last year so you must do this year too…if you don’t do it, somebody else will and I will go there". So I don’t think that idea of heavy discounting to attract investors will work. Incrementally if I don’t make profits and keep running a loss-making activity, when will I make money? After all, my sponsors also want to break-even and make money.

The Association of Mutual Funds of India (Amfi) recently launched an education awareness initiative, where it invited fund houses to adopt districts in India and then take over the responsibility of holding investor awareness camps. Are you also participating?

Yes, we have given our preference to Amfi and wish to adopt two districts. These are based on our strength, our sales presence, our distribution presence and so on. I think a focused approach is a sensible thing to try.

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Published: 20 Sep 2013, 07:41 PM IST
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