Market share is concentrated; performance is democratic

Sundaram Asset Management's Harsha Viji talks about the fund house's journey so far and future plans

In the Indian mutual funds (MFs) industry, 20 years is an important milestone. In the past few years, a few private sector fund houses have crossed this milestone—they had entered the business after a few state-run fund houses were launched in the 1990s. One such asset management company (AMC), which completed two decades in the second week of March, is Sundaram Asset Management Co. Ltd. Mint spoke to Harsha Viji, the fund house’s managing director, about the journey so far and future plans.

Sundaram AMC has just completed 20 years. But it has for long been a mid-sized fund house and is also called one. How many years do you think are there before it enters the big league (top five AMCs)?

We have never focused on scale for the sake of it. The key has always been to build a strong retail franchise with consistently performing funds. Sundaram Select Midcap (a mid-cap fund), for example, has for years generated long-term returns among the best in the industry. We have a commitment to the business—in the last decade, there have been more than two dozen entrances and exits in mutual funds and we have done well throughout.

Do you think that in the Indian AMC industry, profitability and size are different goals, and both can be achieved meaningfully?

You are right in the sense that larger fund houses are on an average much more profitable—it is a scale business. Profits are important to build a sustainable business and to invest in distribution and reach. We have been consistently profitable for the past 20 years and our retained earnings have fueled growth—branch expansion, greater distributor reach, and investments in our Singapore subsidiary to serve international investors.

Looking back at the past 20 years, and especially the five years that you have been here, what are the things that you wouldn’t want to do in the future?

Investors want different asset classes at different periods of time. Cash-equivalent funds, debt funds, arbitrage funds, hybrids, mid- and small-cap funds and large-cap funds, all have their time, and we are clear that we will remain a diversified fund house rather than a niche one. We have done a lot towards this, and will do more.

We have strong plans for growth. We have 25,000 crore in assets now, and 50,000 crore in three years, though a stretch, is feasible. The temptation is to ‘buy business’. However, we are clear we will not do deals at a loss and will stick to sustainable growth.

Since the time you joined Sundaram AMC, what is the biggest change that has happened at the fund house?

In the past couple of years we have grown assets strongly across asset categories, and the consistency and level of fund performance has improved. The rub-off on investors is tangible. Our customer feedback has shown an upward shift, and the redemption rate has fallen substantially. Earlier, the fund house’s assets were largely tilted towards equity assets. But in the past few years, we have consciously increased our focus on building other categories as well.

What does your personal portfolio look like? Which schemes of Sundaram AMC have you yourself invested in? And have you invested personally in any of the Sundaram Micro Cap Series funds?

My mutual fund investments are done through SIPs (systematic investment plans) in Sundaram Select Midcap and Sundaram Select Focus (a large-cap scheme). I advise people that long-term systematic investing is the best way to create wealth and I follow my own advice.

Our series of closed-end micro-cap funds have been successful, but I do not invest in every scheme. What I do is I pick a few funds and stick with them over time.

The Securities and Exchange Board of India (Sebi) has, on quite a few occasions in recent past, talked about the need of expense ratios to go down. Do you think there is scope for expense ratios to reduce?

The expense ratio cut will disproportionately affect smaller AMCs since this is a scale driven business. If it drives mid-sized fund houses out, there will be an unhealthy drop in competition and customers will be deprived of choice and of funds with high returns. Market share is concentrated but fund performance is democratic—funds managed by AMCs outside the top 10 have often been at the top of the charts. So, expense ratio reduction could have unfortunate side effects for investors and the industry. I hope Sebi does not take precipitate action here.

The year 2015 was bad for equity mutual fund schemes due to falling markets. Do you think 2016 is crucial to retain investor confidence, which has been low since 2008?

Warren Buffett, in his latest shareholder letter, has made it clear that equity investments are made with a multi-decade horizon. It is an asset class that consistently outpaces inflation across the globe; bank deposits literally lose your money through inflation. So, no single year should matter. Investors have shown remarkable maturity in sticking out through volatility this last year, and I hope they will continue to do so.