How Bajaj Finserv plans to sell MFs to the group's 10 crore customers

It has roped in Nimesh Chandan, formerly a fund manager at Canara Robeco AMC, as CIO. Ganesh Mohan, the group’s head of strategy and a former BCG Partner, is the chief executive.

Edited excerpts from Mint’s interview with Sanjiv Bajaj, chairman and managing director of Bajaj Finserv, and Ganesh Mohan.

Why are you launching Bajaj AMC?

Sanjiv Bajaj: Our journey began in 2007. We decided to focus on the Indian middle class because they knew us. They had already bought our scooters, motorcycles and electrical appliances. We started with the early part of a person's lifecycle - getting a loan. So we started expanding Bajaj Finance. We then said that, okay, as a person makes a lot of money, they will buy a house, they will buy a two wheeler or a four wheeler. So asset protection and life protection comes in - general and life insurance. And accordingly, we started setting up each of the businesses. We first applied for the mutual fund licence in 2011. But that was around the time when Securities and Exchange Board of India (Sebi) dramatically changed its first set of regulations for mutual funds and cut its commissions. And we decided we would wait for those things to settle down.

We built our digital distribution. We let the customer start experiencing our products. The biggest challenge for any new fintech or insurtech is the acquisition cost of customer. We pay to get the customer on board one time. After that we never pay. And first time also, acquisition cost is not direct the way the startups are paying. For us it is our investment in digital, in 150,000 stores, in creating a strong sales team.

Second, we realised that a large number of distributors are common across different products and services. So, we now have a large number of distributors who already know what is different and unique about us. And our focus has always been the right product, with transparency. For example even in 0% financing our documentation says what our IRR, is because the manufacturer is paying us.

And third is the entire culture we have built on empowerment, innovation, reward with our teams, for them to feel like owners in building their businesses up rather than top down. Simple thing like being in Pune and not being in Mumbai was a very conscious call from 10 years ago to say that we don't want to be in the noise of Mumbai.

What will set apart Bajaj AMC?

Ganesh Mohan: There are three possible sources of alpha. One is the information. But today we all get the same information, so it isn't a big edge. The second edge is analysis. Can you process that information with better tools or models? Again here, there's still some juice but it's by and large squeezed. Which brings us to the third and the biggest advantage which we believe is really going to be the key driver for the future, which is the behavioural edge. Can we keep improving on our decision making over a period of time, using the right kinds of checklists, templates, nudges, tools screeners? That’s the edge we are going for.

You need 5 years to establish a track record, shouldn't you have launched earlier?

Ganesh Mohan: We have built experience of investment management in our group businesses such as insurance. Plus our fund managers individually have a huge amount of industry experience.

What will set apart your products?

Ganesh Mohan: We will only launch products where we see a definite scope for alpha. For example, we are not launching a large cap fund where you end up hugging the index for 75-80% of your portfolio.

Distributor margins are shrinking and expense ratios are getting lowered. Isn’t this a challenge?

Ganesh Mohan: In any industry, as it matures, margins shrink. To compensate for this, the industry has higher volumes. We think distributors can compensate for any commission shrinkage by expanding volume.

Can you sell mutual funds to loan customers?

Sanjiv Bajaj: Today, on the Bajaj Finance app we distribute multiple mutual funds. As a lending institution, this is allowed. This is not allowed in insurance by the insurance regulator which does not allow an insurance company to sell any other product to its customers. We’ve been presenting other financial products to customers of one product for the past 10-15 years at their concurrences within the framework of the law. The ability to be visible and present itself is a very big advantage.