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It was hitherto known as IDFC Mutual Fund (IDFC MF). It is now Bandhan MF. The name change comes after the Securities and Exchange Board of India approved the acquisition of IDFC MF by Bandhan Financial Holdings (the parent company of Bandhan Bank), GIC (Singapore government’s sovereign wealth fund) and private equity firm ChrysCapital.

How does the acquisition help Bandhan group? It can now tap into the fast-growing 40 trillion mutual fund (MF) industry. And Bandhan MF can take advantage of Bandhan Bank’s numerous outlets in rural areas. And, it has already put in place its expansion plans.

Debt side story

Bandhan MF had 1.18 trillion of average assets under management (AUM) in the December quarter, according to data from Association of Mutual Funds in India (Amfi). It is the 9th largest fund house in the country.

Graphic: Mint
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Graphic: Mint

The asset mix of the fund house is tilted towards debt schemes. Of the 1.18 trillion AUM, 60% is held in debt funds, 21% in equity funds and the rest in different asset categories.

What has worked in favour of the fund house, say experts, is its debt scheme performance. “The fund house has followed a well-structured investment process and has shown strong capability on interest rate calls and credit selection. As an investment philosophy, the fund house has always focused on high-rated securities on the credit spectrum, well before the credit crisis emerged in 2018," says Kaustubh Belapurkar, director, fund research, Morningstar.

“We recognize the need to offer high-quality fixed income products with mostly moderate duration risks over relevant investment time horizons, as a core set of fixed income offerings. Furthermore, we have a suite of satellite products that take higher credit or duration risk as per mandate. This framework has helped us navigate investment risks better, which is backed by a robust credit research process and team," says Suyash Choudhary, head-fixed income, Bandhan MF.

“Additionally, we do in-house macro-economic research and analysis, which is a key input into our duration risk management," he adds.

While the fund house has done well on the debt side in terms of performance, it has been more of a mixed bag on the equity side.

For instance, Bandhan Flexi Cap has delivered CAGR (compound annual growth rate) returns of 14.4% in three-year period, as against category average of 19.1%. Over a five-year period, the fund has delivered 6.9% CAGR returns against category average of 10.1%.

Bandhan Focused Equity has delivered CAGR returns of 12.6% (see graphic) as against the category average of 18.8% in three-year period. Over a five-year period, the fund has delivered 4.9% CAGR returns, against the category average of 9.4%.

The Bandhan Emerging Business Fund, which is a small cap fund launched in 2020, has delivered CAGR returns of 28.7% over three-year period, as against the category average of 32.2%.

On the other hand, the fund house has delivered strong performance in its equity linked savings scheme and value fund. The Bandhan Tax Advantage has delivered CAGR returns of 28.2% over a three-year period, as against category average returns of 19.1%. The Bandhan Sterling Value has delivered CAGR returns of 31.6% over a three-year period, as against category average returns of 24%.

The equity jigsaw

Equity scheme performance is important for any fund house as more sticky retail flows usually come into the equity schemes, while debt schemes usually get large flows from institutional investors.

Vishal Kapoor, chief executive officer, Bandhan MF, says the fund house needs to take steps to shore up performance in some of the key categories.

Towards this end, Manish Gunwani, who took over as head-equity from Anoop Bhaskar, has been tasked with increasing the stocks coverage at the fund house from 250 to 400-plus, and strengthen its equity research team. “While Bandhan MF had a strong investment process on the equity side, Gunwani will bring in additional focus and granularity to the investment process," points out Belapurkar.

Kapoor says learning and fine-tuning the investment process is part of an ongoing process for the fund house. “With every new market cycle, there is a new learning. We are discussing if it is possible to use some risk indicators more proactively, which can bring in more consistency and give early warning alerts to the fund managers about," he says.

According to Gunwani, lot of risk management metrics are very price-oriented. “But price is an outcome that one cannot control. So, that can’t be the starting point. I think as active fund managers, there are three fundamental risks that needs to be managed – business model, management and valuations," he says.

“The inherent assumption of active fund management is that the current stock price doesn’t fully reflect value of the company, being considered for investment. So, a price-based or benchmark-based risk management tool is not a good starting point," he adds.

There can be cross-learnings as well within the fund house itself. For example, the fund house also runs an AI-based investment products within its portfolio management services (PMS). Kapoor says this PMS, unlike others in the industry, gives more precedence to managing risks.

Will Bandhan’s reach help?

Bandhan Bank has 5,639 banking outlets across the country, with more than 70% of these outlets in semi-urban and rural areas.The remaining are in metro and urban locations.

“For the next two-three years, the sales team is looking to build on the already existing distribution channels and make deeper inroads there," says Gaurab Parija, head-sales & marketing, Bandhan MF.

For now, Bandhan Bank is in early stages of its wealth management offerings. Its income from MF distribution was just 3.7 crore as of 31 March 2022, against 527 crore of MF assets.

Bandhan MF’s team sees the potential advantage of having an inhouse bank for MF distribution, but its benefits will have to wait for now.

“Bandhan Bank wants to expand its wealth management, they are setting up systems, they are hiring people. We will work closely with them like every other partner and give best-in-class trainings, certifications. And if at the end of the day they see value in what we are doing, hopefully they give us a larger share," Parija says.

Apart from focusing on increasing retail share, the fund house also wants to widen its institutional investor base. At present, it has 51 folios or investment accounts in the institutional category (including banks and financial institutions), with assets under management of 1,310 crore. Kapoor adds that the fund house is also exploring the opportunity to manage foreign money through GIFT City (Gujarat International Finance Tec-City).

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Updated: 20 Mar 2023, 12:44 AM IST
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