Even though Reliance Mutual Fund has lost the top position
in terms of assets under management (AUM) to HDFC Mutual Fund, it still remains
the most profitable fund house in the country. In an interview with Chandan
Kishore Kant and Jinsy Mathew, Chief Executive Officer Sundeep Sikka says the
fund house is not concerned about the ranking and is trying to increase the
share of retail money in its total AUM. Excerpts:
After remaining at top for almost five years, how has life
changed for you after being dethroned by HDFC MF in mid-last year?
There is an obsession with AUM and that is where one gets de-focused when we talk about mutual fund industry. It is not so that only No. 1 gets money and No. 2 does not. Going by that logic, if only No. 1 has to get the money then there would have been no industry anywhere. I think that's not the right way to see it. We, as a fund house, have been focused on adding more and more retail investors and creating wealth for them. What we did in the last 5-7 years has resulted into one of the largest retail bases with around 70 lakh investors, which includes 20 lakh investors through Systematic Investment Plans (SIPs). As long as we are able to keep getting new retail investors to the industry, there is nothing to do with the ranking.
There is an obsession with AUM and that is where one gets de-focused when we talk about mutual fund industry. It is not so that only No. 1 gets money and No. 2 does not. Going by that logic, if only No. 1 has to get the money then there would have been no industry anywhere. I think that's not the right way to see it. We, as a fund house, have been focused on adding more and more retail investors and creating wealth for them. What we did in the last 5-7 years has resulted into one of the largest retail bases with around 70 lakh investors, which includes 20 lakh investors through Systematic Investment Plans (SIPs). As long as we are able to keep getting new retail investors to the industry, there is nothing to do with the ranking.
Would you blame the banks and corporates, which had their
liquid investments in Reliance Mutual Fund, for pulling you one notch down?
It's not the question of blaming anyone. Seventy per cent of industry's assets are institutional while rest is retail. Institutional money will continue to be a function of liquidity in the economy. Ultimately that money parked with mutual funds has to be used for projects as and when the capex is there. Liquidity will have an impact on the AUM of the industry, but that is not our core focus. Our liquid money, as a percentage of our total AUM, is at an all time low. We are trying to replace corporate money with retail investors. Sixty per cent of the Indian household savings is with the banks. It's going to change. When will it change? I don't know but what we are trying to do is to be ready to grab the opportunity whenever this change happens.
It's not the question of blaming anyone. Seventy per cent of industry's assets are institutional while rest is retail. Institutional money will continue to be a function of liquidity in the economy. Ultimately that money parked with mutual funds has to be used for projects as and when the capex is there. Liquidity will have an impact on the AUM of the industry, but that is not our core focus. Our liquid money, as a percentage of our total AUM, is at an all time low. We are trying to replace corporate money with retail investors. Sixty per cent of the Indian household savings is with the banks. It's going to change. When will it change? I don't know but what we are trying to do is to be ready to grab the opportunity whenever this change happens.
The industry is passing through one of the toughest phases.
With investors fleeing and market conditions continue to remain poor, how
things would pan out for the Indian mutual fund industry?
We should stop seeing the industry from a quarterly or half-yearly perspective. A lot of things are being done from a long-term perspective, say 5-10 years. We need to focus and launch simple products for investors so that the household savings in India can be moved into mutual funds. As an industry, we are at a very nascent stage, with less than 2 per cent of the population investing in mutual funds. This industry has potential to become five-ten times bigger in the next 10 years. There is a clear slowdown in the industry. In the last 2-3 years, because of market conditions, investors have not made money. Since 2008, it has taken lot for the industry to reconcile and get used to new business models. And the new business models are bit more expensive because we have seen a break down in the distribution network. What I mean is the link between the AMCs and the investors, lot of distributors are out of the industry which has pushed up cost of acquisition (of investors). From longer term point of view, volumes will compensate the falling margins and we need to have volumes as it is becoming a low margin game.
We should stop seeing the industry from a quarterly or half-yearly perspective. A lot of things are being done from a long-term perspective, say 5-10 years. We need to focus and launch simple products for investors so that the household savings in India can be moved into mutual funds. As an industry, we are at a very nascent stage, with less than 2 per cent of the population investing in mutual funds. This industry has potential to become five-ten times bigger in the next 10 years. There is a clear slowdown in the industry. In the last 2-3 years, because of market conditions, investors have not made money. Since 2008, it has taken lot for the industry to reconcile and get used to new business models. And the new business models are bit more expensive because we have seen a break down in the distribution network. What I mean is the link between the AMCs and the investors, lot of distributors are out of the industry which has pushed up cost of acquisition (of investors). From longer term point of view, volumes will compensate the falling margins and we need to have volumes as it is becoming a low margin game.
Your deal of selling 26 per cent stake to Nippon Life is
being opposed by trade union in the Employees Provident Fund Organisation
(EPFO). What went wrong?
We have applied to EPFO as we planned to get Nippon Life as a partner. Nippon will be taking 26 per cent stake. We are in line with the rules and regulations and one would appreciate the fact that this is the largest FDI deal in the sector. We are in the process of taking those approvals. Deal was finalised, MoU was signed and share holding will change only after getting approvals from all the concerned authorities. I am sure we will see the deal getting cleared. Competition Commission of India (CCI) already has cleared this and I don't see any problem from EPFO.
We have applied to EPFO as we planned to get Nippon Life as a partner. Nippon will be taking 26 per cent stake. We are in line with the rules and regulations and one would appreciate the fact that this is the largest FDI deal in the sector. We are in the process of taking those approvals. Deal was finalised, MoU was signed and share holding will change only after getting approvals from all the concerned authorities. I am sure we will see the deal getting cleared. Competition Commission of India (CCI) already has cleared this and I don't see any problem from EPFO.
This year has witnessed several deals in the mutual fund
space. Is there scope for more mergers and acquisitions?
India has yet to see the potential of asset management space. A lot of foreign players are seeing much more in India than may be the industry itself. Every new foreign player coming in clearly explains that their global footprint is incomplete without India. So in India where 2 per cent of the population is investing in mutual funds far less than what they put in bank deposits, I believe there is a scope for 100 more AMCs to come. Every AMC will need to develop its niche and work out its business model. Industry is going to become far more bigger from here. It's too early for us to discuss about the number of players, as right now industry can grow manifolds from here.
India has yet to see the potential of asset management space. A lot of foreign players are seeing much more in India than may be the industry itself. Every new foreign player coming in clearly explains that their global footprint is incomplete without India. So in India where 2 per cent of the population is investing in mutual funds far less than what they put in bank deposits, I believe there is a scope for 100 more AMCs to come. Every AMC will need to develop its niche and work out its business model. Industry is going to become far more bigger from here. It's too early for us to discuss about the number of players, as right now industry can grow manifolds from here.
What is needed then for the industry during such times?
The industry has changed a lot from 2008 till now. Every shareholder and the management has to sit down and work out its own business plan. This industry definitely requires lot of patience from sponsors than what it used to have earlier. For a long term point of view it will be profitable but it will require lot more investment. Mutual fund sector needs shareholders' patience, long term vision and execution capabilities to be successful. This industry is going to be big and profitable in times to come in the long run.
The industry has changed a lot from 2008 till now. Every shareholder and the management has to sit down and work out its own business plan. This industry definitely requires lot of patience from sponsors than what it used to have earlier. For a long term point of view it will be profitable but it will require lot more investment. Mutual fund sector needs shareholders' patience, long term vision and execution capabilities to be successful. This industry is going to be big and profitable in times to come in the long run.
What is Reliance MF doing in such tumultuous times?
We are not looking at the short-term period of one or two quarters. We will keep investing in this time too. We are investing heavily on technology to increase our reach and reduce our transaction costs. We will keep investing for future. Short term cycle should not impact the long-term vision. There can be problems in short-term, but that does not stop us from investing for long-term. We are getting ready for the big opportunity, whenever it comes, and we are investing in all respect of our business.
We are not looking at the short-term period of one or two quarters. We will keep investing in this time too. We are investing heavily on technology to increase our reach and reduce our transaction costs. We will keep investing for future. Short term cycle should not impact the long-term vision. There can be problems in short-term, but that does not stop us from investing for long-term. We are getting ready for the big opportunity, whenever it comes, and we are investing in all respect of our business.
Source: http://www.business-standard.com/india/news/there-is-scope-for-100-more-amcs-to-come-sundeep-sikka/475790/
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