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Issue Highlights

A rosy pathway ahead

Intro: Himanshu Vyapak, Deputy CEO, Reliance Mutual Fund, andDinesh Kumar Khara, MD & CEO, SBI Funds Management, speak on topics relating to marketing, promotions, technology and analytics:

Mehul Dani: What were the business growth indicators and future prospects in 2014-15?

HimanshuVyapak:Last year was good for us – our assets grew over 32%, higher than the industry average and against the 9.5% growth we had in the previous year. Some of the other indicators of sustained retail growth, like the SIP book, for instance, also grew 33% during the year. We have been taking a lot of initiatives to develop the industry, including investor awareness, distributor training, use of technology to enhance investor awareness and launch of new category of products like Retirement Fund.

Dinesh Kumar Khara:Overall business growth has been good in the last couple of years. Equity market momentum coupled with stabilization of inflation and softened interest rate scenario has helped pick up investor confidence in Indian capital market. This has also reflected in the growth in assets of our organization. We have been investing to strengthen our distribution system, venturing into new investment management capabilities and accessing international markets. We expect these investments to improve the bottom line in the next 2-3 years.

How do you view retail participation in equity schemes during the recent months?

HimanshuVyapak:Retail participation has picked up considerably during the year. The overall number of folios has gone up by 5% and currently stands at 4.25 crore. We expect the retail participation to improve further, and significantly over the next few years as more investors realize the benefits of investing through mutual funds.

Dinesh Khara:I think retail participation has increased in the last 12-18 months. Mutual funds are retail investment vehicle. Retail investors should invest in simple products like diversified equity funds and use SIP mode of investments. I hope the retail momentum continues for few more years.

Is acquiring assets from smaller towns a difficult task?

HimanshuVyapak:Business from smaller towns is the fastest growing category. For us, nearly 26% of our equity business comes from smaller towns. This number is higher than the industry average of 22% due to our wider presence and specific focus on sourcing business from smaller towns. A lot of initiatives and efforts are already being done to encourage investments from smaller towns. Commission for business sourced from such locations is rightfully higher to compensate for the relatively lower volumes, as well as to encourage higher participation. AMCs conduct extensive number of distributor trainings and investor awareness programs. We have a separate vertical to focus on business from smaller locations. We have also been taking initiatives to increase reach and make transactions convenient through the use of technology.

Dinesh Khara:I don’t think acquiring assets from smaller towns is a difficult task. It is a matter of intent, hard work and commitment. We have all the 3 traits and so we are experiencing inflows from smaller towns. You may not see huge AUM from smaller towns because it is devoid of large institutional assets. But if you look at retail assets, SIP numbers and inflows into long term products like equity fund and income fund, you will see a significant increase in contribution from smaller towns. But yes, it is just the tip of iceberg. A lot of effort needs to be taken in terms of investor awareness, right selling, access to investors from smaller towns and servicing these investors.

Can you talk about marketing and promotional efforts undertaken recently?

HimanshuVyapak:Our promotional efforts are mainly through BTL activities to spread awareness about mutual funds. We have a dedicated training academy, ‘EDGE’, through which we impart training for our partners and conduct investor awareness programs. We also offer e-learning modules on various topics, including specialized courses like Goal Planning Specialists. Some of these modules could be accessed through our website. For investors, we conduct investor awareness programs across locations. We also take up promotional activities on specific categories to encourage long term investments. Recently, we had shared our perspectives on the importance of retirement planning through several media interactions to create awareness about, and spread the importance of, retirement.

Dinesh Khara:Our marketing efforts can be divided into those done for (i) investment awareness and (ii) product led communication. In the former, we do awareness workshops, events and regular communication through print, radio and TV. We reach out to tier 2 towns through a mix of outdoor media solutions. We develop communications in regional languages to enable wider reach and awareness for mutual funds as a category. ATL campaigns are done for NFO’s and specific focus products in key markets. Use of online marketing and social media is a focus area for us. We have been using emailers in our product communications with good effect. We also use product videos to reach out to both our distributors and investors.

To what extent does technology play an enabler for your kind of sector?

HimanshuVyapak:We have been using technology extensively for increasing our reach, reducing cost and enhancing transacting experience, for both investors and distributors. We offer ‘Invest Easy’ facility which enables investors to transact conveniently through multiple media – website, mobile and contact center. We offer a dedicated website called ‘Business Easy’ through which we offer distributors a host of services, including CRM. Personalized web chat, video chat and mobile applications are few of the other services we offer. Our digital initiatives have shown very positive trends, currently contributing to about 17% of our overall transactions.

Dinesh Khara:Technology will be the game changer in the near future. As the cost of establishing a distribution network in B-15 cities is comparatively high, internet and mobile banking channels could play a pivotal role in garnering new AUM. Online channel for mutual funds is increasingly becoming popular amongst investors. 41% of 980 million telecom subscribers live in rural areas and can be tapped through mobile phones. We have already enabled purchase of MF units through ECS and NACH platforms. The transactions can be done just by sending an SMS. Now investors can invest in SIPs of various schemes at once. A new investor needs to fill up the common application form, along with ‘know-your-investor’ documents and a registration form. Technology and CRM helps develop loyalty and retention among existing customers.

How have you gained by deploying analytics?

HimanshuVyapak:We use extensive business intelligence in analyzing our business numbers, with an attempt to gain insights to eventually plan our marketing campaigns. We have been witnessing reasonable success so far. Currently we are trying to make the investor/distributor engagement better by customizing content specific for the various profiles.

Dinesh Khara:We are able to share information efficiently and effectively with people across our organization. Analytics tools make it easy for everyone – from decision makers to functional teams – to access and analyze up-to-date information anytime, anywhere. Providing teams with access to analytical data that is readily available and understandable allows them to work more effectively and support the overall business strategy. Having a single, central location allows us to monitor key performance indicators (KPIs), access reports, analyze data, and share documents. All of the functional areas are aligned to articulate strategies, set objectives, and monitor the organization’s performance so we can make better informed and timely decisions.

What are the risk management practices of your company?

HimanshuVyapak:At Reliance, we lay a strong emphasis on processes and have robust policies and framework. We have comprehensive policies on investments, valuations, prevention of mis-selling, and extensive policies covering the various processes of our front office, mid office and back office operations. These policies serve as the framework within which investments are made and processes are carried out.

Dinesh Khara:SBI FM has a robust risk management system and an independent risk team to ensure that neither the company nor its investors are exposed to financial, regulatory and operational risks beyond their tolerance level. This is achieved through determining risk management policy and direction, developing the related analytical parameters and tools, providing the aggregation and analysis of risk and performance information and providing independent analysis to the management and the Board. We constantly monitor risk along three lines: investment risks such as portfolios’ consistency with regulatory and internal limits or analysis of concentration risk vs. the peer set risk controls; performance risk, for example, attribution at individual fund and fund house level; and operational risk wherein we look at the key indicators from operational units.

Do you expect any regulatory changes to take place in near future? What is the level of compliance at the industry level?

Himanshu Vyapak:The level of compliance in the industry is amongst the best in the world, and our regulator has been doing a fantastic job here. The regulator is also committed to increasing investor participation in mutual funds, particularly retail participation. There have been lot of initiatives such as higher remuneration for distributors sourcing business from smaller cities, emphasis on investor awareness programs and use of technology to increase reach and convenience. A few more initiatives to scale up retailing could be considered, some of which we are ourselves pursuing with the regulator. KYC is now being done separately by banks and mutual funds. It may be considered that the bank KYC itself is sufficient to start investments into mutual funds. Cheque-writing facility and allowing third party payments of redemption proceeds to selective utilities / merchants could also help increase retail participation. We are also a proponent of keeping communication simple, which we believe will help connect effectively with investors.

Dinesh Khara:I think we are by far one of the best regulated industries in the world. There are a number of practices adopted by SEBI, which have not come in play in developed markets. Retirement Funds, Multimanager funds and SWAP based ETFs are 3 areas where I expect regulations to evolve in next few years.

What is the outlook for MF industry in general and for your company in particular?

Himanshu Vyapak:We are very positive about the prospects of the MF industry. We believe the industry assets will be at least Rs20 lakh crores (currently it is Rs12 lakh crores) by 2020. We call it 20-20. The growth will be led by individual investors. We are consciously building our capability across investment management capabilities, robust processes, risk management and compliance practices, reach, HR capabilities, etc. Our endeavor would be to grow faster than the overall industry.

Dinesh Khara:We expect the industry to grow by 10-15% CAGR in the next 5 years. IRDA has amended regulations allowing pension funds and insurance companies to invest in equity passively. They will help to increase the depth in the industry. Mass affluent segment in the top 8 cities and the broad retail segments in tier 2&3 cities will be the key investor segments that will drive the industry growth. New and simple products catering to the masses and goal oriented products catering to HNIs will help attract flows in the industry. In the next 5 years, should target at least 10% of the individuals having a bank account to own a MF folio.

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