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Biggest NFO in a decade

Karan Datta, Chief Business Officer, Axis MF

10th August 2017

In a nutshell

97,000 investors of which 16,000 are first time MF investors. 2100 crores mobilized in a 15 day NFO. Investments from 145 locations. Active support from 2500 IFAs across the country. No - we are not doing a flashback on an NFO from the 2006-7 period - these are numbers from the recent NFO of Axis Dynamic Equity Fund - the biggest NFO in a decade. What went into this huge performance? What's the bigger message this NFO's response is giving us? What next for Axis MF, which has clearly got back its mojo? Karan takes us through all this and more.

WF: Heartiest congratulations - we hear your Dynamic Equity NFO collected over Rs. 2,000 crores - that's the biggest we have seen since 2008! What's the final number and what's the profile of money that's come in?

Karan: Yes, we collected a little over Rs.2100 crores in this NFO, which makes it the biggest NFO in the last 10 years among open ended funds. But there are a few important aspects of this NFO that sometimes get hidden under the headline number, which are a lot more heartening for us:

  1. We have over 97,000 investors in this NFO

  2. Of them, over 16,000 are new to the MF industry - first time KYCs

  3. Money has come in from 145 locations

  4. In addition to Axis Bank's strong contribution, we had around Rs. 600 crores coming in from distributors across channels, with over 2500 IFAs contributing to this effort

  5. More than 90% of the money that's come in is incremental - switches from other schemes has been marginal

So, its been a great all round effort and this coming on the back of our bumpy equity performance in 2016 and the turnaround this year, is testament to the fact that distributors are seeing the turnaround and are reposing their confidence again in our equity capabilities.

As you know, our equity funds underperformed in 2016 as our style underperformed - high quality growth oriented companies didn't do well in 2016. We continued doing what we've always said we would, and as quality came back to the forefront this year, our performance turned around and we are back to the kind of performance you've been used to seeing from Axis over the years. This NFO for us is a strong statement from distribution about their faith in us and an acknowledgement of their belief that Axis is back on track.

WF: That's heartening indeed. I am however curious - what was it about this NFO that got this kind of phenomenal mobilization which we haven't seen in a decade in any NFO?

Karan: The first aspect is the increasing acceptance of dynamic equity funds as a category among investors and distributors. Two factors specific to our NFO in this category is that unlike other NFOs in the asset allocation category, we didn't just showcase a model - we were able to showcase actual performance data of this model for 5 years. We had filed this NFO with SEBI 5 years ago, and since then, we had been running this model live - realtime. That's the data we went to distributors with - which resonated well with them. Second aspect was the construction of the model itself. It's not a uni-dimensional model based on only one valuation metric - to that, we added trend and market risk - which makes the model truly dynamic and responsive to evolving market conditions. There was widespread appreciation for the model itself, which also helped drive conviction in the product.

WF: Over the last few years, recent performance has been the key driver of new flows into any fund - which therefore resulted in sharply lower flows into NFOs than we saw last decade. Does your NFO's strong sales performance in this context signal that this category may not be held as much to near term performance as equity funds are?

Karan: One thing that we are seeing with model based asset allocation funds is that the focus goes more to the model rather than the individual fund manager - which is healthy. If there is conviction in the model and its relevance across a market cycle, the fund is less dependent on last quarter's performance numbers. What helps in such cases is transparency of the model and predictability of performance arising from this transparency. So, if you know exactly what your equity allocation is on a daily basis, you have a greater degree of predictability of performance compared to a hybrid where an individual fund manager is taking these asset allocation calls and you get to know after the month.

Then comes the way you manage the equity and debt portions. In our case, the equity component is mainly in large caps and the debt portion is run akin to a short term fund - both of which enhance predictability of performance. So the point I am making is when a distributor has a black box in front of him on how a fund is being managed, his only metric to track is performance. But when he has transparency and predictability, he assesses his conviction in the model and when convinced, he is in a good position to understand why a fund is either outperforming or underperforming - which therefore makes him less nervous around near term underperformance, which every fund will exhibit at some point of time.

If you see the world over, solution oriented funds and asset allocation funds are selling far better than stand alone actively managed equity funds. Its just the right thing to do for the investor - especially in a world where markets are becoming more volatile, not less.

The only challenge I see for this category is that it should not be confused with the world of balanced funds - some of which are actually imbalanced. Investor perceptions around stability of balanced funds which allocate over 70% to equity and then the dividend focus on them - these are aspects that are likely to create unhappy investors at some stage.

We need to position model based asset allocation funds - especially the dynamic equity category - very differently from the current perceptions around balanced funds.

WF: How important is the Axis brand in getting you the kind of results you are seeing?

Karan: Brand Axis is very powerful and runs very deep into the country. If you look at banks - which are the most visible part of any financial brand - there's HDFC, ICICI and Axis as the three largest in the country. HDFC and ICICI are also the largest in the asset management space. Axis came in later, we are among the fastest growing AMCs, but we recognize that we have a lot of distance to go to fully do justice to brand Axis.

WF: You are already among the top 10 - have you now set your sights on breaking into the top 5 club?

Karan: Yes, its been a good run for us. Apart from the fact that we are now among the top 10 despite our much newer vintage, what's more heartening for us is the way our business is being built across asset classes. Our equity franchise has always been strong. We have a small bouquet of funds and we focus on growing each one. Our smallest equity fund today is Rs.1500 crAuM. Our fixed income business has been growing very well. Our short term fund used to be Rs.700 cr - now its over Rs.7000 cr. Our ultra short term funds are over Rs.20,000 crores. So the build out is quite balanced. We have around 26 lakh investors - we want to double that number in 2 years.

Our aspiration is to serve 1 crore investors. We look today like a "top 7" player. With performance track record behind us, we have to shoot for leadership in the coming years to do full justice to our brand. What gives us this confidence is not just the brand and our capabilities - but most importantly the trust that distributors have placed on us and our ability to manage their clients' money prudently. Even when we went through that challenging phase in 2016, the support we received from IFAs across the country was immense. What really touches us is when they come to us and tell us that they want to see us succeed, they want to grow together with us. That bond is really special for us.

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