Wealth Forum Mirror Report 2016 - extract
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WF: 2016 has been a great year for SBI MF - heartiest congratulations! You topped our Growth Champions league table for 2016 in our "Mirror Report 2016". At the Outlook Money awards, you picked up the Best Equity Fund House, overall Best Fund House and runner up in Best Debt Fund House awards. To what do you attribute this splendid business growth in 2016?
D P Singh: Thank you for the compliment - the credit is to be given to our entire team - our investment team as well as sales team. But most of all, I am thankful to our distributors who have put their full faith in us and given us their clients' money to manage.
I think one of the big drivers of this all round performance has been not just our excellent investment performance, but also our ability to reach out to distributors and communicate the way we manage investors' money and the client-centricity that guides all our actions - on the investment side as well as business side. Our communication has focused on the discipline with which we manage money - staying true to well-articulated templates - across the entire fund range.
There are no short cuts in either managing money or engaging with distributors - and our consistent focus on both, without resorting to short-cuts, is what I think is a key driver of our overall performance.
Anuradha Rao, MD, SBI MF and Navneet Munot, CIO, SBI MF, receiving the Outlook Money awards from veteran parliamentarian Murli Manohar Joshi.
WF: What are your strategies to sustain business momentum in 2017? What initiatives can we expect from SBI MF on the products, solutions and distribution fronts in 2017?
D P Singh: We will continue maintaining our sharp focus on investment performance and distributor engagement. Beyond this, one fact that we must recognize is that investors have evolved in recent years, and our sales effort must align with this. More than product-selling, the key strategy going forward is solution selling. No jargon, no complexity - simple tax efficient, goal based solutions that address investors' long term as well as short term needs effectively: this is the mantra going forward.
Our product bouquet is more or less complete - we have the basic range of products across asset classes, we have a few innovative products too in our suite. Our focus going forward is not to create many more products, but find ways in which we can offer simple solutions that address investors needs.
For distributors too, our firm belief is that a solution selling approach will not only help them serve their clients better, but will also set them on a rapid growth path. We are fortunate that we have the SBI brand which is one of the most trusted names among investors. Our focus will be to leverage this brand and our product range of performing funds to create effective investor centric solutions.
WF: In the last 3 calendar years, industry AuM has doubled, with each of these years posting healthy 25%+ growth rates. How do you see business growth in 2017? What are the key tailwinds and headwinds that are likely to influence business growth this year?
D P Singh: While the last 3 years have witnessed strong growth, I think distributors should gear up for even more rapid growth in the next couple of years. Post demonetization, a lot of money has come into the system, which needs to find productive, tax efficient allocation options - and our industry is very well poised to offer a range of such options.
Second, the industry's efforts to offer instant liquidity (albeit with limits) on savings funds and ultra short term funds is going to be a game changer. SBI MF has joined two early entrants in this space and I am sure more fund houses will join the bandwagon, which will help popularize this feature even more.
Digitization has enhanced the capacity of the industry vastly, with so much now being done by the click of a button. The magical 20 lakh crore AuM number that has caught the industry's imagination may well be reached sooner than most believe. So, for those who believe 25% CAGR is great, my only message to them is get your businesses ready to harness a 40% CAGR over the next couple of years.
The only note of caution I want to sound here is that rapid growth phases are the times when all of us in the industry must be doubly careful in honouring our fiduciary responsibility towards our investors. Even if any of the fund houses take some unwarranted risks in the quest to grow faster and land up damaging the interests of investors, it will impact the whole industry. When millions of new investors are reposing their trust and confidence in our industry for the first time, we have to be all the more conscious about always acting responsibly and always acting in the interests of our investors.
WF: Do you see expense ratios coming down in 2017 either on account of market dynamics or regulatory pressure? How do you see distribution getting impacted by lower expense ratios?
D P Singh: There are two aspects to this - one is potential regulatory action around reducing expense ratios and the other is the moral aspect or self-regulation around expense ratios specifically in Debt funds. I am not very worried at this point about the regulatory aspect.
But regarding the moral aspect, regarding some self regulation, I think there is a strong case for all of us in the industry to review expense ratios in debt funds. Yields on debt instruments have come down to 6.5% - 7% levels and at these levels, we must really ask ourselves whether we are being fair on investors if we continue to charge expense ratios of 2.5% and above. You can't eat away 20-25% of gross returns as charges. Higher volume, reasonable expenses has to be the mantra going forward as yields come down. There are opportunities for us to reduce costs with more technology absorption, so that we can still protect the bottom line on higher volumes, but with lower fees being charged to investors. Distributors will also see that a focused effort to popularize debt funds in the post demonetization era will get them much higher volumes, which will compensate them for relatively lower remuneration when expense ratios reduce. If we are serious about our fiduciary responsibilities, expense ratios in debt funds is the place to demonstrate it now.
WF: One of the tailwinds for SBI MF has been the surge in SBI's distribution business across its branch network. To what extent has this contributed to your growth in 2016? What has changed at the margin for SBI to record an impressive growth in fund distribution?
D P Singh: Honestly, our communication to SBI as a distributor has been no different from that with other distributors. We emphasised to SBI to sell only vanilla products and SIPs. There are many IFAs and wealth managers in the market who are very experienced and who can guide their clients through more sophisticated products, but for the SBI branch network, our message was simple: keep it simple. We are fortunate that the message was received very well and today SBI has emerged as a reasonable contributor in our growth, though the largest share is still contributed by IFA's and ND's.
WF: Fund houses look forward with optimism to sustain business momentum in 2017 and beyond while their distribution partners look forward with apprehension to the forthcoming RIA regulations and the impact on their business models. What message would you like to give your distribution partners as they prepare to navigate what can be potentially a very challenging evolution phase?
D P Singh: If you recall, we had observed the same kind of apprehensions in the last two years but the industry still had a healthy growth. When we are in a growth momentum, we should not worry too much about events which are beyond our circle of influence. There is enough room for all players to grow this business manifold.
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