Not just top 3 – we have to aim to be No 1

D.P Singh

Executive Director & Chief Marketing Officer

SBI Mutual Fund

  • SBI MF’s steady and solid rise in recent years has seen it come up now to No 4 position – a whisker behind the No 3 position in terms of AuM.
  • D P Singh believes that for the fund house to do justice to the SBI brand, it must not just shoot for top 3 – it has to reset its vision to become No 1.
  • To overcome the significant challenge that commission regulations have thrown at small IFAs, the only way forward is to embrace wallet share as the primary strategy and broaden focus beyond only equity and SIPs into all product categories.
  • Recent market volatility will naturally unnerve new investors – this is the time to not only reach out and reiterate the merits of continuing their SIPs, but also pitch top ups to take advantage of bargain prices.

WF: Congratulations on SBI MF’s rise to the 4th position in terms of AuM – your AuM is in fact very close to the fund house in 3rd position. What have been the drivers of this very steady and solid growth we have seen in SBI MF in recent years?

DP Singh – Thank you very much! The credit goes to our team and our distributor partners who collectively have been able to harness favourable macro factors to drive growth. It is a sustained effort from the entire team.

To my mind, five factors have contributed to our steady growth:

  • Brand Equity – We have the benefit of being part of the most trusted brand in the Indian financial sector and the market leader in the Indian financial space. Even during uncertain circumstances, investors and distributors have re-iterated faith in our Brand and have continued to invest in good times and in challenging times as well.
  • Reach – We have very consciously worked on expanding our reach in all directions and all segments. Our geographical penetration into Tier II and III towns has been extensive. Our engagement with distributors across all channels – IFA, banks, national distributors and new age channels has been strong. Our engagement with institutional investors has been extensive. Our close and continuous working with SBI at branch level across the country has proved a big benefit for the bank and for us. This holistic approach towards growth in all directions has enabled us to build a platform that is not lopsided but very well balanced in terms of distribution mix, investor mix and asset mix.
  • Performance – Long term performance of our funds continues to be very sound. We have been able to justify the faith of millions of investors who have entrusted us with their hard-earned money. Our fund management team’s unwavering adherence to well-articulated processes is what is enabling us to deliver healthy long term performance.
  • Team – Our team – both in fund management as well as on the business side has been very stable, which has been a very big positive for us. We have probably the lowest attrition ratios at the top and middle levels, which minimizes disruptions and allows the team to perform well as a unit.
  • New investor focus – I mention this as the last, but this is to my mind the biggest foundation that is going to support our growth in the years ahead. We have been passionately focused on bringing new investors into the fund industry. It is a matter of great satisfaction to us that around 36% of new folios generated by CAMS was generated for SBI Mutual Fund. Our future growth will ride off this focus.

WF: When we interviewed SBI MF’s erstwhile MD Mr. Deepak Chatterjee about 5 years ago, he articulated a vision for SBI MF to reach the top 3 – at that time, you were No.7. Today, you are just a few hundred crores away from the current 3rd position. What is the plan now to break into and consolidate your position among the top 3 in the fund industry?

DP Singh: I would say it is time for us to reset our vision. Our parent is the market leader in the banking space with a market share of over 20%. Our long term vision has to naturally be to emulate the parent and aspire for market leadership in the fund industry. We have great regard for our competitors and we know it is easier said than done, but from a brand perspective, I suppose that is what will be the expectations if we are part of the brand SBI.

For us, the bigger imperative than where we stand in the industry is how the industry stands in the investor’s set of preferences. Today, we are talking about MF AuM as a percentage of bank deposits and we are happy that we have made substantial progress in recent years to climb to a level of 22-23% of bank deposits. But we need to think of going to 100% and beyond. We need to have a vision that bank deposits some day will be counted as a percentage to MF AuM.

Our journey as a fund house and as an industry, is still at a very nascent stage. We all have to open our eyes to a much bigger canvas and plan for multi-fold growth in the years and decades ahead.

WF: While the structural opportunity for the fund industry is no doubt huge, distributors – and small IFAs in particular – have immediate concerns on their income dropping sharply with the impending ban on upfronting of commissions. Larger IFAs with sizeable AuMs will have a reasonable trail income built up, but smaller IFAs see huge challenges ahead. What is the way forward for these IFAs?

DP Singh: There is no doubt that this is a huge blow for small IFAs. A sudden drop in income is a big challenge. But it is in challenging times that we need to look for opportunities. And there is a huge opportunity for all my IFA friends, waiting to be tapped.

I see a lot of IFAs working as specialists – some focus only on SIPs, some focus only on equity funds and so on. They have built up a client base, the client base has grown considerably in the last 3 years, but their AuM has not grown commensurately. That is because they have chosen to operate in a narrow field of specialization. Now the good news is that with a little sharpening of skills and a big change in approach, they can all double or triple their AuMs very easily. About 75% - 85% of investors in equity funds do not invest in debt or liquid funds. Our IFAs engage with these investors on maybe 10% to 15% of their financial portfolio – which is what they have committed to equity funds and SIPs in these funds. The rest of their money is in deposits, in insurance products, in small savings schemes and so on. IFAs have the relationships, they have done the hard work to build these relationships – it is now time to leverage these relationships and focus on wallet share. Don’t be satisfied with 10% of wallet – aim for 70% -80%.

If every IFA takes up a challenge to aim for a considerably higher wallet share from all their clients and work in a focused manner in the coming 12-18 months, I am sure they will easily reach at least 40% - which is a 4X growth in AuM.

The fund industry has great products that compete well against every single alternative that now sits in client portfolios. IFAs need to become experts on liquid, debt and hybrid products and master the art of pitching the entire range as solutions rather than products with conviction. Liquid against savings accounts, FMPs against term deposits, low risk hybrids and accrual based debt funds against long term small savings plans and so on. Solutions are available – the need of the hour is to grab them and go back to your customers with a clear focus on gaining wallet share. Don’t cloud your thinking with commission structures of equity vs debt and liquid – aim for 4X growth in AuM and your income will more than double, despite the setback on upfronting of commissions.

Today, my belief is that only 10% of IFAs are champions across all MF product categories and have significant wallet share from their clients. For the rest 90%, now is the time to play the wallet share game, and grow!

WF: Investors – particularly those who have come in over the last 12-18 months - are worried with heightened market volatility in debt and equity markets and tepid performance of their portfolios vs expectations. What can we as an industry – fund houses and distributors – do now to assuage their concerns and help them stay invested through this period of market volatility?

DP Singh: Most of the investments from these new investors have been via SIPs and hence, this route of investment should not pose a major concern – as we know. Infact, with every dip in the market, they are accumulating a greater number of units. But this is what all of us know in the industry – the task at hand is to ensure that this message goes out loud and clear to every one of these investors. Distributors must reach out to these investors and assuage any concerns and ensure that SIPs are not stopped in anxiety. Top Up SIPs could also be pitched. Investors will be understandably worried especially if this is the first significant correction they are experiencing – but this is where the experience and wisdom of our IFAs will be critical. Their conviction will help the investor realize the benefits of long term wealth creation through mutual funds, across market cycles.

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