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IFAs are like SIPs in the distribution business

Rajnish Narula, CEO, Canara Robeco AMC

5th January 2016

In a nutshell

  1. Lower upfronts and lower TERs will put pressure on distribution margins. Though the prospects for volume growth can more than make up for lower margins, Rajnish is realistic in his assessment that MFs will have to compete harder within the investment products bouquets available to large distributors, particularly those who have high cost structures

  2. Increased product complexity, heightened market volatility and the need for investment solutions beyond just products will drive the need for more guidance and hence an enhanced role for IFAs. IFAs are like SIPs in the distribution business - steady contributors whose long term commitment brings success to all stake holders.

  3. Canara Robeco's SmarTomorrows IE initiative goes beyond education - it embodies some of the core principles of the firm. Ensuring SmarTomorrows for investors is a core responsibility that the firm has undertaken to deliver, which keeps the company sharply focused on long term assetsv

  4. Rajnish believes duration strategies in the fixed income space are not getting their fair share in asset allocations, despite reasonable performance and a robust outlook.

WF: How has 2015 been for Canara Robeco? What have been the significant hits and misses of the year?

Rajnish: The year has been good considering overall flows in the MF industry and we are pleased to share that at Canara Robeco. We have seen very good build up in long term assets. Our Equity and hybrid strategies have seen good traction and have been significant contributors to our Net Sales. On the fixed income side we have seen positive response in the Ultra Short Term category as also good collections in our Capital Protection Fund. We have been emphasizing the importance of Income, Duration and Dynamic Bond Funds in asset allocation and while performance has been delivered the market in general has been shying away from taking exposure to Duration oriented funds.

WF: What are the contours of the "SmarTomorrows" initiative? In what ways does it influence your products and your customer proposition?

Rajnish: SmarTomorrows is an Investor Awareness Initiative that was started by Canara Robeco MF in late 2014 as a series of activities and communication initiatives aimed at propagating the concept of Mutual Funds Investing to the Indian investors in a simple and coherent manner. The SmarTomorrows campaign endeavours to highlight fundamentals around investing and the various opportunities that Mutual Funds provide towards ensuring a financially secure future. We would urge advisors and investors to visit for more insights into this remarkable IE initiative that we have undertaken

Ensuring SmarTomorrows for investors also implies tremendous responsibility and long term orientation from our AMC and we continually reinforce this philosophy to all colleagues across all our locations & functions. We also endevour to incorporate the same commitment across all our touch points with stakeholders (investors & distributors)

WF: 2015 has been a challenging year for markets but a rewarding year from a business perspective, for the industry. What is your prognosis for 2016? What do you see as the key business drivers for 2016 and beyond?

Rajnish: The big challenge for our MF industry continues to be lower penetration amongst Indian investors due to low awareness around market based Financial products performance. A waning interest amongst financial intermediaries towards MF distribution (vis a vis other products) coupled with increased complexity of the Regulatory environment also emerge as critical factors to watch out.

Shorter investment biases of most investors in MFs and lower exposure of domestic retirement / pension corpuses to Equity markets, low interest/ availability of optimal Defined Contribution constructs poses a challenge from Investment perspective.

We anticipate fantastic years ahead from perspective of Indian Investors looking to create long term wealth, both in equities & fixed income portfolios of India domiciled products. We strongly believe that India is in the "Sweetest of the sweet spots" in terms of relative investment options globally and while volatility will persist in the years ahead, buying at dips or STP / SIP will continue to generate out-performance for investors in Indian markets

WF: You have seen bank distribution very closely, initially as a head of a large foreign bank's wealth management business and now as a partner of Canara Bank. How do you see bank distribution within foreign and private sector banks changing as a consequence of regulatory caps on upfront commissions?

Rajnish: The regulatory guidance and recent AMFI initiatives are clearly indicative of a low upfront , low TER environment for MFs in general thereby implying pressure on margins for all associated entities in MF distribution. However, with a bright outlook for Indian markets over next several years, a good trail structure may turn out to be quite rewarding for intermediaries focused on enhancing MF penetration across their client base. There is however no denying that MFs will face competition within the investments product bouquet of intermediaries especially at those with high fixed cost structures. On the positive side we see a huge potential for increasing the MF penetration from the current sub 5% in India, appreciation of a fee culture from investors in return for good investment advice and importantly relative attractiveness of market linked financial products in times ahead (vis a vis Real Assets); opportunities which could be tapped by IFAs and National level distributors alike with focus on their specific customer segments.

WF: PSU bank distribution remains a channel that is delivering below its phenomenal potential. What needs to be done to fully realize the distribution potential of PSU banks?

Rajnish: At Canara Robeco we have seen very good support from Canara Bank in terms of distribution of MF products. We have been able to achieve good & steady growth in MF assets in the Canara Bank channel through a focus on SIPs and hybrid products that fits well with the conservative approach (in general) of the client segment of the bank . Our endeavor to focus on right selling and regular training of branch staff on MF concepts is an investment for the future, which we believe is the optimal approach to tapping the vast potential of PSU banks. Focus on branch activation for SIPs, achieving a higher MF penetration / cross sell through joint campaigns with the bank, solutions oriented product constructs and use of technology to make sales processes more efficient should help AMCs scale up business further in the PSU channel segment.

WF: How do you see the IFA channel evolving in response to regulatory change surrounding commissions, product suitability and the advisory model?

Rajnish: IFAs comprise a significant portion of our existing AUM and continue to be a focus segment for our ongoing sales efforts. Even before the AMFI Pricing guidelines were issued the MF industry had seen an increased migration of IFAs to All Trail model and we see that trend continuing, that of a win-win situation linked to the overall positive build up in valuations of investor portfolios and distributor compensation being rewarded for being part of this overall wealth creation. In India IFAs provide a very valuable connect between the manufacturers (AMCs) and the end user of the product (MF investor) across large and small locations across the country and we feel that with increasing product complexity, market volatility and need for solutions oriented investment constructs the role of IFAs as Investment guides is bound to increase in the years ahead. The Advisory Model is yet in a nascent phase as far as adoption by intermediaries is concerned and we should be assessing this over the next few years to see how it evolves and whether changes may be required to achieve necessary objectives.

WF: What do you see as the defining trends that will influence fund management and fund distribution in the years ahead in India?

Rajnish: Increased focus on India focused investment strategies from global investors, relative attractiveness of equities within investment choices available for domestic Indian investor, a dynamic regulatory environment , increased focus on long term asset build-up and faster adaptation of technology (by manufacturers, investors & distributors alike) in the MF industry for transaction / information assessment are clearly some of the significant trends we see as being visible over the next few years.

Increased market volatility across the globe in capital markets, reducing growth differentials in the Developed / Emerging markets are two interesting additional trends that have to be kept in mind from Investment Management perspective by Indian MFs. We also see a big focus from the Central & State governments in India in speeding up infrastructure development in the country and could have important implications for portfolio constructs for India focused strategies.

WF: What are your key plans for 2016 from a product, sales and marketing perspective?

Rajnish: We endeavor to continue to build on our existing strategy of Growth with Profitability and therefore build on our existing Core AUM or alpha generating product strategies in the Equity , Hybrid and Fixed Income space. On the product side while focus will continue on our existing bouquet we do plan to expand this through launch of some International Feeder funds and Solutions oriented constructs. At some juncture we will also explore launch of niche investment constructs based on strengths of our JV partner and shareholder - Robeco's expertise, as an 85 year old pure Asset Management Company. On the sales side we continue to expand on our geographical presence and distribution reach across both T 15 and B15 locations partnering with larger number of IFAs to take the product proposition of CRMF forward. We also see good expansion in distribution platform presence amongst National Distributors and Banks to contribute significantly to our Sales. Our efforts on training and activation of Canara Bank branches for SIPs is also likely to help us in building good predictability in monthly sales volumes. ON the IE front we will continue to pursue our activities & communication to increase investor awareness on Basic MF concepts under our SmarTomorrows initiative across traditional and online media mix. We feel that increasing comfort of Indian investors with longer tenure investments in market linked products should be a key objective of IE campaigns to ensure that overall size of the MF industry grows at a healthy pace in the years ahead.

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