WF: 2015 has been a landmark year for RMF, with the Goldman acquisition and the Nippon stake increase transaction. In what ways do you see these two transactions influencing the direction of RMF in the coming years?
Sundeep: This year has been eventful for us. Nippon Life Insurance Company has sought to increase their stake in our company to 49%, while we would be taking over Goldman Sachs AMC, both subject to necessary Regulatory approvals. Both these transactions are of strategic importance for us. NLI is a Fortune 500 Company and amongst the largest life insurance companies in the world with over 126 years of experience. Its subsidiary Nissay Asset Management is the market leader in Japanese pension market with largest asset under management in private pension. We would be gaining immensely from their wisdom-capital gained over years of experience and they would also be gaining from our perspectives. Already, we have been formally sharing best practices and have been launching products in each other's geographies - Indian products in Japan and Japanese products in India. India funds in Japan have been accepted very well with AUM of 750+ mn USD. Going forward, you will hear a lot more of these.
Our acquisition of Goldman Sachs is in line with our strategy to strengthen our passive offerings. While we have always been known as an active manager with track record of over 20 years of wealth creation, we would like to simultaneously build a strong passive portfolio. We had created a separate brand R*Shares to distinguish our passive strategies and have been launching ETFs under the brand. I am sure, as markets evolve, passive offerings will gain more prominence among both investors and advisors.
WF: 2015 has been a good year for the MF industry in terms of inflows and new investor acquisition. The one key business piece that didn't grow well enough was distribution. Looking ahead, how do you see business growth for the industry in the coming years and what will be the key business drivers? What can we realistically expect in terms of distribution expansion?
Sundeep: 2015 has been a remarkable year for the MF Industry, particularly for the contribution made by MF Industry towards capital markets. The net investments into equities alone by MFs this calendar year has been in excess of USD 10 bn, highest ever in the history of the Industry. To put the enormity of this number in perspective, the previous highest net investments were about USD 4.7 bn last year, and about USD 3.2 bn in 2008. Today, the Industry has nearly 85 Lakh SIPs with committed inflows of nearly USD 4 bn per year, higher than total net investments made in previous years, and matching up with FPI flows at times.
A large part of these flows have been contributed by distribution. In this Financial Year, up to November, nearly Rs. 90,000 Crs has flown into equities, including ELSS and Balanced categories. Out of that, a whopping 85%., i.e., 76,000 Crs came through distribution! That is not a small number by any measure. I have been quite vocal about this in the past and I reiterate the same here. The MF Industry will be Rs. 20 Lakh Crs by 2018, and all of us in the Industry have a huge opportunity. Distribution will play a large role for sure.
WF: Given the keen focus that the industry has on creating informed investors and happy investors, and the history we have seen of flows peaking in high risk sector funds at the top of previous market cycles, what would you advocate are the things we should and should not do as an industry this time around, to achieve our desired outcome?
Sundeep: Unlike in the past, where exuberance or abject pessimism led to volatile fund flows, we are now witnessing more measured investor participation. As I mentioned earlier, today SIP flows alone account for nearly USD 4 bn per year, which is one-third of the total net flows into equities. Another one-third comes into balanced funds and the rest into diversified funds. The flows tend to be structural and spread over a period of time. Very clearly, there is a trend of household savings moving into financial assets, away from physical assets, which augurs well for our Industry. We need to keep up the good work going - which is emphasizing on the benefits of long term investing, while ensuring that the messaging is as simple as possible.
WF: Disruption is a buzz word these days, in all businesses. What are the disruptions you see making a material difference in the fund management, distribution and investor servicing aspects of our business in the coming years?
Sundeep: The scope and opportunity for the MF Industry can never be overstated. In one Jhan-Dhan initiative, 14 Cr bank accounts were opened in a matter of few days, that is more than thrice the number of folios in the entire Industry in a matter of few days. Why can't our MF Industry have our Jhan-Dhan moment? Technology has the potential to significantly change the scale and scope of our operations in a way we cannot imagine. Already, we have come a long way since the days we had no choice but to physically fill up application forms and complete all tedious operational procedures. Today, distributors can onboard and service their investors through multiple virtual medium. At Reliance MF, just to cite one such example, we recently launched a facility for distributors to help their investors transact through WhatsApp. In the future, I am sure there will be more innovations helping the Industry expand and service investors.
WF: What are your key priorities for 2016? What can we expect from RMF in 2016 on the products, sales and marketing fronts? What new initiatives can we expect from a fund house known for innovation?
Sundeep: We have a good basket of products to serve different investment objectives. And these products have a well-established track record. Predominantly our efforts will be to promote these funds and increase traction in them. In addition to our existing products, we recently started launching goal-oriented products. We had kept the design of Reliance Retirement Fund very simple to help effectively meet the critical goal of retirement. We have been receiving good response for the product, with the best part being investors starting young, committing for the long term and preferring to invest through the systematic route in the equity-oriented wealth creation scheme. We would follow our launch of Retirement Fund with a Children's Fund. We had also been launching International Funds. In the last year, we had launched Reliance Japan Equity Fund and Reliance US Equity Opportunities Fund. The Japan Fund has is more than a year old now, and if you look at the one year returns, the fund has generated 10% returns in 1 year, when our market return has been negative, vindicating the benefits of geographic diversification. Going forward, we would be launching more such International products to provide our investors opportunities to gain from other well-diversified, fundamentally robust economies. Our marketing efforts would be directed at increasing investor awareness about mutual funds as a category, highlighting the benefits of systematic, disciplined, long-term investing.
WF: There seems to be a huge intermediation opportunity in the fund industry in the years ahead, but many distributors feel they may not be able to fully harness it, as margins are coming down, regulations are increasing and competition from direct plans is growing. What is your message to distributors who seem to be on the crossroads between opportunity and threat?
Sundeep: I am extremely positive about the prospects of the MF Industry. The growth will be led by individual investors, whose participation will pick up significantly over the years. The large number of individual investors would be required to be advised and serviced by distributors across the country. Today, there would hardly be 10,000 Independent Advisors serving a population of 130 Crs! Even if you consider all those in Banks and other Institutional Distributors involved in distributing mutual fund products, the demand for distributors would far outstrip the supply. As overall volumes pick up, opportunity for distributors in this business is huge. Having mentioned that, distributors, particularly the ones who have entered the Industry in the recent past have to remember that it takes time to build a business and they need to be patient. The role model for them should be the veterans in this Industry, who have built their assets diligently over these years, and today are reaping the benefit of their hard work. The orientation clearly has to be long-term.
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