17th July 2011

While the industry bleeds, HDFC AMC is treading on a different path with increase in the number of folios and positive net sales. This juggernaut just keeps steam-rolling ahead, seemingly oblivious to all the strife that surrounds the rest of the industry. Envious competitors would be tempted to ask Kiran Kaushik : "aarebhai, kis chakki ka aata khate ho aap log?" - which loosely equates to the old English phrase : "which planet do you operate on?" Kiran Kaushik talks to us about his planet, his chakki……

WF: Kiran, heartiest congratulations for your stupendous sales performance in the last fiscal and in this quarter - which is even more commendable considering the competitive nature of the industry and the poor overall performance of the industry. What are some of the factors that you think have led to this remarkable performance?

Kiran Kaushik: Thanks Vijay, thanks for giving me this opportunity to speak through this medium. First and foremost, consistent support from our distribution partners has been a significant factor. We sincerely thank them for their role in our business. Then as you know, performance of many of our schemes have really stood out for long periods of time. And it definitely helped us to put up a decent show. What is important is that positives for us by way of performance and brand, need to be converted into business. I am happy that our sales team has been able to capitalise on this. Our sales team is committed and in tune with the thinking and philosophy of our organization. As you know, attrition levels in our sales team, especially at higher and middle level have been very low. This has helped us to ensure continuity and consistency. I would certainly like to compliment our sales team for doing a good job.

WF: While many AMCs tried a product led approach to build assets over the last 5-6 years, HDFC AMC stood out with a sharply different strategy - of shying away from thematic and sectoral funds and consistently promoting its flagship funds. Looking back, would you say that this approach lost you some opportunities in the last bull market or do you think this strategy has actually helped you in the long run?

Kiran Kaushik: Not launching sectoral funds is a conscious decision. Our products easily connect with the investor - they are not exotic. We firmly believe that the products we offer have to be simple, diversified and different from the existing ones. Although we missed out on collections during the NFO boom of 2006-08, in hindsight we feel it was good because most of these schemes which were launched at the peak of markets, have not been doing well and have been facing redemptions. So I think what is important is to connect with the investor.

I am not saying there is no case for thematic fund management strategies - there are a set of investors who look to that. All I am saying is that we are not convinced that retail equity funds are the best vehicle for complex or thematic investment strategies.

WF: What is your product strategy for this year? Many AMCs are looking at various variants within the hybrids space. Is that something you would also like to consider?

Kiran Kaushik: We would continue to focus on our existing flagships as well as some of our other products. These include Mid Cap Opportunities Fund, Balanced Fund and Growth Fund in our equity range and Multiple Yield Fund -Plan 2005 in our debt range. In the last couple of quarters, we focused significantly on these schemes - and the results are very encouraging. So, we would like to retain our present focus.

I don't think we are looking at too many new products or themes. We have made an application to SEBI for a Gold FoF (we already have a Gold ETF) and as and when we get the regulatory approval, we would launch.

WF: Your flagship equity schemes - HDFC Equity and Top 200 are now very large in size. While the performance continues to be very robust, do you see concerns going forward that size might hinder performance?

Kiran Kaushik: I think Prashant and his team have proved these concerns are unfounded. Prashant has consistently maintained that size is not an issue as they continue to be a fraction of the market cap of the underlying stocks owned within these schemes. All credit to Prashant and his team for the consistency of performance.

WF: In terms of sales and distribution strategies, many AMCs are focusing efforts increasingly on Tier I cities as flows seem to have dried up considerably in Tier II and III cities. Branch viability in smaller towns is a big concern for many AMCs. What is your view on Tier II and III towns? Are you seeing decent flows? Are your branches in these towns viable?

Kiran Kaushik: Top cities still contribute a major share - which signifies under penetration. Vis-a-vis the industry, we are slightly better off. Our dependence on top cities is gradually but definitely reducing. Three years ago, the top cities contributed about 70% of our business. It has now come down to 60%, over a period of 3 years. So for us, the situation is slightly better - but I recognize that the industry is going through this stress of low volumes and low penetration.

We have branches in 110 locations and in another 50 odd locations we have resident representatives. We have many branches opened during the 2008 downturn period. Many of these branches are taking time to become viable. What we are doing now is that we have put in place a strategy to improve flows from the bottom 30 to 35 branches. As of now, we don't have any major expansion plans and we are not in a hurry to open more branches.

WF: The other key issue for the industry is of retail penetration. The industry is losing customers rather than gaining - as should happen in any growing economy. What should be done to stem this rot and spur the growth engine again?

Kiran Kaushik: Yes, the industry has lost many folios in the last financial year and possibly last quarter as well. This signifies that the investors are losing interest and the new investors are not coming. Fortunately for us, we have added a significant number of investors during the last year.

I think three important things need to be done by the industry, which are already being done to some extent. One is investor awareness, which needs to be focused upon, and it is happening in the last one year through the Investor Awareness Programs being conducted under the supervision of AMFI. This needs to be stepped up in the smaller cities. That can really help bring in fresh investors.

Second is to retain the interest of the retail distributor. The existing retail distributors need to be incentivized better. And we sincerely hope that the initiative which AMFI and SEBI are taking, will go a long way in addressing this issue.

Third is that we also need to bring in more distributors into our fold. Our industry's model is working through the network of distributors. We do not have our own bandwidth to reach out to the general public. It is very important that we enroll/empanel more distributors across the country. This is a big challenge that we need to address. In order to bring in more distributors we will need to increase the awareness about mutual funds amongst the potential segment.

WF: Your sales performance numbers are in sharp contrast to most of your competitors. You have grown when most others couldn't. Clearly, the tailwinds of fund performance have surely helped - but what other factors do you think have helped you post such a remarkable sales performance in such a difficult environment?

Kiran Kaushik: We have very simple products which connect well with investors and distributors. We have a very strong focus on growing our retail book through the SIP route. This is tracked on a day-to-day basis at all levels across our sales team, starting from me. That kind of a consistent focus on retail SIPs over the years has helped us build a strong retail book, increase our folio count, our net sales, etc. And the absence of thematic NFOs in the 2007 period, meant that we have much less redemptions of non-performing funds in 2010 and 2011.

WF: What are some of the initiatives you are taking in terms of further building on your distributor engagement?

Kiran Kaushik: Upgradation of sales and technical skills of our distribution partners is a key area where we need to engage with them a lot more. Assisting them in the journey of transition from distributors to advisors is a key requirement. Let me acknowledge that this is one area where we have perhaps not done enough in the past. It is in this area where we are putting a lot of focus now. Our training team is being strengthened. In the coming months, our distribution partners will see the difference in the level of our engagement on this front. We will also focus on connecting with our distributors through an online platform for them.

WF: Finally, what is the key message you would like to pass on to your entire distributor fraternity?

Kiran Kaushik: The transition has been challenging for all the market participants. It is very essential that we understand and appreciate each other's role and model of business.

We would like to assure our distributors that HDFC Mutual Fund is a long-term player and is here to stay. We would like to deepen our partnership with our distributors and are very keen to be a part of their strategy especially in the area of customer acquisition. We believe with our focus on promotion of long term investing through SIPs, the distributors will also benefit and have a sustainable business model.

Disclaimer: The views expressed are for information purposes only and should not be construed as investment advice to any party. Neither HDFC Asset Management Company Limited / HDFC Mutual Fund, nor any person connected with it, accepts any liability arising from the use of this information or in respect of anything done in reliance of the contents of this information. The recipient of this information should rely on their investigations and take their own professional advice. Mutual fund investments are subject to market risks, read the Offer Document carefully before investing.