18th June 2011

WF: What brought you into the financial advisory profession?

Pranav Muzumdar: I started my career in 1986 with the Chartered Accountancy firm Kalyaniwalla & Mistry on the taxation side - filing returns, attending to income tax matters appearing before commissioners, etc. While preparing the returns of clients, I learnt about certain deductions which everyone was availing of. And most of the clients did not know where or with whom to invest and asked me for advice. I used to refer them to friends who were in the field but found that people were not always satisfied with the services they got. So in 1989 I started doing UTI investments on my own.

In 1995, the then Finance Minister Mr. Chidambaram promised a lot of tax benefits for people who converted their firms to private limited companies. That's how I started I started Mangsidhesh Investments Private Limited in 1996 with a capital of one lakh rupees. I am still waiting for those tax benefits - but the legal entity has stuck on !

We have grown over the years, but one challenge is that even today, the business is known more as Pranav Muzumdar's office and not Mangsidhesh. Though the company was set up in 1996, many people still only my name, and not the company's. We are working on tackling this issue. We are re-branding ourselves as MIPL, changing our logo and looking at the whole brand issue a lot more seriously.

WF: What is your current business model at Mangsidhesh?

Pranav Muzumdar: We serve HNIs and small retail clients. We are mainly into mutual funds, but also deal with insurance and other financial services like bonds. My company's AUM today in mutual funds is somewhere around Rs. 210 crores. We are sub-brokers with Mangal Keshav Securities where we manage quite a big amount of equity AUM of almost 300 crores. Our key focus area is to ensure that we provide the best investment avenues for our clients, which can help them meet their objectives. This means that we actively look at the debt markets to find attractive opportunities, we look at international markets, we look at structuring innovative real estate investment options. We see ourselves as complete advisors - not just mutual fund advisors.

Today for example, some of our clients are switching from an 8% senior citizens bond to a 10.5% triple A rated company bond, which offers this coupon for a 10 year horizon. Clients really appreciate if you are able to add value in terms of higher rate of return on their fixed income portfolio, at a time when they need it most. This kind of simple yet active advice helps retail clients a lot.

I have started creating a portfolio of overseas direct shares. I have to become fully familiar with this, and be ready for the time when markets are opened up even more and when we can start allocating meaningful amounts of our HNI clients assets into interesting overseas opportunities.

We have two branches - one at Jogeshwari which is the main office and the other is at Mira Road handled by R.G Patel who has been with me for the last 16 years. Together we handle about 1400 clients of which around 800 invest regularly and the rest maybe once a year or so.

WF: People tell us it is very difficult to manage both HNI and retail. How do you do that?

Pranav Muzumdar: I have a staff of 15 people who handle most of the retail clients as well as the HNI clients. I just monitor them. I keep in touch with some of my big HNI clients personally by phone on a regular basis.

WF: How important is it to be a chartered accountant while dealing with HNI clients? Is that a competitive advantage?

Pranav Muzumdar: It's the mindset of the advisor that is important. Even if you are a CFP, what it amounts to is using common sense. If for instance you tell the clients about P/E ratios, they may not understand at all. Education is less important compared to common sense and talking the language of the customer.

WF: What are some of the changes that you made in your business model after the entry load went? Did you have to tweak your model?

Pranav Muzumdar: Not really, as our model is both HNI and retail. It is very difficult to charge some retail clients who make small SIP investments only and they don't really come back unless you pursue with them. The HNI clients are the ones who bring in regular revenues. We give personalized service to the HNIs such as going to their office, picking or filling up forms and monitoring their folios regularly. We informed them that with the ban, we have no revenues and hence would have to charge them. They have two options, either AUM based or based on the profit. For long-term investors, it is AUM based and for others profit based.

WF: Do you see profit-linked remuneration as a useful way forward for advisors when it comes to HNIs?

Pranav Muzumdar: A profit linked fee would always be dependent on the market and nobody can time the market! Hence remuneration should be AUM based.

WF: When you look back at your long advisory career what are some of the major milestones that come to your mind ?

Pranav Muzumdar: Personally, starting the private limited company in 1996 is one! From a business point of view, the Harshad Mehta's scam was a turning point because a lot of reforms were ushered in after that scam. SEBI has done a good job of making the stock market a lot more transparent and efficient.

WF: What are some of the significant changes that you see happening in the advisory profession in the next few years ?

Pranav Muzumdar: There will be big changes definitely. There is tech-savvy young blood coming into the investing world. There are more than 80 crore mobile users in India and only 65 lakh MF investors who cumulatively have around 4 crore folios.

If you assume that even 10% of mobile users will go in for online investments in the future, that's a huge opportunity compared to where the MF industry is right now. That's one of the reasons we started Next Financial Advisors Limited which caters to the tech savvy customers. We have made this site and login so simple that anyone who knows to operate a computer can log on and buy mutual funds. Just as in banking, more net banking is prevalent now, the future for advisory is to go online.

WF: What are your future plans for Mangsidhesh? Where do you see the firm in 5 years from today?

Pranav Muzumdar: Five years from now, we should have at least 500 crores plus AUM in mutual funds and another 10 branches.

WF: Will they all be in Mumbai only?

Pranav Muzumdar: Most probably. I am somewhat disillusioned with the business opportunity in semi-urban markets and might prefer to remain focused only on urban areas.

Some time ago, I decided to set up a pilot project to serve a semi-urban market called Karwar in Karnataka - where the Kaiga project is. But there is no CAMS or Karvy Centre there and people have to go to either Mangalore or Goa to invest. Most people there don't have PAN cards - without which investments cannot be made. Getting a PAN card would mean filing an income tax return. These people would rather invest in post offices since they have been told that post office investments are tax free. How will you sell anything in such places?

I therefore concluded that being in metro regions is a better option because ultimately we are in this profession to make profits and getting business in small towns is very difficult.