WF : Its been a year since entry loads have got abolished. Looking back, what are some of the positive and negative repurcussions of this move?

Neeraj : The positive changes are -

There is no longer any incentive in getting the portfolios churned , I guess portfolio churning has reduced substantially and this is a very positive move in the interest of the customer.

The quality/performing schemes are getting larger proportion of share as there is hardly any difference in revenues from different schemes which used to be in past on account of higher upfront commissions offered by certain schemes (especially in NFOs) .

The fly-by-night type advisors or short term oriented advisors are getting out of the business and this is a welcome move for good advisors as well as customers. For advisors they have lesser competition and for customers it is resulting into more and more customer centric right selling.

Negatives

India needs a large feet -on -street to advocate mutual funds to retail households, I guess the rate at which the new individuals were entering in the business has slowed down because of lower realisation of earnings in the initial years, this could be a short term negative but from a longer term perspective only people with conviction are entering the business(which is very good for the industry).

It seems that there is some sort of mis-alignment between the regulator and the manufacturers against this move, as most of the manufactures are trying to compensate the distributors for the loss of their revenues in the upfront commissions. Such mis-alignment is not good for the industry.

WF : Your business volumes have continued to grow very impressively even as the market remained very sluggish in terms of net sales of equity funds and new client acquisition. What are some of the factors you think helped you stand out in these very challenging times?

Neeraj : We have a large team of independent financial advisor's and we have been advocating two things very strongly since the launch of our IFA Platform - NJ Fundz Network in 2003

* Systematic Investment Plans to build wealth over a period of time

* Earnings from Trail

This strategy has worked well and we have been getting SIPs regularly both new SIP accounts as well as getting new sales on our older SIPs. Because of our consistent focus we have currently more than 5.5 lac SIP customers with an average SIP tenure of 11 years.

Again the way in which these SIPs are sold are towards long term wealth creation, hence we hardly get any redemptions or terminations from the SIP customer base irrespective of market conditions and that is why most of the times our net sales remains positive.

All our top IFAs are convinced about the long term wealth creation story through SIPs and hence irrespective of market conditions we have been receiving continuous flows in SIPs.

WF : Mutual funds have been witnessing sustained redemptions over the last one year. Some attribute it to distributor apathy while attribute it to investors cashing out in a rising market. You have a large base of channel partners across the country - and therefore have a good pulse on the market. What is your sense on why we are seeing these large levels of redemptions? What can be done to get momentum back into mutual fund sales?

Neeraj : I guess the redemptions are more on account of rising market and the bugbear of 2008-2009 which is hovering in the minds of the customers as well as advisor's. A few of the advisor's are also promoting redemptions not because of the regulatory changes but as they missed out in 2008 in getting their customers profit booked.

I do not think there is anything wrong in redemptions till the time it is rationally done or in other words one has a strategy of re-entering for such redemptions from equity schemes.

To get the momentum back , I believe it is only EDUCATION both for the customers as well as advisor's is important for rational investment decisions.

The advisors shall have to advice based on the category of customer

For a customer having a regular cash flow, the simplest way of fighting against volatility or market timing is nothing but investing systematically. The advisors should promote SIPs for such customers.

The larger problem is with generally High Net Worth customers where the cash flows are not regular or their quantum of investments in much larger against their regular cash flows.

For such type of customers if the redemptions are taking place,the advisor's should ensure that there is a plan for reentering the redeemed amount or a re-entry strategy.

The re-entry strategy for such type of customers should be either on the basis of their asset allocation or redemptions should be converted to Systematic transfer plans (STPs).

Taking such steps shall again bring regular flows to the market from the mutual fund industry.

WF : Some experts believe that the slew of regulatory changes have made mutual funds safer, cheaper and more transparent than ever before - and that this should logically lead to more investor appetite for funds. Why is this not visible yet in the market place?

Neeraj : In a marathon who leads the first few kilometers hardly matters to the end result. I am sure the regulatory changes shall increase the investors appetite for funds .

WF : Are you seeing increasing customer appetite for fixed income products (FDs, Govt small savings schemes etc) in recent months among the clients of your channel partners? If so, why do you think this is happening - especially at a time when FIIs seem to be so positive on Indian equity markets?

Neeraj : There always has been a much larger appetite for fixed income products and that is visible from the distribution of household savings into various financial assets so that has nothing to do with the recent trend in the markets.

For equity oriented customers the investments are more on sentiment they look at Price rather than Value and for a customer 20000 as again media promotes is all time high and at this leads to their more inquiring about other asset class or debt asset class.

WF : Many IFAs have abandoned MF distribution and many others continue to struggle to cope with change. What would your advice be to IFAs to help them cope with the changed landscape? How are you helping your channel partners to cope with this change?

Neeraj : The change impacts more to the new distributors/entrants rather than the existing ones- where they do not have any AUM or their Gross Sales to AUM ratio is very high because the loss is in the transaction revenue /upfront brokerage and not the trail brokerage.

As the AUM increases or the ratio of Gross Sales to AUM decrease - and the earnings from Trail increases in proportion to that of Upfront earnings. So the impact of revenue loss from upfront starts minimizing.

I guess for advisors where the Gross Sales to AUM is less than 10% the impact is minimal , again to cover transactions costs or upfront earnings the mutual funds can be purchased through the stock exchange and the advisor can charge a brokerage to the customer through the member of a stock exchange and get remunerated for the same.

We are helping our channel partner/ financial advisors through the stock exchange platform to get compensated for the transaction charges/upfront brokerage.We also offer PMS - for investing into mutual funds with a dynamic asset allocation strategy.

WF : Do you see distribution business getting increasingly institutionalised and less fragmented as margins become thinner?

Neeraj : Yes the recent regulatory changes are towards making the business more institutionalised OR we are in the process of redefining or defining the correct role and relationship of each constituent i.e. manufacturer - distributor - financial advisor -customer.

In the current context the mismatch was like both the financial advisor and the manufacturer are trying to play the role of a distributor. It is very important to follow the chain as displayed above for the growth of the industry and making it institutionalised.

WF : How realistic is it to expect Indian investors to pay for financial advice? What has been your experience at NJ India?

Neeraj : When it comes to paying for financial advice , I guess rather than the substance the form is important and becomes the deciding factor. While taking a separate cheque looks to be far from reality but a similar charge on the stock exchange platform or any other format looks to be workable.

WF : Some experts say that retail distribution of mutual funds has become unviable at current margins. In what ways do you see retail distribution change as a consequence of lower margins? Are we likely to see more online and direct business in the retail side in future?

Neeraj : Retail distribution has always been a low margin and a long term business , the recent changes does impact but not as large as being perceived. To make a retail business successful one needs patience and very powerful execution capabilities but once you achieve the critical mass the business flows on its own.

India is a land of opportunities - all sorts of business model - online , direct etc has a space. It only depends on the driver - how he plays it.

               

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