WF: Industry AuM reached a new high of Rs. 8 lakh crores in Nov 09 - which few people would have predicted in Jan 09. Do you see the industry AuM crossing the magic 10 lakh crores figure in 2010?

Sandesh: The Rs 8 lakh fig includes the Bank investments which are a function of the liquidity overhang. Considering the possibility of RBI stimulus reversal I don't see the industry crossing the magic figure of Rs 10 lac cr in 2010.

WF: One of the biggest challenges that the industry is facing is that despite a sharp recovery in equity markets, net inflows are not coming into equity funds over the last few months. Why is this happening and what can be done to remedy this situation?

Sandesh: In a rising market we have always seen redemptions , what is now happening is lower gross sales and hence consequent negative sales. The multi-regulatory arbitrage is clearly the primary reason for the distribution preferring other products to mutual funds. While mutual fund is a compelling product , ultimately it needs to be sold. While the withdrawal of the Entry Loads was a good move , the distribution is finding it difficult to separately collect advisory fees from the clients. A change in this guideline allowing the commission to be collected together with the application amount , captured on the application form, would go a long way in protecting the revenue of the distribution and should see an improvement in gross sales.

WF: 2009 saw two big developments for the industry : the ban on AMCs charging entry loads and the emergence of stock exchange platforms for mutual funds. How do you see these developments from an industry perspective?

Sandesh: I see the stock exchange as an additional medium of distribution and financially literate investors ( active on stock markets ) would use this effectively. As more and more online broking catches up we would see more participation through this medium. In fact I see multiple platforms to co-exist along with the stock exchange in the not so distant future.

WF:What do you see as the big trends for 2010 - from an AMC industry perspective and from a distribution perspective?

Sandesh: The withdrawal of Entry Loads and the other changes brought about by SEBI would lead to a rise in financial literacy. I expect the ETF business to pick on this rising financial literacy. Distribution is being forced to reconsider their business model and graduate to the Advisory mode.

WF:What are your plans for 2010 - products, investment management, distribution, communication? What are your key focus areas going to be this year?

Sandesh: We would focus on building our equity products as also do more Investor Connect programs. Key focus would be on improving product performance and concentrate on SIPs.

WF:A number of distributors have shifted focus to alternative products like company FDs and insurance. What can be done to get them to re-focus on mutual funds?

Sandesh: I think more Investor Connect programs would help distributors on selling mutual funds. Mutual Funds continue to be compelling products and cannot be ignored.

WF: Some observers believe that flows from Tier II and Tier III cities have more or less vanished and that business is getting concentrated back into larger cities. Is that a trend you see in your business? How adversely have market penetration initiatives been impacted over 2009 and what can be done to enhance penetration into smaller towns in 2010?

Sandesh: We have undertaken some Investor Connect programs over the last 2 months and are very happy with the results. Financial literacy is clearly rising and investors are willing to take the risk on equity through the mutual funds. The fact is today we have more mutual fund unit holders than the equity investors. This has happened due to the efforts of the distribution community. The awareness of mutual funds is on the rise. As manufacturers we have to focus on investors and assist the distributors in selling the mutual funds. I also believe that over the period distributors would be able to charge fees , albeit lower than the earlier fees when entry load was prevalent.

The current financial year also saw a significant fall in the NFO collection. Typically the NFOs had seen a lot of activity in the past in the TierII and Tier III cities. Yes the activity has slowed down; but I see the slowdown also in the TierI cities more so because the distributors in these cities have far more access to structured products especially with the banking distributors?

WF: Platforms have been one of the big buzz words in 2009. We have seen the emergence of stock exchange platforms, the joint CAMS-Karvy advisor platform FINNET and we have an AMFI platform in the pipeline. In parallel, we have a number of super-distributor platforms meant for IFAs. In 3 years time, what role would platforms have carved out for themselves? Do you see a trend of IFAs gravitating towards platforms?

Sandesh:The platforms would ultimately allow a customer to give a single application form , a single cheque and get a consolidated account statement for all his holdings across the mutual fund and perhaps other assets as well including equities. Today many distributors like banks and other channel partners do provide this facility to their customers. I think all these platforms can co-exist giving option to customers.

WF: What are your key messages for your distribution partners as we begin a new year?

Sandesh: Concentrate on creating long term annuities from the advice rendered to their clients. Mutual Funds are the only cost effective products that investors could use for wealth creation. Focusing on advice linked to the risk profile of the investor and keeping the interest of the investor always the foremost would go a long way in creating the franchise for the distributor.