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?

Anthony Heredia: I think it will be difficult. While the average AUM of the industry as of Dec 09 is just under Rs 8 lakh crores, the closing AUM as on Dec 09 is Rs 6.65 lakh crores. This is probably due to redemptions from the institutional segment, mainly the banking sector. As credit growth picks up, coupled with lower liquidity in 2010, we will not see the same growth in assets in the institutional client segment, thus making it difficult for the industry to reach the magic figure of Rs 10 lakh crores.

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?

Anthony Heredia: This is happening for two reasons -

1) In bullish cycles, during the first stage of recovery in markets, we see individual clients preferring to book profits, thus leading to higher redemptions as compared to bear markets. Gross sales normally pick up with a lag, and if the recovery in equity markets continues, then 2010 should see significantly higher gross sales, and thereby net inflows.

2) Distributors are grappling with the new load environment, and it is difficult for the community to reach out and convince investors to pay them reasonably for the services they are rendering. As markets continue to do well, and investors realize that they are paying a much higher cost by staying away from markets, as opposed to paying their advisors a fee, and conversely, distributors accept a lower fee, and try to compensate that with higher volumes, we will see higher flows into funds.

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?

Anthony Heredia: From an industry perspective, the ban on entry loads has meant that we all need to adjust our business models; AMC's and distributors. This will have a medium term impact on the business as a paradigm shift is not easy to adjust to, and I believe that a combination of healthy equity markets and greater investor understanding of the need to pay fees for advice is required for the industry to get back on the growth path.

The stock exchange platform has enormous potential, but key to delivering that potential will be the involvement of existing distributors. For stockbrokers, mutual fund distribution will always be an ancillary business, and there is need for partnerships to develop between the stock broking community and the mutual fund distributor community to get the real benefit of the stock exchange platform.

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

Anthony Heredia:For AMC's and distributors alike, as long as equity markets continue to do well, the big trend for 2010 will be the return of individual investors to equity funds. I also believe that the smaller IFA's will partner with platforms in order to create a viable business model for themselves. The larger IFA's and the bank and national distributors should hopefully see higher volumes driven by positive markets compensate for reduced revenues, and this should motivate them to re-focus on mutual fund products in 2010.

On a separate note, I think growing the institutional segment in 2010 will be a challenge, as credit growth, lower liquidity and higher interest rates play out in 2010.

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

Anthony Heredia:Our most important focus area will be to augment our product suite, and we will look to launch a range of products over the course of 2010 across liquidity and equity (both domestic and international) categories.

Besides this, the other key area will be to continue delivering investment performance, as great investment performance is the best ingredient for successful communication and distribution.

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?

Anthony Heredia:As discussed above, positive equity markets leading to investors looking to get back into equity will give them the volume growth they need to compensate for lower fees. That will help them re focus.

In addition, AMC's perhaps need to invest more in 2010 to create a pull for the product. In the past, especially during NFO's, it has been seen that distributors find it much easier to create new business records with NFO's that have a created a pull demand, and as an industry we must try to replicate that for ongoing funds, and see whether that helps our distributors generate more business.

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?

Anthony Heredia:We see that trend in our business as well. Not just 2009, I think 2010 will see a continued reduction in market penetration initiatives for most players, as all stakeholders continue to adjust in the new environment. I do not see any easy solutions to this, other than perhaps an even greater need for the mutual fund distribution community and the stock broking community to work together in smaller towns to create a business model that benefits both.

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?

The smaller IFA needs to move to platforms if not as a matter of survival, then certainly for growth. As far as the rest of the distribution community are concerned, it is still very early to predict which platform of the few that have been recently launched will be successful in 3 years time. If I had to hazard a guess, I would say the CAMS-Karvy platform, as many distributors may see that as the technology enabled face of the current physical model, and hence may be more comfortable routing business through that platform.

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

Anthony Heredia:At the start of 2009, no one could have predicted that markets would recover as they eventually did. Perhaps in 2010, against all odds, our investors will surprise us by paying our distributors fees for advise, and returning to the investing mode, making it a win-win for all of us - AMC's, distributors and investors.

As an industry, we have gone through many hardships before. Those of us who were around in 2000 post the tech bubble, would never have imagined that investors would return to equity funds as they did. At the end of last year, during the liquidity crisis, we wondered if institutional clients would ever come back to funds in a big way, but they did.

We need to believe that we can make it happen again. Together we shall.