Dramatic steps required to raise value of MFs in investors' mind: Nilesh Sathe

Interview with CEO, LIC Nomura MF

LIC Nomura MF is recovering gradually from its lows after the fund house joined hands with Nomura. Its chief executive Nilesh Sathe, who had requested his boss for at least a three year deputation before joining the fund house, in a conversation with Chandan Kishore Kant, says that he does not want amateurs to handle investors' money. He sounds confident and says that the ground work done so far will enable the fund house to take off soon. Excerpts:

Has not the brand recognition of yours got diluted a bit due to insertion of Nomura in your fund house's name?

Mutual fund is not a cup of tea of insurance companies or even banks. Every insurance company or every bank has, therefore, partnered with some specialist. So, why not LIC MF to tie up with somebody? If it is going to give me better returns tomorrow, why not do that?

There is no point in saying I am great. If somebody is great, join hands and take help. But again, you should have an upper hand. People should consider that it is not Nomura LIC but LIC Nomura. I do not agree that just because the name Nomura people will leave me. On the contrary, they understand why Nomura and why we have tied up.

One reason for the joint venture was under performance of your schemes...
Scheme performances have already started showing an improvement. We had taken a lot of steps to see that. We had four schemes which were defined as laggards. They never performed. Where ever we had invested, these equities were not performing well.

For instance, if there is a infrastructure fund and infrastructure index has not performed how one can expect my NAV to go up.  It's impossible but difficult to convince. We took up this with Sebi for merger of all these schemes which the regulator agreed to. From 1 may 2013, we merged four of our schemes with our equity scheme. The fund managers have got better scope to churning the portfolio and the performance will definitely improve because of this.

Management of equity assets has been given to the Japanese team. It cannot be improved overnight, it will take time. But the graph of performance so far is indicating it is on the improving trend. What we have done so far, I am confident we have prepared our ground well by engaging professional fund managers from the industry for a take off.

Do you mean that lacked professionals for managing investors' sum?
Earlier we did not have professional fund managers. They were amateurs and that is the reason we did not perform better. We do not want amateurs to manage funds. I do not claim from professional that one should deliver dramatic high returns. But he should be in a position to justify his investments.

What is the difference between psyche of fund managers of insurance and mutual funds? The basis difference is he has to have a long term assets to manage long term liabilities. One's psyche is entirely different.

It takes time to adjust to mutual fund psyche and by that time one goes back to LIC as he is on deputation for three years. Understanding it fully well, we thought of recruiting professionals from mutual fund industry. This will definitely yield us results.

It took hardly a year or two to bring LIC Mutual Fund from 6th position to 21st position in the industry. What had gone wrong?

There were some internal factors (of schemes' performance issue), but there were some external factors as well. The Reserve Bank of India (RBI) gave instructions to banks that they cannot put more than 10 per cent of networth in MFs. We had huge amount of money from banks as well as public sector companies. If a bank could put Rs 4,000 crore in LIC Mutual earlier, now it cannot put Rs 600 crore in all the fund houses together. What can I do? I am not responsible for this. These were the external factors.

Why India's mutual fund industry proving a laggard when it comes to retail money?

Industry needs to put in more efforts, which are missing now, to bring back retail. There are less than 50,000 foot soldiers for the industry while insurance sector has 20 lakh. What regulators, fund houses and the associations have done to see that the number of foot soldiers should increase? Nothing has been done. But every body knows that mutual fund is not a business where customers will walk in and say I want to invest in MFs. That situation has not come.

We must understand that insurance considered as a necessity. That is not the case with MFs, which come next or may be next to next. It is not a priority of life. Unless we scale up we cannot expect to compete with insurance. Out of the 1 rupee pie, people want to put money in banks, insurance, mutual funds, gold and real estate. It's a competing space.

If industry wants to have a bigger pie dramatic steps have to be taken to see that value of MFs in the mind of investors go up. This is not there today. There have been cycles in the stock markets where people have lost money whether it is the scams by Harshad Mehta and Ketan Parekh or the global meltdown. People have lost confidence. Though, statistically industry has been saying that  equities have at least given two per cent more than the debt plans when looked from a long period of time.

But who has got this two per cent additional gains? It is not the retail investor, it may be financial institutions. And, if these gains are not being made by the retail investors then why would retail investor come to us? If one goes by statistics one will always end up drawing wrong inferences. Retail investor goes by what he has seen and not what statistics say.

Considering this background, what steps is LIC Nomura MF taking?
We are planning to have 5,000 dedicated LIC agents who are 53 plus of age and would work exclusively for LIC Nomura MF. They will be loyal to me for the reason they have been loyal to LIC. In mutual fund there is no loyalty of agents which is bad for the industry.

Is it humanly possible for anybody to understand almost 2,000 products of 44 MFs? What is the guarantee that the agent will sell the products which are in the interest of the consumers. One may sell products of five fund houses but not of all, it's impossible.

I am convincing these dedicated agents that you continue to sell insurance but there are customers who have some surplus which they want to invest in other than insurance. Bring those to LIC Nomura MF. Irda has recently stopped allowing insurance companies to accept premiums in advance. So, we have come up with a novel scheme for those investors.

You give me this money, I will keep this in savings plus schemes and give me a mandate that on due date of premium I will make sure that the premium goes to the insurance company that is LIC under an arrangement - en routing premiums through mutual funds. For the same we have tied up with LIC and the IT platform for this that is being tested.

I have already got 300 policies registered under this which I want to increase to 10,000 in the current year. This way,  there is no fear of policy getting lapsed. Secondly, the LIC agent need not keep following up for premiums and the LIC agent becomes MF agent also and he gets commission on both.