IDFC's long-term commitment will help boost MF biz: CEO Vishal Kapoor

'With our focus on expanding our distribution network along with new product opportunities in the pipeline, we expect to see sound growth in the coming quarters,' he says

Until recently, there was uncertainty on the ownership of IDFC Asset Management Company (AMC) as parent IDFC had put the mutual fund business on the block. However, with the stake sale plans shelved for now, the parent company wants to drive value in the business before it thinks of monetising its holdings. Vishal Kapoor, chief executive officer of IDFC AMC, shares his views with Jash Kriplani on what he sees as the immediate triggers that could revive the fund house’s profit growth. Edited excerpts:

What will be some of the growth drivers for IDFC AMC?

A lot of our distributors, who had earlier put us on hold due to any potential change in our shareholding, are reactivating with us. We are getting back on their product list and recommendation list across asset classes. We do have a plan to expand our products further, including in the non-mutual fund space, specifically hedge funds. With our focus on expanding our distribution network along with new product opportunities in the pipeline, we expect to see sound growth in the coming quarters. We recently launched an overnight fund and are soon coming up with a new hedge fund.

What will be your strategy? 

We remain focused on three core areas: performing products, a convenient investing process, and simple easy-to-understand communication for our customers. We are investing in our fund management capabilities, technology and our sales team. We are also focusing on expanding our distribution by leveraging technology to serve our distribution partners as well as enhance the end-investor experience by using analytics, website and digital technologies.

The AMC’s net profits have declined in the last few years. How do you see this improving?

Some of the decline in profits over the past couple of years was due to the investments made in the business. This will help us improve our operating leverage and increase net profits over the next few years. We saw good progress in January once the final decision was taken to continue and focus on growing our AMC business. Having our sponsors confirm their long-term commitment will further boost our stance in the market. We are now more strong-footed about our actions.

How do you see reduction in total expense ratio (TER) impacting the profitability of your business?

The bulk of this further reduction that is coming in April, is expected to be passed onto the distributor. One has to wait and see what actually happens in the first quarter of the next fiscal. It works in our favour that our equity funds are modest in size as funds with larger size will have to bear larger cuts. However, there is some impact. We need to see how much of it can be absorbed by us and how much can be passed onto the distributors and marketing teams. By next quarter, we should get a better picture on how the industry margins settle in light of the new TER norms.

Equity flows have slipped to a two-year low for the industry as flows have declined for the third straight month. Is this a worrying sign and when do you see flows reversing?

We must appreciate that investors can get jittery due to various reasons, including the upcoming elections. However, what we have seen is that election years have been positive for equity markets as long as a stable government is elected. We believe that the wait-and-watch approach will only be temporary and investors will continue to believe in the long-term benefits of staying invested.