Heads of leading as well as emerging fund houses participated in the Business Standard Fund Café on ‘Mutual Funds: What are their strategies for survival?’ While the Chief Guest was K N Vaidyanathan, Executive Director, SEBI, the panelists were A Balasubramanian, CEO, Birla Sun Life Asset Management Company (AMC), Sundeep Sikka, CEO, Reliance Capital AMC, Sandeep Dasgupta, CEO, Bharati Axa Investment Managers and Rajan Mehta, Executive Director, Benchmark AMC. The Round Table was moderated by Sanjaya Baru. Excerpts:
MODERATOR: The perception is that the mutual fund industry is going through a kind of a crisis of reduced business. Is this a valid perception?
The second question is more specific to individual companies. Do we have too many players in India today? Are we looking at a phase of further growth or consolidation?
A BALASUBRAMANIAN: In the last five years, the industry had one of the highest growth in terms of the assets under management (AUMs), both in the case of mutual fund as well as equity and today the industry size is almost about Rs 7,00,000 crore. And, at the same time, especially in the last two years, one of the biggest blows which came not just for the mutual fund industry, but the financial sector as a whole both locally as well as globally, which is the financial crisis that hit the global markets.
During this period we also learnt some lessons. The last one year has seen scores of regulatory changes which are making the industry, in some sense, reinvent in some form or the other. From the mutual fund industry point of view, how do you actually transform the industry to cater to the large need of the retail investors in terms of pulling the resources into the capital market?
Consolidation would also have to happen on the basis of how serious each player is. Broadly, the headroom above is quite large. And, growth should continue and the industry will be able to sustain the growth and there isn’t any immediate problem for the smaller mutual funds.
SANDEEP SIKKA: I don’t think there is any crisis. Whenever there are any regulatory changes, there will be a little turbulence and all of us need to be prepared for that. As an industry we have been working in a particular way for the last 10-12 years. And, the last 15 months have seen a lot of regulatory changes, but one of the most visible changes which we all talk and discuss is always the ban of entry loads. People say it is a ban of entry loads but actually if you look at the regulation it is just that there is a separate cheque which has to be taken by the distributor.
The investor who was never used to paying something extra, is, even till now, not been able to figure out how to price the services of the distributor. The direction is always more important than the speed and as long as we are in the right direction I don’t think we need to get carried away, whether the speed is right or wrong.
MODERATOR: You said direction is OK. You are complaining about speed.
SIKKA: I am just trying to complain about the slowdown that we have seen in the last 15 months
SANDEEP DASGUPTA: I will like to echo what Sundeep just said that there is no crisis. In the last 14 years, we have seen robust growth and during the journey we have done some wonderful things. We all are learning and evolving. On the issue of entry load, I don’t think there is any conflict between what the industry and the regulator want. As an industry we want long term assets, stickier assets and we want to make money and also our investors and distributors to make money. Whether the speed of regulatory changes was right or wrong, only time will tell. Things have gone very well and it is only a matter of time that the industry will adapt to the changes.
On the consolidation side, because of the way market has evolved, every fund house has followed an identical business model. But going ahead, I am sure different business models will emerge.
MODERATOR: So, on the learning curve would you say you are ahead of the regulator or behind?
DASGUPTA: It is a collaborative effort. There is a fairly good dialogue between the regulator and the industry. The dialogue may not always be in agreement or disagreement. We are coming to a stage now where a common meeting point is evolving.
MODERATOR: You have said that there is a need for reinventing business model, there is a need to relook at the business model and there is turbulence. How do you describe all of these. Is there a problem or no problem?
SIKKA: There is a need for us to reinvent and relook what we have been doing. Today, there are a total of 43 AMCs and 40,000 distributors. I think it is a very small number all put together. But, the bigger challenge is how do these 20 million investors change? All of a sudden we are pushing the investors to a point where they have to pay for it. All I am trying to say is 15 months is too short a period to make a statement.
RAJAN MEHTA: I just have a slightly different take on the entire thing. There was a big conflict of business model and when you have a situation where forces are not aligned, like plans, the benefits are not aligned with distributor’s benefit or advisor’s benefit compared to the mutual fund benefit, there is always a stumbling block.
We have been talking since long that this advisor fraternity don’t only sell mutual fund, they sell bonds, FDs and venture capital funds. I think they need some kind of independent regulatory status.
MODERATOR: So, going ahead what do you expect to see?
SIKKA: The last mile connectivity will be the most important thing and for which financial advisors will play a very important role. My only request to the regulator will be, we do not expect to undo the whole thing, but at the same time if required you will have to relook some of the parts, some of the changes which have been done, because it is going to be important and you have seen the markets have gone up from 8,000-20,000 level, and today, we are not seeing the same kind of retail participation.
BALASUBRAMANIAN: I think the way forward, while the industry is managing bigger size, we are still talking about only maybe 20 million investors being in investment industry. It still leaves a large pool of investors who are still coming. That essentially means that creating a distribution reach is very important in the industry.