LETTER TO SHAREHOLDERS
India is undergoing a major transformation under the leadership of our honourablePrime Minister Shri Narendra Modi. Several initiatives and economic reforms such asimplementation of Goods and Services Tax (GST) Jan Dhan Yojana Demonetization etc havebeen very positive particularly for financial services Industry. The implementation of theGoods and Services Tax regime in 2017 was a watershed event. It is one of the biggeststructural economic reforms undertaken in India and its benefits shall continue in theyears to come. Moreover the formalisation of the economy is paving the way for sustained"financialization" of savings. The share of financial savings in householdsavings is on the rise.
This fiscal year has been special for us at Reliance Nippon Life Asset Management(RNAM) as:
RNAM has successfully completed listing on stock exchanges in Nov2017. The IPO received an overwhelming response from both retail and institutionalinvestors.
We have completed 5 years of strategic partnership with
Nippon Life Insurance Japan.
Your Company is amongst the largest asset managers managing assets of approx. Rs 4 lakhCr across Mutual Funds Portfolio Management Services (PMS) Alternative Investment FundsPension Funds and Offshore strategies. As part of PMS business RNAM manages prestigiousmandates like the Employees' Provident Fund Organisation and Coal Mines Provident FundOrganisation.
Let me take you through the highlights of the year for the Industry and the Company.
Mutual Fund Industry:
During the year under review the Indian Mutual Fund Industry witnessed strong growthacross the board. Industry QAAUM grew 26% from Rs 18.3 lakh Cr in Mar'17 to over Rs 23lakh Cr in Mar'18.
Investor folios grew 29% from 5.5 Cr to over 7.1 Cr. Demonetization can be clearly seenas one of the key drivers for growth of MF Industry and increased retail participation.Retail participation has been the backbone of this growth post demonetization the MutualFund Retail AAUM grew by 57% from Rs 3.4 lakh Cr in Oct'16 to Rs 5.3 lakh Cr in Mar'18.Increased financial awareness and better understanding of Mutual Fund Industry reflectsthat investors are taking advantage of SIPs for long term wealth creation. Industry SIPBook posted a growth of 64% to Rs 4335 Cr to Rs 7119 Cr as of Mar'18.
This year the regulator has made three major changes for the benefit of investors andthe Industry.
SEBI mandated a framework under which standard categories of schemes have beendefined and AMCs are allowed to have only one scheme under each category. This will bringutmost clarity in positioning and definition of different funds.
Additional incentives which were earlier allowed for B-15 i.e. beyond top 15cities would now be allowed only for inflows from beyond top 30 cities (B-30).
SEBI also announced a 15bps cut in fees for mutual funds by lowering anadditional charge from 20bps to 5bps.
Reliance Mutual Fund:
The MF AUM grew by Rs 34000 Cr this year with the Q4FY18 average AUM at Rs 244904Cr touching all-time high. Our Equity assets grew from Rs 57011 Cr to Rs 87143 Cr whichis a growth of 53% year on year. Equity composition in MF assets have increased from 27%to 36% as on Mar' 2018. We continue to be amongst the leaders in Beyond Top 15cities' segment. This segment contributed AUMs of Rs. 51524 Cr - an increase of 25%. Over21% of total assets are sourced from beyond 15 cities versus 18% of Industry.
We continued to move forward on our strategy of increasing share of retail assets inour total AAUM. Our retail assets have grown highest in the Industry at Rs. 20558 Cr thisfiscal. Our strong retail brand and robust distribution network has helped in growing theretail assets by 39% to Rs. 73215 Cr. Post demonetization Industry added over Rs 195000Cr retail assets and we have added the highest retail assets at Rs 29300 Cr. Our RetailAAUM contribution to Total AAUM is among the highest in the industry at 30.5%.
Our Systematic Investment Plan (SIP) book grew by 70%in FY18. The number of SIPs roseto over 25 lakhs resulting in annualized SIP inflows of approximately Rs 9000 Cr as onMar 2018. We have added more than 100000 folios per month in FY18.
We finished 17 months of integration with Goldman Sach Asset management ETF business inIndia. In the ETF space RNAM is the 2nd largest player with 17.5% market share. RNAM isthe only AMC in India to have 15 years of track record in managing ETFs with an AAUM ofRs 13296 Cr for the quarter ended Mar 2018.
Infrastructure Investment: Enablers of Growth
Your company has a pan India distribution network with presence in 282 locations. Weadded 120 locations to our overall coverage during the year. This is part of a focusedstrategy to expand our reach and tap the huge potential in smaller locations across India.
Technology has now become a part of the Mutual Fund industry and is used in manyareasfrom fund management to transactions and servicing. With the increasing use ofsmartphones and growing Aadhaar ID base of 118 Cr the customer onboarding (KYC) andinvestment process continues to improve and become more seamless across platforms. Yourcompany investments in digital platform is seeing traction. Digital Purchases almostdoubled in FY 18; we handled approximately 645000 digital purchase transactions in FY18. Your company have also partnered with digital service providers such as ET MoneyPaisa Bazaar Cleartax Moneycontrol and others. For tapping into Bharat we have donetie-up with service providers such as payworld suvidhaa paytm freecharge fino andothers.
Diversified Distributor Mix:
RNAM remains well diversified in terms of distribution with no single distributorcontributing to more than 4.5% of total mutual fund AUM. Your company distributor countwent up from 55000 to more than 65000 as on Mar' 2018. We have de-risked the businessmodel from the perspective of distribution asset class and geographical presence. Theclear objective is to create long term wealth for both unit holders as well asshareholders.
Apart from Mutual Fund business let me take you through the key highlights across thevarious RNAM subsidiaries.
AIF: Next frontier of growth
We started our AIF operations in 2014 with a single asset class high yield debt.Over the period we have built our capabilities and widened our investment offerings.Todaywe offer high yield Credit and Equity offerings and operate in Category II & III. Weare currently managing 8 schemes of which 4 are closed for subscription. As on Mar'18Reliance AIF has over Rs 2000 Cr worth of commitments across various AIF schemes.
International Business: Leveraging global tie ups and our association with NipponLife Insurance India has seen increasingly higher inflows from international markets. Tocapitalise on this opportunity your company has been working closely with Nippon LifeInsurance which has investments in 41 Asset management related companies globally toleverage on their tie ups for bringing flows into India. Your Company manages offshorefunds through its subsidiaries in Singapore and Mauritius and also has representativeoffice in Dubai thereby catering to investors across Asia Middle East UK US andEurope. Company also acts as an Investment Advisor for India-focused Equity and FixedIncome funds in Japan and South Korea. In this fiscal company in collaboration with BBLAsset Management Company Ltd an affiliated company of Bangkok Bank (BBL) the largestThai commercial bank have launched Bualuang Bharata Fund in Thailand for Thai high networth and institutional investors. RNAM is managing and advising AUM of approx. Rs 8700Cr from international business.
People: Our Strength
Our business has low capital requirements. Our people are the real assets of thecompany which does not get reflected in the balance sheet. I am delighted to share thatReliance Nippon Life Asset Management has been certified as "Great Place towork" 2018 among top 15 companies in BFSI space and "AON Best Employer2018" we share this recognition with Top 16 Employers in India. This recognizes theorganization culture and high focus that our company has on its people.
Strong Risk Management and Compliance Culture
Robust risk management practices strong compliance remains the core of your company'sculture and we will continue our efforts in this direction in an earnest manner to be themost Trusted and Respected Asset Management Company.
Your company focus remains on profitable growth. The Mutual industry has growngeometrically over the last decade or so. Although the growth numbers are strong theMutual Fund Industry has a huge potential going forward. Interestingly Industry folioaccounts are at 7.1 Cr which is roughly 5% of population. The bank deposit base of Rs 114lakh Cr clearly dwarfs the Mutual Fund Industry size. The penetration levels of MutualFunds in the country remain very low with an AUM to GDP ratio of 15%. Rural areas acrossIndia are gradually getting into the formal financial services fold which offerssignificant potential for established Industries like Mutual Funds. We are likely to seehigher share of flows coming from smaller cities & towns. With a fast-growing Industryand increasing participation the above factors point toward a significant futurepotential. Being one of the largest players in the Industry your Company will continue toinvest in growing the market size achieving product innovation educating the investorsincreasing the distribution reach and enhancing customer service infrastructure. Withenhanced presence and large infrastructure RNAM is ready to capitalize on this growthopportunity.
Executive Director & Chief Executive Officer.