 "Mutual funds will drive our business growth: Rajiv Bajaj")
How has been the transition for you from an upfront to trail-based model?
In October 2012, we shifted to the trail-based model. The transition took around a year. Our entire open-ended business (60 per cent of our volume) is on a trail basis now. Even after this transition, there was no change. There were 49 closed-end equity schemes last year and we worked only on eight or nine. Our cash flow stream is not disturbed. We were building our recurring income through open-ended schemes, which is our long-term plan, that we will keep increasing the trail component.
The 100 basis points (bps) cap on upfront commission has forced distributors to go to trail. Has it disturbed your transition?
Our transition to a completely trail-based model got disrupted in April. For any distributor, a trail-based model is good. But, you need time for a transition. Any such transition needs to be pre-warned. Had we been given two to three years, the transition could have been smooth. The abruptness of this change has shocked many. It has brought people back to the drawing board.
What's your take on the 14 per cent tax on distributors?
It will have a negative impact. Service tax is a consumption tax. Consumers pay the taxes. A stock broker deducts service tax from investors. Here, our customer is the mutual funds. MFs need to reimburse us for service tax. And, they have to collect it from the investors. There is no second thought on it. In all other financial products, service tax is reimbursed to distributors by the product providers. It's an aberration in the case of MFs.
How do you see the MF sector's growth prospects?
Consumers were not confident enough to invest their savings in capital market instruments. It's only last year that the situation turned and we had a good year of positive net sales for the segment. It has brought us back to the growth-thinking mindset.
We have engaged KPMG to chart our five-year growth plan; this February, we completed 50 years as a company. I see this decade as critical. Being one of the older players, having recognition, mind share and market share with investors, we see ourselves to be capturing the opportunities.
Has the contribution from MFs increased in your overall income?
MFs have always been more than half of our company's revenue. Most of our 650,000 clients have MF investments through us. In terms of revenue, one would get a better indication. Half our revenue was from MFs during 2003-07. However, after 2008, it dipped to 15 per cent, then slowly built up and in 2013-14, was back to a third. It is now at 55 per cent.
Will it go further up, as experts believe the economy growth graph will go up?
We see MFs as the driving force for growth of our business. Revenue from MFs in the next four to five years is likely to reach 60-65 per cent of our total; not more, as other product segments will also grow. Further, we see MFs to be the only vehicle with products suitable for every life stage and every need of customers.
What are your expansion plans?
We are present in about 100 cities. We will continue to expand but not at the same rate. We will add a few branches but not many. Most of the expansion will come through technology. Our plan of action is based on a 'brick and click' strategy. We will support face-to-face relationships with facilitation by using technology to bring down the costs and improve efficiency.