SBI MF edges back from the brink

The fund house's AUM has grown 31.75 per cent from Rs 13,200 crore in 2010-11 to Rs 50,000 crore in 2012-13

When Deepak Chatterjee took over as managing director of SBI Mutual Fund in 2010, the country's second oldest fund house was on the verge of getting written off as yet another public sector entity past its prime. The performance of its schemes had been uninspiring and distributors were not selling its products. To top it, the industry was struggling to cope with the ban on entry-load that had turned distributors indifferent to mutual fund equity products.

For Chatterjee, who had joined from SBI and was a stranger to the ultra-competitive mutual fund industry, the shift was akin to a novice swimmer being thrown into the treacherous seas. But, Chatterjee has not just survived, he has also reversed the tide at the fund house.

The fund house's AUM (assets under management) has grown 31.75 per cent from Rs 13,200 crore in 2010-11 to Rs 50,000 crore in 2012-13. In comparison, the industry's assets grew only 16.6 per cent and the average AUM growth for the top five fund houses was 10 per cent.

Restoring interest in SBI Mutual Fund's schemes was not easy. An oft-repeated refrain from the distributors was to get the performance right. Obviously, that was not going to happen overnight. Chatterjee decided to go back to basics, which was to build a well-knit investment team under its chief investment officer(CIO), Navneet Munot.

"It's not that we lacked bright people but they were a little disjointed-in buckets and silos. Knitting them together into a good team is precisely what has happened," says Chatterjee, 59, sitting in his office overlooking the Arabian Sea in Mumbai's Cuffe Parade. "This has helped us a lot and is well-reflected in the turnaround in our equity scheme performance," he says.

SBI's flagship equity scheme, Magnum Emerging Business Fund, returned 20.71 per cent in 2012-2013 to become the top performer in its category. In the previous year too, the fund was leading in its category with a return of 12.39 per cent. Its other flagship product, Magnum Equity, a large-cap fund, emerged as the 19th best scheme in its category involving 84 schemes with a return of 8.68 per cent. This was a huge turnaround from -2.95 per cent return in the previous year.

Still, the performance is nowhere in comparison to the returns during the golden phase between 2004 and 2007 when SBI Mutual Fund schemes were a must-have in every distributor's portfolio. The phase was considered a turning point for SBI Mutual Fund, which till then had a reputation of being another laid-back public sector mutual fund. Aided by some aggressive stock-picking by fund manager Sandip Sabharwal, who received all the support from then Managing Director PGR Prasad, the fund house's schemes emerged into the top quartile in terms of performance between 2004 and 2006. But, after Sabharwal quit in late 2005, the fund house started seeing a reversal in fortunes. It tried to tone down the aggressive nature of the portfolio (predominantly mid-caps) as part of risk-management. But that resulted in the schemes losing their edge. By 2008, SBI Mutual Fund schemes were out of the best performers' list which coincided with the start of the bear cycle. The current CIO, Munot, joined in December 2008.

Having understood the flip side of relying on individuals to drive the fortune of the fund house, Chatterjee has put in place a process-driven investment system "No fund manager can take a wild individual call today. When it comes to investment, attention will be given to the processes," he says.

Chatterjee has also realised that relying on equities in the current down market to build AUMs would not be prudent because investors have been shying away from this asset class. This prompted the fund house to shift its focus to marketing its fixed-income schemes-mainly SBI Dynamic Bond and Magnum Income Fund which have been designed to take advantage of the current interest rate cycle. Chatterjee concedes a large part of the AUM growth since he took charge has been through fixed income.

The distribution side of the business has seen some changes too. When the Securities and Exchange Board of India under C B Bhave banned entry load on equity schemes in August 2009, SBI Mutual Fund was considered to be the biggest beneficiary. This is because the fund house could use its parent SBI's massive network across the country to sell its schemes. However, using its own network had its flip side: the distributors got left out in the process.

"SBI Mutual Fund hardly interacted with us and we also did not bother to sell the products as the performances were nothing to talk about," says a senior official with a New Delhi-based wealth management firm. "But, now, they have started reaching out and their bond schemes are finding takers among HNIs (high-networth individuals)," he says. Chatterjee has appointed two chief marketing officers-one each for domestic and international businesses. "We have been reconnecting with our distributors explaining what we are doing in-house to improve performances," he says.

The fund house is also taking the inorganic route to growth. In a first-of-its kind move, it has acquired the India business of Japan's Daiwa Mutual Fund to increase its presence in the retail and high-net-worth individual space.

However, there is one problem that the fund continues to grapple with. The chief executive officers of SBI Mutual Fund are senior SBI executives on deputation with a fixed tenure, usually not longer than three years. "This is a big problem because no person can settle down to implement his goals for the longer period," says a former SBI official.