The domestic mutual fund industry, which is undergoing major changes in the way it does business after the market regulator tightened norms on entry load for equity schemes, is expanding across the country. NIMESH SHAH, managing director & CEO of ICICI Prudential Asset Management Company, the country's third-largest fund house, tells Chandan Kishore Kant that he is bullish on the Indian market. Excerpts:
After the entry load regulations got tweaked, what’s the way ahead?
It is the best framework for customers. It is a shift that changes the engagement between the distributor and the customer, bringing a lot of transparency. We believe other competing products will have similar guidelines. So, when complete transparency comes in other products also, the scenario will change. But there has to be a balance so that the product remains lucrative for distributors as well as the asset management companies (AMCs).
Is it lucrative for distributors at present?
It depends on their ability to charge investors. Whenever there is a paradigm shift, there is friction. We are witnessing that friction, but it will come over a period of time. For distributors, it is required that they charge customers. They will have lower margins but can they make money if volumes rise? That's the game.
What are you doing for distributors?
We are helping them package services in a better way. We need to educate the distributor so that he can give the right advice to customers.
ICICI Prudential MF is present in around 200 locations. This was below 100 a year ago. What target do you have to reach out to retail investors?
We want to be in every place where a private bank is present. We want to go the interiors of India. I think mutual funds have a space over there. We have to bring more PSU banks to sell mutual funds. We are in the process of strengthening these 200 branches. After this, we will increase the number. Are those 200 branches profitable today? Do I make a huge amount of money by investing in the retail business? No, I don't. But will I make money in the future? Yes, I will. We believe the future is in the interiors.
Why are you not active in the fixed maturity plan (FMP) space?
It is a good product for the retail segment. We should come up with more such products only when the right regulation comes in. Currently, we are hardly active in the FMP segment.
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Is there space for more AMCs (asset management companies)?
I am not worried about the current 36 players. Rather, I am worried about how to grow the market. We are comfortable with new AMCs coming into the country. It will be good if they do more relevant jobs, get into the interiors and increase distribution. Let more players go to small towns and push mutual funds. AMCs should not restrict themselves to the top cities. They should see value in the hinterland. If more players come, trust me, ICICI will also grow. Mutual funds will be promoted more and we will grow automatically with them.
The industry may see consolidation as some AMCs are finding it tough to remain in the business. Will you be interested in a deal?
It is a question of price and the quality of the asset. We are always open to taking over at the right price. I have got a brand that can raise money. We are sufficiently big in the money market business and in the debt market. So, I will look at anything which compliments me and is available at the right price.
How long can you sustain giving upfront fees from your own pocket?
It's a question of affordability. I get something out of the management fees and from that I give something to distributors. We were paying earlier also. If the entry load was 2.25 per cent, we were paying more than that to distributors. 0.5 per cent was from my pocket. The fact is that we need to support our distributors as we are not an isolated business case. We don't have to make money in the first month itself.
AMCs have to learn to create a pull. We have always been dependent on a push.
Currently, meagre amount of household savings go into mutual funds.
How can one beat inflation if not by investing in equities? This country saves but does it invest that much. Only 4 per cent household savings go into mutual funds. The individual of this country should convert savings into investment. Sebi has made mutual funds a great product for an investor. A retail investor has to understand first that savings is not the only important thing.
