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It's been 18 months since L&T Mutual Fund acquired Fidelity. Can you throw some light on how the integration has been in terms of schemes, human resources and distribution?
The integration and the transition from the erstwhile franchise to L&T Mutual Fund has been extremely smooth. In fact, the migration, merger and transition happened over one weekend. The process was error-free and the quality of the transition is demonstrated by that the business has grown 63 per cent while the sector’s has grown 11 per cent. Average assets at the end of the fourth quarter of FY13 were Rs 11,170 crore and we closed the fourth quarter of FY14 with Rs 18,255 crore. Average to average, equity has grown moderately. We came up with the GEM (Generation of ideas, Evaluation of companies, Manufacturing or Monitory of portfolios) approach.
What new things have you done after the acquisition?
We launched an application for our iAdvise for distributors. It's an integrate tool, once that app is downloaded the full relationship is available. The distributor opens the application and he becomes like a private banker to his customers and has access to the latest details and net asset value. This has gone down well.
We are also trying to do new things for customers in terms of our product offering. Even in the new micro and small cap fund we have launched, we are the only fund to offer a combination of close-ended and open-ended and also allows systematic investment plans. We constantly look at things from the investors' point of view.
We also realised that the market was shunning infrastructure totally. We used to get the time to make the equity become a top quartile performer but on the debt side, we used our group strength. In our income opportunity funds, we have holdings that have ended up ensuring that 'AA+' rating. We have been able to create high yield products without compromising on credit quality. There is an opportunity to launch an international fund too.
What about the team?
The fixed-income team continued from fixed income and equity side. We were able to backfill everyone before the merger. We were able to make sure coverage, quality and process were in place. Head of equity Soumendra Nath Lahiri has two decades of experience.
What changes has he brought about as L&T's funds were not doing very well before that?
We have created the GEM approach that has made a lot of difference. Plus individual accountability makes a lot of difference. Sometimes an individual can take all the calls. Here you have to take the team along. There has to be consensus from analysts. Sometimes the fund manager can take a decision and he is allowed to but then we track. If going against research does not pan out, he has to redeem. That has paid.
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Sebi has provided incentives to go beyond top 15 cities?
The good news is that we have branches in over 50 towns and cities, which is a large number of cities where we have a brick and mortar presence.. We also have a large online presence which allows us to engage with new investors. We hold investor and distributor camps.
What about investors opting to invest directly?
It's still very early. We have had a good direct customer base on SIPs. Are we seeing any material change, not really. The benefit of advise outweighs all other benefits. Small number of savvy customers go direct and in our case the industry is very young. What made it succeed in the US is the mutual funds are part of pension plans. Should you see mutual funds including in pension products, the growth of the industry and its depth and breadth will see a tectonic shift. Money management is money management and there should be close cooperation between all entities that manage money -- insurance, pension and mutual funds.
Only one of your schemes has a five-star rating from Value Research. A couple of your schemes have two-star rating and another has only managed to perform in line with its benchmark. What is the reason?
Five of our schemes are top quartile. A four-star rating means a three-year track record and we went through an acquisition and we were knocked off all charts. Beating the category is important. We have 80 per cent of our schemes beating 60 per cent of the market. We have to wait for three years for the five-star rating.
What is the reason for the launch of a micro and small cap fund at this point of time?
Our analysis shows that the last 10 years small cap has somewhat outperformed the large cap. However, over the last five years small caps have underperformed and if you look at the earnings of these companies it is better than the large caps. We feel they will be rewarded by the market when the economic environment improves. Our analysis was done and we were ready with it and the reasonable environment for its launch.
AMCs’ losses have gone up.
At the operating level, we have reached break-even and that data are in the public domain. There are costs attached to acquisition. As we write down the costs of acquisition, it will reflect.
