Even though Reliance Mutual Fund has lost the numero uno slot in terms of assets under management (AUM) to HDFC Mutual Fund, it still remains the most profitable fund house in the country. In an interview with Chandan Kishore Kant and Jinsy Mathew, Chief Executive Officer Sundeep Sikka says the fund house is not concerned about ranking and is trying to increase the share of retail money in its total AUM. Edited excerpts:
After remaining at the top of the industry for almost five years, how has life changed since being dethroned by HDFC Mutual Fund in mid-2011?
There is an obsession with AUM and that is where one gets de-focused when we talk about the mutual fund industry. It is not that only the No 1 gets money and the No 2 does not. If only the No 1 has to get money, there would have been no industry anywhere. I think that’s not the right way to see it. We, as a fund house, have been focused on adding more retail investors and creating wealth for them. What we did in the last five to seven years has resulted in one of the largest retail bases, with around seven million investors, which includes two million investors through systematic investment plans. As long as we are able to get new retail investors to the industry, it has nothing to do with the ranking.
Would you blame the banks and corporates, which had their liquid investments in Reliance Mutual Fund, for pulling you down by a notch?
It’s not a question of blaming anyone. Seventy per cent of the industry’s assets are institutional, and the rest retail. Institutional money will continue to be a function of liquidity in the economy. Ultimately, the money parked with mutual funds has to be used for projects. Liquidity will have an impact on AUM of the industry, but that is not our core focus. Our liquid money, as a percentage of our total AUM, is at an all-time low. We are trying to replace corporate money with retail investors. Sixty per cent of the Indian household savings are with the banks. It’s going to change. When will it change? I don’t know, but what we are trying to do is to be ready to grab the opportunity.
With investors fleeing and market conditions remaining poor, how would things pan out for the mutual fund industry?
We should stop seeing the industry from a quarterly or half-yearly perspective. A lot of things are being done from a long-term perspective, say 5-10 years. We need to focus and launch simple products for investors, so that the household savings in India can be moved into mutual funds. As an industry, we are at a very nascent stage, with less than two per cent of the population investing in mutual funds. This industry has the potential to become 5-10 times bigger in the next 10 years. There is a clear slowdown in the industry. In the last two-three years, because of market conditions, investors have not made money. Since 2008, it has taken lot for the industry to reconcile and get used to new business models. And, the new business models are a bit more expensive because we have seen a breakdown in the distribution network. What I mean is the link between AMCs and the investors, lot of distributors are out of the industry which has pushed up the cost of acquisition (of investors). From a long-term point of view, volumes will compensate the falling margins and we need to have volumes as it is becoming a low-margin game.
This year has witnessed several deals in the mutual fund space. Is there scope for more mergers and acquisitions?
India has yet to see the potential of the asset management space. A lot of foreign players are seeing much more in India than maybe the industry itself. Every new foreign player coming in clearly explains that their global footprint is incomplete without India. So, in India, where two per cent of the population is investing in mutual funds far less than what they put in bank deposits, I believe there is scope for 100 more AMCs to come. Industry is going to become far bigger from here.
Your deal of selling a 26 per cent stake to Nippon Life is being opposed by trade unions in the Employees Provident Fund Organisation (EPFO). What went wrong?
We have applied to EPFO as we planned to get Nippon Life as a partner. Nippon will be taking a 26 per cent stake. We are in line with the rules and regulations and one would appreciate the fact that this is the largest FDI deal in the sector. We are in the process of taking approvals. The deal was finalised, and MoU (memorandum of understanding) was signed. The share holding will change only after getting approvals from all the concerned authorities. I am sure we will see the deal getting cleared. The Competition Commission of India has already cleared this and I don't see any problem from EPFO.
What is needed then for the industry during such times?
The industry has changed a lot from 2008 till now. Every shareholder and the management has to sit down and work out its own business plan. This industry definitely requires lot of patience from sponsors than what it used to have earlier. For a long-term point of view, it will be profitable but it will require a lot more investment. The mutual fund sector needs shareholders' patience, long-term vision and execution capabilities to be successful. This industry is going to be big and profitable in the long run.
What is Reliance MF doing in such tumultuous times?
We are not looking at the short-term period of one or two quarters. We will keep investing this time, too. We are investing heavily on technology to increase our reach and reduce our transaction costs. We will keep investing for future. Short-term cycle should not impact the long-term vision. There can be problems in short-term, but that does not stop us from investing for long-term. We are getting ready for the big opportunity, whenever it comes, and we are investing in all respect of our business.
