There are many new entrants coming into the MF space be it Zerodha, NJ, Samco, White Oak, etc. Will they squeeze margins of the existing players?
New players coming into the industry helps the industry grow and go to the next level. Expansion will happen with more players coming in as MFs are still heavily underpenetrated. Within that some players will exit and some will consolidate and go away as we have seen in the past.
In this industry once you reach a scale, your ability to expand continuously and exponentially is high and you don’t have to incur any incremental cost. The scale that you build gives you an operating leverage advantage. This may not be there with the new and smaller players. Unlike any other product, in the mutual fund space investors just don’t buy on the basis of expense, it’s about product positioning and relevance and how the portfolio is managed. We have focused on active management all these years, with the growing needs for passive funds as part of asset allocation, we are not ignoring any product which is relevant for customers. We have all such products running complementary to each other. Our margins come from both equity and fixed income and funds like us are a total solution provider for investors. New age platforms will take time.
While some of your peers have an inhouse bank distribution , a player like you does not have an inhouse bank. Is that a challenge going forward?
All the banks that distribute mutual funds, barring a few, have an open end architecture and we have worked with each of these banks and we remain one of their preferred partners. Eventually any investor will look at diversification and the bank needs to do justice for its customers. We are preferred partners for most of the open platforms. We will remain the preferred partner and fund house that can be trusted for brand, people and process.
The mutual fund industry is very concentrated with the top 10 players accounting for 82% market share of the industry? As the industry grows, could this change?
The concentration is likely to remain, though the percentage could go down a little bit, as some of the new entrants in the market take some market share. However, well established players who have a long term track record will continue to grow strength to strength on the back of the credibility they have already built. Some of the smaller players and new entrants are likely to be more boutique players.
Going forward over the next 3-5 years, which markets will give growth to mutual funds. Will it be the B30 or T30 markets? Where do you think growth will come from? Is it the B30 or T30 market ?
On the basis of my experience, B30 will continue to expand its customer base, although ticket size will be small. India is still a largely under penetrated country as far as mutual funds goes. However overall I see it more as a volume and value play. While T30 markets will be value and volume, B30 will be volume followed by value.
Penetration of mutual funds is still low and we are far behind when it comes to developed markets like the US. When will the Indian mutual fund industry reach an inflection point?
There have been multiple inflection points for the industry. We had an inflection point when demonetization happened in 2016. The current inflection point is high liquidity. Liquidity of 11 lakh crore lying with RBI is not going to be easy to unwind and hence it will be long drawn in the system. Such liquidity will have to come from a mix of equity and debt mutual funds.
Many first time investors are participating through systematic investment plans. Monthly collections are close to Rs 10,000 crore per month. How important is SIP for ABSL AMC?
We have a 9.5% market share in systematic investment plans (SIP). It is gaining more prominence, as many more investors are now using SIPs to begin investing, or use them to meet their long term financial goals. For our company about 45% of my equity assets are through SIP and monthly inflows are close to Rs 800 crore.