With a portfolio that has 85 per cent retail and 15 per cent institutional money, the Rs 50,986-crore (Rs 509.86 billion) Franklin Templeton India is one of the largest entities in the retail investor segment.
Harshendu Bindal (below left), president, tells Joydeep Ghosh & Chandan Kishore Kant that the mutual fund sector needs to expand but there isn't sense in going to cities in which there are 30 asset management companies and 10 distributors. Excerpts:
With the stock markets doing well, have collections improved from both bigger and smaller cities?
Collections have improved but we need to improve it from all parts of the country. The T-15 (top 15 cities) and B-15 (beyond T-15) line is artificial because there isn’t enough penetration anywhere.
The numbers from smaller cities are inching upwards but can be misleading.
Currently, the sector has 85 per cent from T-15 and 15 per cent from B-15. With the markets appreciating, thee 85 per cent will increase.
So, again people will say that the B-15 has fallen.
We need to look at other parameters such as, are the number of investors or distributors growing in B-15? My sense is, those numbers are improving. We have adopted 10 districts.
We are making efforts to improve awareness and distribution in these. With the sector at Rs 10 lakh crore (Rs 10 trillion)and the 200 basis points being earmarked (by Securities and Exchange Board of India, or Sebi, guidelines) for creating awareness, there is a kitty of Rs 200 crore – a significant amount of money.
Franklin Templeton has refrained from launching fixed maturity plans. Consequently, it will be one of the least impacted by the new debt fund rules. Why was the decision taken?
We have not launched FMPs for a very long time. There are several reasons. When the regulations changed and said a fund house cannot declare ‘indicative yield’, it became very difficult to sell that product line.
Then, these are short-term products that put your sales force on a treadmill without enough margins.
There is also an expectation that if there is a default, the AMC (asset management company) will make good. AMCs don’t have such big balance sheets to defend such exposures.
Of course, given the size of the product line, we had to take a cut in our market share. When the Urijit Patel committee report came, we realised the arbitrage will be taken away.
Since we had not launched any product for two-three years, we realised we were better off.
Is there too much focus on developing the retail market?
In my view, we have the expertise in managing money and it should be available for whoever wants it. At one point in time, we were managing money for two insurance companies, before the regulations changed.
It was an institutional mandate but, finally, it was retail money.
Globally, whether they are endowment funds or insurance funds, finally, they are only retail money.
When we entered India, we were clear that it was a retail market.
We have built scale in that space. If you look at the top 10 AMCs, our retail base is the best.
As on August 31, our retail and institutional segregation is 85:15.
Have regulators complicated things for the sector?
We have gone through a lot of reforms and the direction of the reforms is positive.
But because so much reform is happening so quickly, implementation gets impacted and causes a lot of confusion on the ground. For example, common account statements and KYC (Know Your Customer rules) have changed quite a few times.
Though the idea is to improve it, when you look at it from a consumer perspective, he gets confused and a bit irritated, too. Time needs to be given to implement these things.
That is unsettling for the investors and the distributors.
Also, each of the changes is coming from a different source — FIEO, RBI, Sebi and on top of it, there is the US’ FATCA guidelines.
I think Sebi needs to take the lead and ensure we have a stable environment.
Fund houses constantly look at flavour-of-the month themes. Is it the right approach?
The sector needs to move away from such concepts. AMCs have to see the expertise they have and launch products and if it can be scaled up to a decent size.
But I also think we should give enough ammunition to the advisors, private banking clients and for everybody who wants sophisticated products.
But one has to be sure of the marketing channel being used to launch a product. For instance, if I am marketing an offshore fund, I need not do it in a small city or town.
That's where good quality distribution comes in.
How do you plan to expand into other cities?
We are currently at 33 cities. As an industry, we need to expand. But I will be a little wary of saying that because equity markets are doing well, we should look at smaller cities and towns.
We would like to go to markets which have a decent distribution network. There are cities where there are 30 AMCs but only 10 distributors. I do not know whether that kind of expansion makes sense.
