'The Reduction In The Number Of Active IFA’s Is A Matter Of Great Concern To The Industry'
Anthony Heredia, CEO of Baroda Pioneer Mutual Fund, talks about evolving trends in the Asset Management business and the importance of having an active base of IFA’s for the industry to continue growing sustainably
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Anthony Heredia, CEO of Baroda Pioneer Mutual Fund, talks to BW Businessworld on evolving trends in the Asset Management business and the importance of having an active base of IFA’s for the industry to continue growing sustainably.
The Mutual Fund IFA community has taken quite a few punches over the past years. This has resulted in the number of active IFA's tapering off over time, with several of them migrating to the distribution of higher revenue products. Do you believe that in the long run, this may damage the industry as a whole - or do you feel that the MF business will continue to plod along steadily even without the active support and growth of the IFA community?
In my view, the reduction in the number of active IFA's is a matter of great concern to the industry. This segment amongst distributors tends to be more retail focused, and in many smaller towns, the most practical way to reach retail investors. If one agrees that the future growth of the industry will come from greater retail penetration and expansion into cities beyond the top fifteen or so, then the role and importance of IFA's becomes self-explanatory.
What are your thoughts on the viability of building an MF distribution business revolving around SIP's? Do you think it's feasible, and that the time and energy consumed in building out such a business will eventually reap rewards?
SIP's are the closest this industry has, to an easily understood and acceptable FMCG product. MF distribution businesses are most successful, if they are based on annuity incomes, as you gain alongside the investor over the long term. Given the basic construct of SIP, it becomes an ideal foundation for MF distributors to build the rest of their business around.
Just how important a consideration should TER be in an investor's mind? We've seen similar funds having TER's that differ by 100 bps or more. Should investors be worried about investing in high TER funds?
Fundamentally, what should matter to the investor is the eventual return he or she gets, and the role that product plays in helping the investor meet their short or long-term goals. If the high TER funds still manage to generate superior returns, as often has been the case, then they should stay invested. Conversely, a low TER fund that has consistently underperformed should not be part of an investor's portfolio. Using a food analogy, one should think about the ingredients that go into a dish, but what matters is not how each ingredient tastes in isolation, but the dish as a whole.
Is the MF business one that is going to continue being ruled by the 'big boys', or is there real scope for a relatively new AMC to enter the fray and compete effectively? How can a relatively new AMC with almost no track record position itself in the portfolio of investors who are already brimming with skepticism and who possess a general distrust for the equity markets?
The factors that are most important in investor and distributor minds tend to be performance track record, trust factor of the brand, product choice, ease of access etc. Given this, bigger AMC's who have most if not all of these attributes will continue to thrive. That being said, given the large sizes of individual schemes and plethora of offerings at many of these funds, maintaining track records going forward will not be an easy task. Amongst the many key considerations spoken of above for investors, I expect investment performance/track record to become even more significant , almost like a necessary condition, and as that happens, newer and/or smaller players who are able to deliver on this key variable, i.e. 'performance' will thrive as well.
In your opinion, have investor education initiatives been a real success? For instance - have they resulted in tangibly higher penetration levels in smaller cities - or are they fast moving towards becoming a 'tick mark' activity for AMC's?
Investor education initiatives so far, to my mind has been a mixed bag in terms of effort and impact. Having said that, the recent move to aggregate 50% of these funds at an industry level, and utilize it on behalf of all players is a very useful move, as it will then lead to a far more concerted, focused, unbiased effort to increase the awareness levels of the investor community.
What are the three most urgent steps that the overall ecosystem (AMC's, distributors and regulators) need to take in order to lend a fillip to the industry?
The first step would be to institute a formal tripartite dialogue between this eco system, which can only benefit the end investor, especially if all the key stakeholders to his financial well being are coordinated with each other. Constant communication and exchange of ideas and views amongst the ecosystem as a whole is key.
The second step would be to think of digital not only as a means of creating greater investor convenience and access, but as a means to helping the distributor improve his last mile connectivity to the existing as well as potential investor community.
Lastly, use the Investor Education funds that are aggregated at the industry level in the best way possible, with the genuine aim of taking mutual funds to the masses, without thinking of immediate business interest.