The recent Bharat Bond issue, India’s first bond exchange-traded fund (ETF), has turned a corner in the country’s Mutual Fund (MF) industry. Radhika Gupta, CEO of Edelweiss Asset Management that launched the programme, expects it to grow as big as Rs 1 lakh crore over the next five years. It will open up fixed-income ETFs and also push down costs, Gupta tells Sunitha Natti of TNIE. Excerpts:
You are about to complete three years in your current role. How has the journey been so far?
This is my first stint in MF industry, we are also a young player in the MF business. When we came in, we were warned of things such as the difficulty of finding a firm foot. But we knew that if we are in this business, over the medium-term we’ll have to be meaningful, whether it’s top 10 or 15, because we are not here to play around. And honestly, we reached there much earlier than we have thought. Around December 2014, MF assets were about Rs 600 crore and when I took over, it was about Rs 6,000 crore. Today, we are at Rs 24,000-25,000 crore. If you look at the growth numbers, we have surpassed all expectations including the recent success with the Bharat Bond ETF issue that has contributed, but it’s just not that. We have equity assets too, but what surprised me more was the positive response we’ve got from the distribution fraternity. We now work with over 3,000-3,500 financial advisers and we have done significant work around marketing and building the distribution community.
How has the industry been evolving?
I’ve always believed that if you put out a good product and connect investors and distribution partners, you’ll make your presence felt. And for small retail investors, things are beginning to turn around. Thanks to aggressive marketing and social media, it’s easier to connect with consumers. Now, it’s only not about big budgets and spends, but also about young consumers willing to explore.
What kind of growth do you foresee?
It’s hard to project business growth. We have consolidated assets of over Rs 30,000 crore and we’ve pledged that at some point of time, we want to hit Rs 3 lakh crore. The MF industry is in a nascent stage, having penetrated just 5 per cent as against the world average of 40 per cent. So, if you assume that in the next 10-15 years, we’ll catch up with the world average, I think there’s enough room. Unfortunately, as an industry, we talk so much about wealth and market share, but it’s more about growing the market. Bharat Bond is a classic example. We have created a debt ETF product market, and others may come and expand it further. If India is like a teenager, MF industry is even younger; it’s like a kid turning into an adolescent. We have a long way to go and plenty of ground to cover. For us, in any of the segments we are present in, whether it’s equity or fixed income, we want to be meaningful and don’t want to be mini-mes.
Do you see debt ETFs gaining pace?
If you look at debt products, unfortunately people don’t understand that. I’ve seen so much of fixed income that I can fairly say people don’t understand even fixed income or duration or credit risk. Forget retail, even HNI investors don’t understand that. That’s one challenge we constantly grapple with. Were there many retail investors in India? No. If you take the traditional deposit base is over Rs 100 lakh crore deposits, MFs are chump change. So actually, there aren’t many retail investors to be upset about. What we need is the development of MF products that are friendly for retail investors, because much as you talk about equity, we are a savings-oriented market and for us, fixed income is a large part of our investments. Bulk of our portfolio will always be fixed income. So, getting retail investors via Bharat Bond was a step in that process.
What’s the outcome of the Bharat Bond ETF?
The issue came in an environment that was so negative about debt MFs, and yet its subscriptions were well past our expectations. So many investors participated despite it being launched just eight days of Cabinet approval.
How will it complement MF industry?
One is Bharat Bond is not an issue, it’s a programme — that’s what the Finance Minister had said. It’s a first of the many things that we’ll do under the programme. It’ll open the world of active fixed income ETFs, and also push down costs, and hopefully, start more positive conversation around debt funds. In the medium-term, say 3-5 years, if Bharat Bond itself crosses Rs 1 lakh crore, I won’t be surprised. That’s the reasonable expectation and I’ll be disappointed if it doesn’t. But importantly, it’s not just about numbers but more about people joining.
Will it lead to more long-duration funds?
India doesn’t have long duration funds and medium-duration funds are almost a dead category. One reason we are proud of Bharat Bond issue is, of the 3, 5 and 10-year tenors, almost half the money we raised was for 10 years. So, in medium-term, India has to move towards longer-term savings, because by just sitting in liquid funds, we aren’t going to accomplish much. When you do long duration funds, there’s a duration risk. If interest rates move up and down in a 10-year fund, that’s a duration risk. Since we are used to fixed income, we tried to answer this in the structural Bharat Bond where it’s a declining maturity fund.
What’s an ideal portfolio mix for retail investors?
Investors should look at fixed income portfolio in 2-3 parts. One is a liquidity fund, which is money you need for immediate needs. Second is fixed income allocation, which is money that you keep for 3-5-10 years that should be parked in high-quality, fixed income products. Third, you can do practical things such as 5 per cent portfolio in dynamic bonds. But I strongly believe that the fixed income basket should be the base of it.
What are the challenges for MF distributors?
Ultimately, if you want to get into retail distribution industry, we need advisors to succeed. Today their income is very low because of regulatory changes. For an MF distributor on a Rs 5,000 SIP, monthly income will be Rs 1,500. It won’t cover the cost. So, you’ll need to make it lucrative for someone to be in the financial advisory business and stay in it. We need scores of financial advisors, which is a big challenge because we don’t get retail investors by sitting. We have to strike a balance between the needs of distributors and investors.