Questions for G Pradeepkumar, Chief Executive Officer of Union Asset Management Company Private Limited. (Formerly Union KBC Asset Management Company Pvt. Ltd.)
1) What are the top strengths and weaknesses of your AMC? What are you doing to resolve the weaknesses?
Our biggest strength is the parentage of Union Bank of India, one of the largest Public Sector Banks (PSB) in India, having a network of more than 4200 branches across the country. The brand name also gives a great level of acceptability in the market. The ability to reach out even to relatively remote areas has enabled us to have strong competitive advantage resulting in market shares of 3% to 5% in certain towns.
Being a relatively young industry player, we carry no legacy issues. At the same time, it allows us to be more customer centric by way of offering innovative products such as the Trigger Fund or services such as Transact through ATM. We have also been able to use technology very effectively.
Our product basket is not complete and we are aiming to achieve this in the next 18 months or so. Our engagement with third party distributors needs to improve. We are giving a lot of emphasis to meaningful engagement with the Independent Financial Advisor (IFA) community.
2) What do you see as the biggest challenges in the year ahead, both from a business perspective, as well as an investment perspective?
Both equity and debt markets have had an excellent run in the last six months but we expect volatility in the short term. This is mainly on account of global uncertainties such as Fed rate hike, impact of Brexit, US elections etc. But it is our view that any correction in the equity markets could be a good entry point because long term prospects remain very bright. For those who can withstand the vicissitudes of the market, there are probably good gains to be made. Convincing investors to stay put during turbulent times will be very important.
From the business perspective, achieving consistent inflow of funds is a challenge. To achieve this, a healthy SIP book is essential. Currently about one third of our equity assets have come through SIPs. We are aiming to increase it to 50% within the next 18 months.
3) Strong equity flows in the last one year have given many mutual funds sizeable scale. What investments are you making to add to your team, bandwidth, service capability to ensure investors have a good experience.
We intend to grow at a steady pace across market conditions. Consistent growth will come from reaching out to more and more investors across the market place. Though this is hard, we believe this is the only way to achieve sustainable growth.
We intend to increase our reach by enhancing and scaling up our reach with the help of technology, by enlisting the support of more distributors, by engaging more effectively with distributors and by focusing on creating customer delight.
4) Indian fund costs are quite high both the equity and debt space by global standards. What are you doing to bring down costs?
It is a myth that Indian funds are more expensive compared to global peers. As per a study published by The Financial Times recently, the average cost of mutual funds is about 2.5% for retail investors even in the U.K. where entry loads have been banned as in India. In continental Europe, while the typical Expense Ratio is about 1.60%p.a., there is an entry load of about 3% for retail investors. This takes the cost of ownership to approximately 2.60% p.a. over a three-year period. Funds in India on an average are no more expensive than this.
For a geographically vast country like India, the industry needs to make significant investments to increase the reach. Considering the effort that goes towards providing the services at a pan India level, the AMCs need to have a reasonably good margin to run the business in a commercially viable manner. However, we also believe that the industry as a whole should take measures to reduce wastage and increase the use of technology in order to bring down the cost for investors wherever possible.
5) Technology is bringing in huge changes in banking and payments. How are you leveraging this to make life simpler for your investors? Please describe some specific initiatives.
We are evaluating some of the new technologies and are constantly trying to find solutions that could benefit our customers and distributors. The Facility to transact through internet and mobile phones has been gaining more popularity. Our facility of transacting through ATMs has also had many takers.
6) Equity, debt and gold have all performed well in the past year. Is a repeat possible?
In our view the recent rally across asset classes may not repeat to the same extent. Short term volatility is a near certainty. In the longer term, stock prices are expected to grow in line with the earnings growth. We stay very positive about the medium to long term period. Participation of pension funds and increased retail investments through SIPs will add depth to the market. Given the fact Indian economy is growing at a much faster pace compared to most other countries, we believe that India could remain a preferred investment destination for foreign investors.
As far as debt markets are concerned, while a good rally has already taken place, we believe that there are still good returns to be made over the next 12 to 18 months as the interest rates are expected to come down further.
The views expressed or statements made in this document are purely the views of the author and do not necessarily represent the views of either the Company or its affiliates. The views expressed or statements made in this document are as of September 2016, and can change without any notice.
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