How rainmakers of mutual fund industry benefitted post demonetization

What has changed for mutual fund advisers post demonetization.
By Ravi Samalad |  14-11-17 | 
 
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Ravi Samalad is Assistant Manager - Editoral for Morningstar.in.

Chennai based software engineer Alagappan Thenappan lost his job after the 2008 financial crisis. In his second innings, the techie took up mutual fund distribution after realizing how his own investments helped him tide over the cash crunch he suffered during his unemployment. He vividly remembers his first client, who was convinced to do a systematic investment plan or SIP of Rs 2,000 after hours of explaining.

These days he rides on his 1,200 cc Triumph Bonneville T100 superbike worth Rs 8 lakh for collecting SIP applications worth as low as Rs 1,000 for 40-50 kilometers. With over 5,000 clients, prospects are now making a beeline to invest through him. The situation has particularly changed post demonetization. In the last one year, Alagappan has received 400 new SIP applications. Earlier, he was getting Rs 5,000 – Rs 10,000 worth SIPs. Now, people are committing SIPs worth Rs 1 lakh monthly which has increased his SIP ticket size while his assets under advisory (AUA) went up by 60%. Ninety per cent of his clients are retail investors and majority of them are first-time mutual fund investors.

“Deposit rates came down. People were not able to sell their property. No other asset class was offering the kind of returns mutual funds have delivered. I got many lumpsum investments from housewives who had deposited cash in bank accounts during demonetization,” says Alagappan.

Like Alagappan, many advisers across the country are elated, especially after the November 9 demonetization drive.

A waiter-turned-fund adviser, Sachin Kharate’s SIP book has doubled to Rs 24 lakh since demonetization while AUA has grown from Rs 10 crore to Rs 19 crore. His firm has added 100 new clients in one year. “The fall in interest rates post demonetization has nudged people to move from fixed deposits to short term debt funds. We onboarded many senior citizens and first-time investors in mutual funds in the last one year. We have been recommending investors to go for balanced funds if they have five-year time horizon,” says Sachin.

He says that besides demonetization, factors like increased awareness about mutual funds and improving macros has helped the mutual fund industry. The assets under management (AUM) of the industry scaled a new high of Rs 21.41 lakh crore in October 2017, up 32% since October 2016 from Rs 16.28 lakh crore, with SIP accounts touching 1.73 crore count.  The industry now has 6.32 crore folios or investor accounts.

Chennai based D. Muthukrishnan is not keen on adding too many clients. Although his two-room office in south Madras can accommodate staff of four, only one employee works there, besides him and his wife. Muthu, as he is fondly called by his peers, receives five to six emails from his blog and Twitter followers to start SIP. But he passes on leads to his peers or turns down their request. His SIP book stands at Rs 1.50 crore. It took him eight years to build mutual fund AUA of Rs 100 crore and only two years to add another Rs 160 crore assets. “While demonetization has helped us, the increased inflows in mutual fund is largely on the back of the market rally. Today, advisers are getting clients without much effort. However, we should be cautious. New clients are coming in with unrealistic expectations due to word of mouth from existing mutual fund investors. However, if the market crashes, it would be difficult to get clients. Hence, we should set the expectations right,” cautions Muthu.

While Muthu can capitalize on this mutual fund euphoria by expanding his team and taking on more clients, he wishes to cap his clientele at 300. “We want to give more personalized services and engage them in a conversation which goes beyond transactions. I’m happy with my current model," says Muthu.

Mumbai based adviser Gajendra Kothari recently met a prospect whose corporate fixed deposit worth Rs 4 crore matured and is keen to invest in mutual funds after seeing Association of Mutual Funds in India (AMFI) commercials. “This client wants to invest in mutual funds. With real estate and bank fixed deposits no more attractive, many people are taking a shine to mutual funds. In fact, we are seeing many senior citizens investing in mutual funds after the fall in interest rates post demonetization,” says Gajendra. His firm Etica Wealth Management has added Rs 100 crore AUA in one year.

Will the trend sustain? Yes, feel advisers. Gajendra says a correction will provide a good opportunity for advisers to get more money from investors.

Mumbai based adviser Ritesh Sheth who serves 7000 retail clients says that unlike earlier, clients are more willing to put money when markets correct. “Many of clients have invested in the recent correction seen in the last few days. Unlike earlier, the situation is different now. Advisers are educating clients about the virtues of entering during correction. Also, AMFI’s advertisements are helping create awareness which is making prospects more receptive to mutual funds,” says Ritesh. His firm Tejas Consultancy has seen 25% growth in AUA and added 532 new SIPs since demonetization.

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