G Pradeepkumar, Chief Executive Officer, Union AMC, on how distributors can navigate through these difficult times and build a future-ready practice.
On regulatory and other headwinds like compression on margins, what would be your advice to distributors and advisers to overcome the evolving challenges faced by them?
Mutual funds have achieved relatively low penetration in India. But they are among the fastest-growing sectors and hence there would be tremendous opportunities for people aspiring to build their careers through the distribution of mutual fund products. In the past 10 years alone the industry assets have grown by three times. It is not unusual for a fast-growing industry to attract a higher level of regulatory supervision. In fact, regulations also evolve. As the industry grows in size the economies of scale need to be shared with investors to some extent. However, it is our belief that the volume growth in our industry will be more than adequate to compensate for the compression on margin. We went through a similar situation when the entry load was removed in 2009.
Should new entrants in mutual fund distribution/advisory collaborate with sub broking platforms or technology providers to cut down their costs and scale up? What would be your advice to budding Independent Financial Advisers, or, IFAs?
As in the case of investments, one size may not fill all in this matter. Distributors differ in their educational background, financial status and availability of infrastructure, etc. Collaboration with aggregators does offer certain advantages, particularly to smaller distributors. However, this is a decision that individual distributors have to take based on their specific situation.
Many distributors who sold credit risk funds to their clients are having a tough time. How should distributors navigate the debt funds space? How should they go about shortlisting debt funds for clients?
As far as fixed-income funds are concerned, it has to be clearly understood that the scope for generating alpha is limited. To generate extra returns, one would also have to take extra risks. One way to minimize risk at the client portfolio level is by investing in a large number of funds across fund houses. That way the exposure of clients to any one security will be minimized. Our debt markets are not sufficiently deep or liquid and hence, liquidity of the portfolio is something distributors and investor should pay special attention to.
What checks and balances has your fund house put in place to shield the debt portfolios from the ongoing debt crisis?
We have revamped our fixed income process and made it a lot more robust. Right from selecting the securities to be included in our universe to managing the credit quality and liquidity of the portfolios, we are completely process driven. We go beyond the ratings given by credit rating agencies and use our internal analysis to arrive at the credit profile of every company. Given the general illiquidity in the fixed income market while managing open-ended debt funds we are giving a lot more importance to liquidity aspect. In fact, in some of our funds the entire portfolio can be liquidated in one day if necessary.
How should distributors handhold clients in these turbulent times?
It is important to reassure investors about the long-term potential of the market and the need to stay invested. Nobody has made money by panicking and selling when the market is cheap. I have seen some of the highly successful distributors leading by example and sharing their own personal portfolios with their customers. Very often, this gives a lot of comfort to investors.
How can distributors build a future-ready practice?
As in any other business, distributors should continuously demonstrate value to their customers. There is more to distribution than just selecting a few funds. Setting realistic goals, understanding the risk profile and expectation management are important. It is also important to understand that the future of transactions is digital. Advisers need to learn to completely move to digital platforms and make the clients comfortable with that.
