Adviser Perspectives: Why we forayed into fund distribution

Jun 30, 2022

Stock markets always fascinated Ahmedabad-based distributor Haresh Shah. He dreamt of making it his career as an entrepreneur. While pursuing graduation in Commerce, he started working as a sub-broker at Ahmedabad Stock Exchange (ASE) when he was just 20. In 1995, he purchased ASE membership card.

While Haresh realised his dream early, the stock market tested his patience and taught him important lessons in investing. Haresh witnessed the many ups and downs of the market — right from the 1985 Gulf War, Harshad Mehta scam, the 2000 dot com bubble, the subprime crisis of 2008 to the recent Covid crash. During this period, he has acquired more than 5,000 clients who trade using his terminal.

Foray into mutual funds

After making his mark in stock broking, Haresh along with his partners Amit, and Nirmit decided to venture into mutual funds to diversify their revenue stream by floating Care Wealth Management.

They sensed that mutual funds are a win-win for both distributors and investors since the distributor's income is directly tied to the returns investors would make. Haresh vividly remembers his first mutual fund transaction. “We found mutual funds very useful for long-term wealth creation for retail investors. We started mutual fund distribution in 2008. We logged in our mutual fund transaction on 08/08/2008,” recalls Haresh.

Slowly and steadily, they have built assets under advisory worth Rs 125 crore in mutual funds across 2,500 clients so far with a Systematic Investment Plan (SIP) book of Rs 1 crore.

However, Haresh says that not all of his traders have turned into mutual fund investors yet. “When the market is in a bull run, direct equity investors feel they have mastered the art of stock picking. Some direct equity investors are still not convinced about mutual funds. They feel they should not incur any losses in mutual funds if they are giving money to fund managers. But the awareness about the benefits of mutual funds is increasing.”

Fund selection

Haresh believes that the proliferation of products will only increase the time required for advisers/MDs for research. He believes that automation would greatly reduce their time spent on research and give bandwidth to acquire new clients. They use Morningstar Adviser Workstation to acquire new clients and fill gaps in clients existing portfolios. “Some investors like complexity more than simplicity. They are attracted to complex strategies. But investing should be simple. It is easy to chart out a return plan in excel but difficult to have patience and remain invested through the ups and downs.”

They believe in eating their own cooking. Before recommending any product to their clients, they invest their own money in such schemes/products. But the recent credit events came as a rude shock. They have now started giving more importance to liquidity and safety aspects of any products they recommend. “Some of our clients’ money was stuck in Credit Risk Funds. Even we had invested our money in these schemes which gave a bit of assurance to clients. We convinced them that the recovery will be late, but they will get back their money. Since this episode, we prefer safety over returns.”

When it comes to equity funds, Haresh makes sure that his clients have at least a five-year investment horizon. While filtering funds, Haresh looks at the consistency of returns, risk-reward ratios and avoids funds that suddenly top the quartile charts as he believes that such funds keep rotating. Rather, he scouts for consistent performers having lower drawdown.

He recommends international funds to clients having a big-ticket size and are already adequately diversified in domestic equities and have a goal such as overseas education. He also prefers schemes domestic equity schemes that invest a portion of assets in international assets as it helps them get the best of both worlds with equity taxation.

Haresh, 58, feels that he should have personally started investing through SIPs at a much younger age which could have helped him compound his wealth faster. He urges youngsters to use time to their advantage by starting their SIPs as soon as they get their first job or start earning.

Practice delayed gratification

Haresh says that technology can be a double-edged sword as it can lead people to redeem in panic or meet impulse purchases. He says that technology should be used as an enabler and convenience. “Mutual fund Net Asset Value (NAVs) are published every day. You get to see the performance of your portfolio at the click of the button. Investing as well as redeeming has become seamless. You don’t get the valuation report of your property in newspapers and websites every day. Liquidity should be used for meeting exigencies and to meet a life goal rather than to satisfy impulse goals.”

Haresh says that patience and time are the key ingredients for creating long-term wealth. At a time when advertisers are trying to catch the eyeballs of buyers, Haresh urges his clients to inculcate the habit of delayed gratification. “Yesterday’s luxury is today’s necessity. Today, people have easy access to finance to acquire discretionary products which only depreciate in the future. I tell my clients to treat the SIP as a good EMI which will only increase in value.”

Going ahead, Haresh plans to hand over the reins of his practice to his son Raj who has completed Masters in Finance from The University of Queensland, Australia, and is actively involved in building a future-ready practice built on technology and processes.

Given the low penetration, Haresh believes that mutual funds have a long way to go as a large portion of the population is still not investing in this product.

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