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One of the most encouraging trends is investors participating through the systematic investment route

BFSI Industry Interview

On: Sep 20, 2016 | Duration: 1.00 hrs | From: Advisorkhoj Team
BFSI Industry Interview in Advisorkhoj - One of the most encouraging trends is investors participating through the systematic investment route

Himanshu Vyapak is currently the Deputy CEO of Reliance Nippon Life Asset Management Limited (RNLAM), one of India's leading and fastest growing Mutual Funds. Reliance MF offers investors a well-rounded portfolio of products to meet varying investor requirements and has presence in 179 cities across the country.

Himanshu's career spans over 16 years across varied businesses in the BFSI sector. Himanshu has been with Reliance Nippon Life Asset Management Limited(RNLAM) since Oct 2003 and has been instrumental in expanding RNLAM’s footprints in both domestic & international territories. Himanshu is actively involved in various industry-level initiatives and is also a member on the ARN committee of Association of Mutual Funds in India (AMFI).

Apart from Reliance Mutual Fund, he was also involved with other businesses across Reliance Capital group like Credit Cards & Unsecured Loans. Prior to Reliance Capital he has held key positions with ICICI bank and Escorts Finance across liability and asset verticals.

Himanshu is an MBA (Gold Medalist) and a Graduate in Economics (Hons) from Delhi University. He is also a Fellow of Insurance from Indian Institute of Insurance, a Certified Financial Planner and holds the Claritas Investment Certification awarded by the CFA Institute, USA.

Under his leadership, RNLAM has earned accolades from Customers, Partners and Independent professional research entities representing domestic and international geographies. Some of them include: Best Sales Team & National Sales Team of the year - Stevie Award 2008 & 2009 respectively, Best National Sales Head of the Year - Wealth Forum Award 2010, Best Distributor Training Team from Wealth Forum Platinum Circle 2010, Top 3 in Customer Service from Wealth Forum Platinum Circle 2010.

Can you highlight for our readers, some key accomplishments of Reliance Mutual Fund in the recent past, especially with respect to the retail segment of your business?

We continue to be India’s largest asset manager. Our total assets recently crossed Rs. 3 Lakh Crores including Mutual Funds, Portfolio Management Services, Pension Funds and Offshore strategies. In the recent past, Nippon Life Insurance, Japan’s largest life insurance company, and a Fortune 500 company, increased their stake in our company, and have become one of the Sponsors of our company. They are a 125-year-old company with extensive experience in financial services, and their investment indicates their confidence and long term commitment to our company and the India growth story. We have also received all Regulatory approvals for the takeover of Goldman Sachs Mutual Fund, and have started the integration. With the completion of this exercise, we would be one of the largest ETF players in the Industry, with a wide range of ETF products with good track record.

We have a very strong emphasis on developing retail market & we have been taking significant initiatives in that direction. We have a dedicated team to focus on Retail Business Development, particularly from B-15 cities, and enjoy a very high retail market share. With an endeavour to increase MF penetration and widen participation, we continue to invest into setting up of branches, impart investor education on a large scale, and offer products and facilities to attract retail participation.

The share of domestic mutual funds in market cap of Indian companies is highest ever now. Do you see this as a sign of growing maturity of Indian retail investors and do think that this trend is here to stay?

The MF assets is at a historic high – the August Monthly Average AUM was 15.63 Lac Crs. Though the number looks imposing, we are just witnessing the tip of the iceberg. The equity assets in MFs is still less than 5% of the total equity market cap. This, despite the fact that equity mutual funds have generated significant alpha – the CRISIL – AMFI Equity Fund Performance Index consisting of 112 diversified equity funds, a good measure of MF returns, has generated a return of 20.93% CAGR over the last 3 years (as of June 30,2016) vs 14.7% return of BSE 200.

Given the several benefits of mutual funds, the impeccable track record, the potential and the several initiatives taken by the Regulator and the Industry, including Digital initiatives, to expand the markets, we are only likely to see more investors participating in the future.

One of the most encouraging trends is investors participating through the systematic investment route (SIP). The Industry today has more than 1 Crore SIPs, with a committed inflow of nearly 6 Bn USD in a year. Very shortly, this number is likely to double, and more, when we will have >12 Bn USD in a year only from SIPs – that number would be higher than what FPIs invest on an average. This is definitely reflective of the increasing confidence of the domestic investor. This trend is not only here to stay but will also grow to become very large.

While the potential of B15 cities is well known, they lagged behind the top cities for a long period of time. However, recent AMFI data shows encouraging AUM growth from B15 cities. What is the experience of Reliance Mutual Funds in B15 cities over the past one or two years?

The B-15 story has been quite encouraging. While B-15 accounts for 16% of the total Industry AUM, it accounts for 24% of the Individual assets. B-15 cities have also been recording faster growth than the overall Industry. In the last one year, B-15 assets grew by >25% vs 19% growth recorded by the Industry. What is also heartening is that B-15 has a good asset mix, with 50% of the assets being equity and the rest in debt.

At Reliance Mutual Fund, we have a sharp focus on B-15 cities. We have one of the largest presence in the country, with 160 branches, serving the B-15 cities. We also have a dedicated team to focus on Retail Business Development, particularly from B-15 cities. We have a strong commitment to develop retail market in the country & have been taking significant initiatives in that direction. With an endeavour to increase MF penetration and widen participation, we continuously invest into setting up branches, impart investor education on a large scale, and offer products and facilities to attract retail participation. As a result, we enjoy a very high market share in B-15 locations, which is one of the highest in the Industry.

The concerns among sections of mutual fund distributors that, with implementation of the GST Bill, the cost of mutual funds will go up by 3% or even more (difference between the current service tax rate and the GST rate). What is you view with regards to, who will bear this extra tax burden, the investor, the distributor or the AMC?

The details of GST are yet to be worked out. It’s too early to comment on how the GST will pan out and the implications it would have on MF costs. We have to wait and see.

There have been much fewer NFOs so far this year compared to 2014 and 2015. We understand that, SEBI is going slow on approvals. What is the thought process of Reliance Mutual Funds on equity NFOs in 2016 and beyond?

The larger AMCs do have a good range of products from across different categories through which much of investor requirements could be taken care of. At Reliance, we would not launch funds unless they are very different from the existing funds, and they serve unique requirements. In the recent past, our NFO launches have been certain unique close-ended funds (which use a combination of equities and options), Retirement Fund, International Funds (US and Japan) and ETFs. On the open-ended funds, we are awaiting approval for the launch of a Children’s fund, again a unique offering which will help investors plan for the financial goals surrounding their children’s education.

The use of technology over the last few years, have made mutual investments a much better experience for investors. Many distributors have adopted technology to improve transaction processing efficiency, but there are still large numbers of distributors who are not using technology as much as they should. Do you have initiatives planned or being planned to increase technology adoption by distributors?

The World is changing, and rapidly going the digital way. So is the case with Mutual Fund Industry. We were one of the early ones to catch on to this emerging trend. We brought about a slew of digital initiatives. We developed and offered a dedicated portal and mobile application for our distributors, which would enable them to get a whole lot of information conveniently, and help them service their clients efficiently. Similarly, we have developed an App called as Simply Save, loaded with features, where distributors can encourage their investors to save instantly with a click of a button. Very recently, we have introduced – again first in the Industry – a facility for Instant Redemption through the App. With this, mutual fund investments become even more liquid, and closer, in a lot of sense, and better than Savings Bank account. Distributors can become Bankers to their clients. We will continue to take such initiatives to increase technology adoption by distributors.

Reliance Mutual Fund is a pioneer in the mutual fund industry, as far as is innovation is concerned. Please talk a little about what you do within your organization, in terms of processes, structures and human resources, to develop this culture of innovation that has differentiated your AMC from the others?

Thank you for your compliments. While mutual fund products, per se, being simple, and regulated offer minimal scope to innovate, we have been very particular that innovations should be at the core of our activities. We had set-up formal, and informal medium to seek ideas with the objective of fostering innovation. We encourage our people to think differently, and give leeway to experimenting without having the fear of failure. The result is that we keep coming out with path-breaking innovations. Some of our key innovations have been:

  • ATM card linked to Mutual Funds, providing instant access to investments

  • First Gold Savings Fund, enabling investors without demat accounts also to invest into gold

  • Free Life Insurance along with systematic investments (SIP Insure) in selective mutual fund schemes

  • First equity-oriented retirement scheme, with tax benefits under Sec 80C

  • Trail Non-Stop, the only such program to ensure the well-being of the family of our distributor partners

  • And now, Simply Save, to help our distributors becoming closer to being Bankers to their clients.

Earlier this year, Nippon Life increased its stake in Reliance Capital Asset Management to 44.57%. Please give us the broad contours the Nippon Life deal from the perspective of Reliance Mutual Fund and how it will benefit your asset management business?

Nippon Life Insurance Company (NLI) is a major shareholder in our company, holding 44.57% of the total issued and paid-up equity share capital. Consequently, they have become one of the Sponsors of our Company, which since then has been renamed as Reliance Nippon Life Asset Management (RNLAM). NLI is a Fortune 500 Company and Japan’s largest life insurer with assets of ~566 Bn USD, with over 125 years of experience. They offer a wide range of financial products, including individual and group life and annuity policies through various distribution channels. They have a global network in both insurance and asset management businesses in Asia, the Americas and Europe, operating though several subsidiaries and affiliates.

We would be able to strategically leverage on their global presence and experience. We have already launched India-focused funds, both fixed income and equities, for Japanese investors, and have been advising nearly 1 Bn USD. Similarly, we have launched a Japan equity fund, for Indian investors. It is not just on the funds that we try and leverage on each other’s strengths but also on various other aspects of business. There is a formal process for understanding and exchanging of best practices in various aspects of business such as Risk Management, Human Resources, etc.

Coming to the Indian stock market, we have seen a fantastic rally over the past 5 or 6 months. Though we always stress in Advisorkhoj that, investors need to have a long time horizon for equity investments, there are concerns among some of our readers, if the market is overvalued right now? What is your view? What is your 2 – 3 year outlook for Indian equities?

Market has rallied smartly since the lows we witnessed in February, thanks to a combination of various factors. The market valuations appear rich because the earnings growth has been poor over the last eight quarters now. Its only in the Quarter-ending March ’16 that we have started witnessing some pick up in the earnings, with the Sensex EPS (ex-energy and banks) growing by >17%. There has been a lot of improvements in the macroeconomic parameters in the recent past - GDP growth has been >7%, making India one of the fastest growing economies in the World, Inflation from being double digits 3 years back is well under control, with CPI around 5%, Forex Reserves at ~360 Bn USD is at a historic high, Fiscal Deficit and Current Account Deficit are comfortable, Government has been taking a slew of reforms: UDAY, the progress on GST, Banking Reforms, just to name a few.

Investing is about being forward-looking, and not going by the current numbers. Given our fundamental strengths and the several improvements, we are quite optimistic about the prospects of economic growth and market returns.

The small and midcap equity mutual funds have outperformed the large cap oriented funds in the last two years or so. What is your advice to investors with regards to market cap strategy in particular and approach to mutual fund investments in general?

Mid & Small Caps, by nature, have the potential to generate higher returns, though it may come with intermittent volatility. The last 3 years return in mid cap & small cap indices has been more than 32%, whereas large cap indices have returned about 13% during the same time (as on 19th Aug, 2016 around the time of this interview). Having mentioned that, mid & small cap stocks tend to get into bouts of exuberance and extreme pessimism, leading to sharp movements in their prices, either way. Stock-picking has to be done with discretion, and investors investing into mid cap / small cap funds will necessarily have to have a long term horizon, willing to stomach large volatility.

The scope to generate additional return, or alpha, is also higher in this category. The last 3 year return in Reliance Mid & Small Cap Fund and Reliance Small Cap Fund has been 37% and 49% respectively (as on 19th Aug, 2016 around the time of this interview. Past Performance may or may not be sustained in the future). Investors should definitely consider investments into such funds for their long term wealth creation. The core equity allocation, however, should also have a healthy allocation to large cap funds, which could help capture the market returns (Beta) effectively.

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