Mr. Dinesh Kumar Khara is Managing Director & CEO of SBI Funds Management Pvt. Ltd.
He has over 31 years of experience in all the facets of Commercial banking such as Retail Credit, SME/Corporate Credit, deposit mobilization, international banking operations, branch management, etc.
Advisorkhoj congratulates you for registering highest AUM growth amongst the top 5 AMCs and also adding the maximum Equity AUM, at the end of March 2016. From Asset management business perspective is it very important to have a large AUM or ‘a large equity AUM base’? Your take on this, please?
We are agnostic to growth in any particular asset class or investment strategy. Our focus is on creating investment solutions for investors so as to help them in creating wealth and meeting their financial goals. The positive experience of investors encourages them to stay invested with a long term horizon. Such long term investment focus is beneficial not only for the investors but also for distributors and asset management business.
In our endeavour of creating investment solutions, we are focusing for consistency of performance while positioning our product In addition investment strategy and robustness of our risk management are the other critical pillars which help in introducing required discipline in the Investment process. This has yielded desired results and our distributors and investors have rewarded us by their patronage.
This has also increased our fiduciary responsibility to ensure that our investors meet their financials goals.
As a Fund House, we have an ambition to grow and be the Fund Manager for every Indian. Equity as an asset class contributes significantly in building wealth. We strongly believe if we do justice to every investor who has invested in our fund, we will succeed in having their patronage, which will eventually enable us to garner big AUM.Hence size of AUM is the result and not the means. As a Fund House our Focus is on the process and SIZE OF AUM IS THE Net result of it.
We also take this opportunity to congratulate you on the fund performance side. Amongst all your equity funds, three funds especially – Magnum Equity Fund, SBI Blue Chip Fund and SBI Magnum Midcap Fund -have been in top quartile continuously. What investment strategy your fund managers are following for these three funds and what is your take on these funds going forward?
We have got a good investment team that follows a highly disciplined approach. The fund focuses on creating wealth over a longer period of time. We have a highly robust research process in place. A disciplined approach along with good stock selection by the team has led to a consistent superior performance.
We find that the top 5 sectors for almost all the AMCS are now Banking and Financial, Construction, Technology, Services and automobiles. Does your fund management team following the same sector allocation trends for your funds? If no, then what other sectors you are bullish on? If yes, do you still think more is expected from these sectors?
We have been positive on retail lenders, consumer discretionary, capital goods, engineering and construction etc. We believe that Public Investment will drive investment spending and select companies in the capital goods, engineering and construction will benefit from this strategy.. Urban consumption has been doing well;Seventh pay commission will give Urban consumption a further fillip.Better monsoon will revive, rural consumption too.. Cement and chemicals are other areas which we like.
SBI Mutual Fund has a great understanding of the retail side of the distribution business. Your retail footprint did wonders via your mutual fund distributors so far. As a channel, are they still as strong as they used to be once? Or are you also focusing, like few of the other AMCs, on other channels – like, large online platforms, corporate distributors, Robo Advisors or institutions as number of ‘active IFAs’ has really gone down substantially?
Mutual Fund Industry suffers the handicap of distribution. As an asset management business, we have touched a tip of iceberg. Our investor penetration is less than 10%. With just about 1% of the population having invested in to Mutual Funds, scope of enlarging the reach of the product is immense.Substantial amount of work needs to be done to increase penetration of investors. For us retail distribution is a key for success of asset management business.
Now the issue is how to increase retail penetration. There is ample scope for all the channel partners to collaborate and take this product to the ultimate Investor. We don’t feel that any channel is at expense of another channel. These channels complement each other and benefit the investors to get the best advice.
As the internet penetration in India is increasing and as people are becoming tech savvy, even IFA’s reach can be enhanced with them using technology to service their customers,. Robo advisory is a quantitative based advisory model for analyzing investor risk and devising asset allocation models. In our global experience, Tactical Asset Allocation (Quant) needs to be well supported by Strategic asset allocation (Fundamental). So IFA’s advisory and Robo advice will co-exist and help IFA’s to respond to investors in a much efficient way.
We strongly believe that this is a evolution phase for the distribution partners.
We feel that the biggest hindrance for mutual fund growth has been the active number of Distributors. Their total size is miniscule compared to Insurance industry. Do not you think that industry should add more and more distributors in its fold and thus enhance the reach?
Yes. Absolutely. Distributors have a major role to play in promoting Financial Literacy and the Process literacy. Over and above they have a major role to play in inspiring Investor’s confidence in the Mutual Fund schemes. We need to add more distributors to our fold and also help existing distributors to increase or expand their business.
Penetration of Mutual funds beyond top 20-25 cities has not been significant despite Industry being there for last more than 20 years! Penetration of financial services itself in India is abysmally low. Some figures show it as lower as 10%. What, in your opinion is lacking here, what are the root causes? Why as an industry it has not grown?
As an industry, we are evolving, our regulations are evolving, distribution is evolving and the investor awareness is evolving. This evolution is fast paced. As asset managers we need to cope with this evolution and align the business models.
Penetration in investment management industry is based on the following factors; Investor awareness, Investor confidence, Investor experience, Access, ease of transaction, alignment to investor financial goals and after sales service. Apart from investor benefits, it also depends on the distributors, their reach, their business models, their value proposition and their revenue stream.
We need to find solutions to all the above factors for our industry to grow multifold. We have made a good beginning in terms of investor awareness, penetration in B 15 towns etc, but there is long way ahead.
I think when you look at the numbers; you look at volumes and decide that B 15 town’s contribution is less. Obviously, the numbers are skewed in favor of T 15 towns due to high concentration of institutional investors and family offices in T 15 towns. But if I just look at retail participation in terms of no of investors and AUM then B15 has significant contribution to our investor base.
SEBI’s regulations of showing the Distributor’s Commission and the difference between the TER of Direct and Regular mode on the half yearly statement effective October 2016 has really created a storm in the mutual fund industry. What is your take on this and your suggestions to Mutual Fund distributors as to how should they handle this crisis?
SEBI has taken this view for creating transparency for investors. We are a regulated industry and we have to operate within the regulatory framework.It’s like Cricket; you have to play the game by the rules, irrespective whether it’s favoring batsmen or bowler.
My suggestion to distributors is that evolution is part of the game. They should improve their value proposition and embrace technology. With a good value proposition, their unparallel relationship with clients and excellent service along with improved communication and access based on technology, no client will be penny wise pound foolish. Clients will surely be retained.
Do you think Robo Advisory and the disruption that is happening in the financial services industry – Examples - E-KYC, linking Aadhar number to Mutual Funds, AMFI &Stock exchange platforms and Mobile Apps – will help grow the mutual fund penetration further or they will just take away/ participate in the existing pie of the fund industry?
I think all these initiatives will increase the penetration. These initiatives will improve access of customers, increase ease of transaction and improve customer service.
Distributors should use these initiatives to expand their business as new client acquisition and servicing is much more cost effective and easy.
What is your advice for the retail Mutual Fund Investors? What they should do now and how to invest in the current volatile market situation?
My advice to Mutual Fund Investors is to start investing. Follow certain steps:
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