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WF: Congratulations on your entry into the coveted Top 5 club! When you look back at the last few years, what would you say were the significant drivers that helped SBI MF propel itself into this club, in a market that is very competitive, especially at the top?
D P Singh: Thank you very much. I must thank all our associates and well-wishers who have supported us, worked with us and helped us to get to this position. There is a sense of pleasure at crossing the milestone, but equally a sense of greater responsibility.
Talking of drivers, I think it was an alignment of several factors. We always had a great brand of SBI, we delivered very good investment performance across our fund range, we stepped up our sales and marketing efforts, we engaged meaningfully with our distributors. Its an alignment of several factors, which worked well together.
WF: In FY 2015-16, SBI MF garnered around 20% of net flows in the industry - that's an awesome achievement. What would you count as the big hits and misses of this landmark year?
D P Singh: We are fortunate to have received the mandate from the Government of India for managing the EPFO money, wherein we got around Rs. 7,000 crores. GOI reposed faith in us, and I think we have delivered on the only metric that is used to evaluate performance of index funds - which is tracking error. We have the lowest tracking error in the industry.
Even if you take out the EPFO money, we still account for over 15% of industry flows in last financial year. So, its been a good year in terms of gaining market share - that's one that we will count as a big hit.
Our investment performance is of course the big hit of the year - consistently good performance across the product range and over different time periods has been a big business driver. Our engagement with distributors and the support we received from all channels has been another big hit of the year.
For us as SBI MF, one big miss - which really is a pointer where we need to work harder is that SBI's contribution was only 15% of our total business last year. SBI is a huge bank, and as yet an underleveraged distribution partner for us. They have the capability, they have the reach, they have the network - we need to clearly work more and work better with them, going forward.
The other big miss - not just for us, but for the whole industry - and which is one of our big challenges is that fact that the retail segment (taking CAMS and Karvy definition of below 1 lakh) was negative last year. Smart money, savvy money, HNI money has come in, but the industry has not been able to get meaningful money from the real retail level. The industry just does not have enough people on ground servicing clients who want to invest 20,000 and 30,000 rupees any longer. This is a very big issue, and data is proving that despite it being a good year for the industry, it has not been able to attract money from retail savers.
WF: There is a lot more distributor engagement from SBI MF that one sees on ground, across distribution channels. Is this largely on the back of great equity fund performance or are there sales initiatives that have contributed to this stronger engagement?
D P Singh: Fund performance is a big contributor without doubt. But what is also important is to take the message to distributors on what's driving the performance. Getting distributors to understand what went into the performance - the approach, the discipline - that's as important because that's what drives conviction in the performance. I think our sales team has done a very good job in communicating this across distribution channels, across zones, regions and towns.Also you know, the previous year (2014-15) was not good for us. That spurred all of us from top to bottom to resolve that we will bounce back in a big way. I am really happy that our team stood up and delivered.
WF: Credit quality issues have dominated discussions on debt funds in recent months, to the extent that corporate bond funds are now being perceived as not suitable to retail investors. Do you share this view? How should we be positioning corporate bond funds now?
D P Singh: I have a different view. The risk in corporate bond funds has not changed, but what changed is the way they were sold. It is wrong to sell corporate bond funds as a proxy to bank deposits. The two have different risk profiles, which has to be clearly explained to investors.
Internally, we have a very robust credit research process, with only 40% weightage given to external ratings and as much as 60% to internal research. We are very clear about explaining our view on every corporate paper in a transparent manner. There are risks, and there are clear ways to mitigate risks, to offer investors a good investment experience. That's what has to be properly communicated, rather than giving an impression that there are no risks.
WF: Many observers believe that regulatory changes are driving IFAs out of the business, which would mean that the onus of retail penetration in the coming years will fall on online distributors, banks and direct plans. How do you see retail penetration for the industry panning out in the next 5 years from a distribution perspective and what do you see as the biggest catalysts for retail penetration in the coming years?
D P Singh: First of all I share the concern of the distributors. I actually feel that too much is happening too soon - especially at a time when we are nowhere in terms of retail penetration. As it is, like I mentioned, we don't have enough people servicing retail investors and we are unable to attract retail money in a meaningful way.
IFAs carry a moral responsibility about their client's well-being, which cannot be discounted. Any move that drives IFAs out of business can never be good either for investors or the industry. That said, and clearly acknowledging that there are significant challenges ahead, the one perspective we need to keep in mind is that distributors have come a long way in dealing with and overcoming several challenges in the last few years. One should not get very pessimistic - the track record of IFAs ability to deal with challenges does not warrant pessimism. At the same time, we all need to work together to find reasonable solutions to current challenges.
One thing is however clear - we all need to adapt to new ways of doing business and to new business models. On one hand, we have to acknowledge that margins in all aspects of the business will reduce. On the other hand, we have to realize that technology is now enabling us to reach out to many more people that we would otherwise have. An IFA who was serving 100 clients should now look at how he will use technology to serve 1000. Volumes have to compensate for margins. Technology is going to lead retail penetration - and it is upto all of us to harness technology intelligently, and drive growth in our own businesses.
With the abysmally low penetration levels of our industry, volume growth is a very realistic assumption. The focus should be on how to reach out to more and more investors. Growth is the best solution for most challenges.
WF: In what ways are you enabling IFAs to use technology to drive sales and client acquisition?
D P Singh: Our focus is always on B2B and B2B2C. So technology for us is about how we can equip distributors to use technology to simplify business and drive volumes. B2B2C is going to be the growth mantra.
We have recently introduced a scheme specific mobile app for SBI Savings Fund, which has just two buttons - invest and redeem. Just hit the invest button to move money from your savings bank account to SBI Savings Fund and hit redeem to move it the other way around. It's as simple as that. We have created a URL for distributors for them to download this app and use it. All business will be mapped to their ARN. We intend extending this by creating a few more scheme specific apps for products that have become household names like SBI Bluechip Fund.
You will see a lot more in the B2B2C space from us, which we believe will really empower IFAs to drive volumes in a big way.
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