AUM of PPFAS Mutual Fund grew by 45% last fiscal. What has led to this remarkable growth?
Overall, the environment is conducive for us. We have been around for five years. Over the last two years, we have started receiving a tremendous response from the distribution community. When we started, many IFAs were in a wait-and-watch mood as they wanted to see our performance.
In the first three years of our existence, we focussed on proving our mettle. We got robust internal systems in place and established a good track record of performance. Eventually, we got many distributors working with us giving a big push to our AUM. When we started 99% of our AUM was in direct plans, today 20% of our AUM is in regular plans.
You have said earlier that you are not going to pay high commissions to distributors for growth. Why?
We have decreased our expense ratio thrice over the last one year. It was 2.5% then and now it is 2%. We ensure that the expense ratio comes down with increase in AUM. Two years ago, we felt that we should reduce our expense ratio to become more competitive. We pay 1% commission to our distribution partner, which I think is a fair commission. For the regular plan, our TER is 2%. A couple of years ago it was on the lower side, but now I think we are quite competitive.
Currently, large distributors and banks have AUM criteria to sell MF schemes. They do not prefer working with emerging fund houses. In such a scenario, how do you ensure that these distributors sell your scheme?
Currently, banks and many national distributors do not sell our products. Banks and national distributors have their own criteria.
What has worked for us is collaborating with like-minded IFAs. By like-minded I mean IFAs who believe in our approach and like to work with us for the long term. We never push our products with distributors. We explain our philosophy to them. They can go ahead with the scheme if it makes sense to them.
One of the things that have attracted distributors is our annual general meeting (AGM). They interact with us and ask questions by attending our AGMs. This activity has helped us build trust among distributors.
How do you plan to strengthen the distribution network?
We have a uniform and transparent commission structure. I am not fond of garnering assets just for the sake of it.
We travel extensively to cities such as Bengaluru, Chennai, and Delhi. Whenever we go to these cities, we meet distributors and give presentations to their clients. We do it with individual distributors. We do not have distributor meets as such but we meet them individually to strengthen our relationship with them.
You are focussed on cities such as Mumbai, Delhi-NCR and Bengaluru. How do you plan to extend your footprint to other cities especially Tier II cities?
With Rs.1,000 crore AUM, our aim is to penetrate big cities. We see good traction from the non-metro cities such as Ahmedabad and Pune. As we do not have branch offices, it is it difficult for us to reach out to investors and distributors in the tier II cities. Maybe in a year or so we will have higher presence in smaller cities.
Currently, we are in the process of setting up a branch office in Delhi and Bengaluru.
How will you go about creating awareness about your brand?
Fund performance would be a very crucial factor for us. We need to keep on delivering attractive returns as we have just one equity scheme. To increase our visibility, we have been leveraging social media and digital marketing.
As on March 28, 2018, 27.25% of the equity fund was invested in foreign equities. Your comments?
There are a couple of reasons behind that. When you invest in only Indian stocks, you are taking country specific risk. So tomorrow, if something goes wrong in India, the markets would react negatively.
Having exposure to stocks beyond our borders helps diversify the portfolio. There are companies that we like which are not available in India like Google, Facebook and Apple. There are no innovative companies like these in India. Again, these companies are available at attractive valuation.
You still don’t have a dividend option. Many investors may want a dividend option. Why is it so? Have investors left the fund because of this?
We believe equity funds are for wealth creation not income generation. If you want a regular income, you should invest in a bond fund or a debt fund. In dividend option, the fund redeems money to give back to you. For me, it does not make sense. Investors who need money can anyway redeem in a growth option as well.
You have always talked about goals rather than targets. So what are your goals and future plans?
Over the next three years, we want to launch at least an ELSS scheme. People have been asking for an ELSS scheme for a long time. It makes sense to launch an ELSS fund if we have a larger investor base.