Our business will grow to Rs 40,000 cr in two years, says Radhika Gupta

Radhika Gupta, chief executive officer, Edelweiss Asset Management Co spoke to Soumonty Kanungo on the company's plans and future prospects. Edited excerpts

From institutions focused-business, Edelweiss Mutual Fund is more retail-focused now. But what are the changes that you still think is required to grow from being a small and niche player in the mutual fund category?

Our product basket is very good. We have simplified product names to be retail-oriented, our names are according to the Securities and Exchange Board of India (Sebi) categories, and we are possibly the only fund house with the simplest names. We have simplified and invested a lot in product communication to our advisers. One of the important things in retail business is building on the network of financial advisers that we work with and it has been our constant endeavour in the past 1.5 years. We have done a lot of outreach this year. We went to eight different cities in the last 4-5 months and connected with 1,700 advisers during this period. We are doing a lot of digital initiatives for our advisers, a lot of marketing contents we have created for our advisers. All these are done to increase our advisers and distributors base as we want to increase our retail business. Our branch presence has gone up from nine last year to 23 locations this year. These are all steps to increase our retail investors' base and by the year end, we would have grown our unique investor base by 50-75%. Our folio count currently would be about1.7-1.8 lakh. As a corporate, we have multiple line of business under the Edelweiss group. We have presence as an asset management company (AMC) for a long time but we have become truly invested and focused on this business post the merger of JP Morgan mutual fund. And once we are focused and put our heart and soul into this business, we don't want to be anything less than the best. Of course, we want to build broad-based business, we want to have large distribution presence and large asset base but also be known for quality. We are focused on building high quality product and be responsible in the way we communicate. I consider ourselves a new entrant as we chose to focus on our retail asset management business only recently.

How much is volatility in the equity market is impacting your business?

We can't predict the equity market. But we have been effectively guiding people on what product to invest and how to invest. Volatility is a reality for the next 5-6 months while you are coming close to elections. The year 2017 was a great year, we told people to invest in balanced advantaged funds, hybrid funds, which naturally mitigated volatility. Our largest and popular fund is balanced advantaged fund, which has not seen capital loss in one year period despite this volatility. For our equity funds, we have been telling people to come through systematic investment plans (SIPs) and systematic transfer plans (STPs), and that is why we have actually not felt much of pain in this one year period. Even when we will do our upcoming NFO, we will recommend and market it very responsibly.

What are the next categories of products you plan to come up with?

I think there are three plans: retail fixed income kind of products, expansion of our equity basket and any innovative product. We have a lot of room to grow but we will use that room selectively.

What is the asset under management (AUM) target for you in the next couple years?

I think in a year or two, our AMC's consolidated business will grow to about Rs 40,000 crore from Rs 19,500 crore at present.

How has been the integration of the JP Morgan mutual fund acquisition?

We are very happy with the acquisition of the JP Morgan mutual fund. People always look at acquisitions with a touch of suspicion. We did the acquisition not just for the asset but for the talent, and we are happy that the core talent stayed with us. A lot of our schemes today on equity sides are schemes that we acquired from JP Morgan. Merged together, we have got a nice basket of products but most importantly, people have blended beautifully.

Is Edelweiss' appetite for acquisitions only growing? What kind of portfolio/ business is of your interest?

We have been a very acquisitive company. Within my own line of business, I have seen three acquisition including JP Morgan and Ambit Alpha Fund. So we are always open to acquisitions, and we will do them for right reasons and at right time. Each of the three acquisitions we have done was of great success, and we have developed the ability to do integration. We as a company can now acquire asset, acquire talent, and take it to next level. Each acquisition is different. We will look at the quality and stability of the products, relationships on the platform and the talent pool. An acquisition has to complement what we have. When two entities come together, you have to produce something which is bigger and better. Size and high standard of quality are very important.

Would you look at growing inorganically largely?

I think the organic business has to grow, while inorganic is always the icing on the cake. Organic is the primary growth driver and this year, as a group, we have invested a lot in the AMC business.

How much your fund house was impacted because of the change in the Securities and Exchange Board of India (Sebi) regulation around total expense ratio (TER) and distribution cost?

I don't think our distribution cost have changed, they have been reasonably competitive and in line with our peers. The incentives that we pay to our distributors have changed materially after this Sebi circular and they continue to be largely the same. And, we have not been affected to a large part by TER changes. There have been cuts in the direct plans and they are in line with the new Sebi guidelines. I look at it as reasonably positively as do-it-yourself (D-I-Y) customers get some of the cheapest plans from us. But we are a B2B player and our primary channel has always been distribution, and our distribution margins are very competitive. So, we are very fair to D-I-Y investors and also to investors who want to come in through distribution partners. Also, we are one of the most cost-effective large-cap funds in the country and we always believe in the mantra that advisers should make money but investors should be charged fairly while AMCs should be fairly compensated.

Do you want to stick to the B2B model?

I think majority of our business will continue to be B2B as we genuinely believe that unless you are very a sophisticated investor today, you do need financial advise and that's why we run our campaign "Advice Zaroori Hai". Of our retail business, 95% is distributor oriented and 5% would be direct. And retail business contributes for half of our total business.

How would you look at this sudden rush for filing of new fund offers (NFOs) with the regulator?

I think this is little in excess though I have one of my new fund offers coming up in some point. But I think there has to be a thought and purpose behind launching an NFO. Sebi has given you a certain set of categories, so you can't launch a fund for the sake of a fund. You have to launch a fund when it is truly adding something to your product basket, when it is a good time to launch a fund for investor for that particular category, and when you have something interesting to bring to the table. One thing this regulation will end is the spread of copycat closed-ended NFOs, which are just copy of their previous open-ended funds. I think the regulation around closed-ended NFOs as their TER is coming down and upfront going away is the best thing that has happened, because it will stop launching of these non-investor friendly kinds of schemes which used to come out and garner huge amount of money, but never made sense. You may have one or two innovative ideas but then you must really add something to someone's asset allocation. It can't be ad-hoc. There are funds with many years of track records and that counts for something. Every time I have been asked what is the new product I'm coming up with, I'm telling them that there is nothing because I want to grow and scale my existing businesses. Fund managers do not have the capacity to manage inordinate number of funds, they also have to be focused, business also has to be focused. I will rather have six equity funds and manage them well, rather than having 11 funds where I don't even know as a CEO what is going on in terms of the business point of view.

Is that why you had such a gap in terms of filing for NFOs with the regulator?

We had one NFO in 2017, we have filed for other things and got approval for one particular fund. We will launch open-ended equity NFO in 2-3 months, around January, and a couple of other things next year. But our product basket is very small, we have 3-4 equity funds, still every time we do an NFO, we wanted to do something new. Even in our upcoming NFO, we will not have another copycat product.