These days very few people stay with an organisation for decades. In that sense, A. Balasubramanian, the affable chief executive officer of Aditya Birla Sun Life AMC, is an exception. He has been with the organisation since 1994, and his journey over the quarter of a century has given him a front-row seat to observe the growth of the Indian mutual fund industry. Prior to assuming the role of the CEO in 2009, Bala served as chief investment officer from 2006-2009. Under him, Aditya Birla Sun Life AMC has grown and today is the third biggest MF in the country. As CEO, Bala currently oversees more than $34 billion in assets under management. He also oversees global mandates through its subsidiary company in Singapore and Dubai, having assets of more than $3 billion, apart from overseeing Alternate Investment Funds, Real Estate, and PMS. In an interview with Kumar Shankar Roy, Bala shares his plans to grow the MF business, sheds light on how SIPs have become a buzzword, and how in the next few years mutual funds will be 30-35% of the banking industry’s deposit base. He is hopeful that retail investors will soon warm up to fixed incomes schemes in a big way, forgetting the IL&FS episode that rocked the Indian debt markets sometime back. Read on to know more.
Aditya Birla Sun Life AMC has grown by leaps and bounds. What are your future plans?
My idea is to have branches in 542 constituencies. That’s our goal. This presence has to be there either in form of a branch or a single-person outfit in the location. Right now we are present in 260 locations and I want to take this to 540 odd locations. The industry growth is strong. After demonetisation, the mutual fund industry has gained a lot of prominence amongst the investing public. AMFI’s ‘Mutual Funds Sahi Hain’ campaign and individual fund-house campaigns are doing very well. Also, the expansion of customer-base has been happening rapidly. The focus area is to get new customers through the Systematic Investment Plan (SIP) route. Today, Aditya Birla Sun Life Mutual Fund has a SIP book size of Rs 1,000 crore (per month) in comparison to the whole industry book size of about Rs 7,000 crore.
SIP is very popular with investors. What’s the reason?
Yes. SIP is so prominent these days that if you ask an investor about whether they have invested in mutual funds, they will probably say no but if you ask them about SIP, the same people will say they yes. SIP has emerged as a new way of investing. Therefore, we have taken a lead in that. SIPs have helped investors and also made mutual funds a large player in markets. If you see in the last two years, foreign investors were moving out but mutual funds were buying and giving stability to the market. As we move ahead, MFs will play a big role both in the equity market and the fixed income market.
Can mutual funds become the main investment product in Indian households?
Currently, the mutual fund industry size is 20 per cent of the banking industry’s deposit base. It used to be 12 per cent just six years back. That 12 per cent number has now gone to 20 per cent. Our belief is that the 20 per cent will go to about 30-35 per cent. If that comes, we will become a bigger player in the financial services industry.
What is your outlook on debt funds in the backdrop of the NBFC liquidity crisis situation triggered by IL&FS default?
The fixed income schemes are a great opportunity for investors. We should leave aside the IL&FS issue because this kind of accidents keep on happening. The mutual funds’ underlying portfolios are very diversified. So, the potential loss to investors arising from such incidents in very low.
The compounding factor in the longer end in the fixed income schemes is far higher. Fixed income schemes have two components. One is your interest accrual component. Second is the principal component. These two put together drive your Net Asset Value or NAV. So, these schemes are a great alternative to fixed bank deposits. These are things that the MF industry has established for last 15-20 years by managing the fixed income portfolio quite well.
Fixed income becomes a prominent asset class especially at a time when interest rates are not high, and it can potentially even go down as we move forward if there is a break in interest rate hike in the US. Domestically, with inflation being low, the RBI may look at interest rates more favourably by cutting the rate in 2019.
So far, investors may think that mutual funds are about equity. In the future, investors will look at funds as a combination of equity and debt. This will emerge as one of the themes. I also feel that every customer who keeps a lakh of rupees in equity should keep aside three lakh rupees in debt including in fixed income MF schemes.
What is stopping investors from embracing debt funds more closely?
Lack of awareness, lack of understanding and also lack of push are the reasons. The advisors give advice continuously on managing the equity portfolio. The same advisors may not aggressively tell people what to do with the fixed income portion of the portfolio.
Also, we must remember that fixed income mutual fund schemes do not guarantee returns. Therefore, it also makes people think that ‘Oh, there is no guaranteed return and so why should I come for fixed income’. On the equity side, there is no guarantee but investors are willing to come for the wealth creation.
We have structured asset allocation into four components. One is savings solutions like liquid funds that are an alternative to your saving bank or current account. Two is income solutions like short debt fund that is a replacement for bank FDs. Third is the wealth solutions. Very few individuals can create a company of their own, but they can ride on somebody’s company that is investing in equity. Four is tax-saving solutions. Every customer needs tax solutions like ELSS so that they can save tax and get more money in their hands.
My feeling is that the fixed income asset class in the next five years will be two times higher than the equity asset class.