The only constant in life is change. But change, although good, can be tricky. The last 12 months have been good for Union Mutual Fund. The fund house has rejigged its investment process, which has resulted in better performance of its funds. A bigger change may unfold in the near future with the asset management company's co-sponsor Union Bank of India being merged with Andhra Bank and Corporation Bank. G Pradeepkumar, CEO of Union Asset Management Company Private Limited, tells Kumar Shankar Roy what lies ahead for the fund house, the mutual fund industry and the investors. Pradeepkumar, an engineering grad and a PGDM from IIM Ahmedabad, has over 25 years of experience in the Rs 25 lakh crore mutual fund industry.
Union Asset Management Company is co-sponsored by Union Bank of India and Dai-ichi Life of Japan. Union Bank of India is being merged with Andhra Bank and Corporation Bank. How will this impact Union AMC operations?
The bank merger is positive for us i.e. the mutual fund. Neither Andhra Bank nor Corporation Bank has a mutual fund of their own. So, there is no conflict. The bigger positive is that their network when combined with Union Bank of India almost doubles the size for us to distribute our products. The challenge for us is to figure out a strategy to capitalize on that network. We are already on the job. Another important thing is that both these networks i.e. of Andhra Bank and of Corporation Bank, are relatively untapped as far as mutual funds are concerned. To that extent, we are not only getting a distribution network that is untapped but also a potential client base which is largely untapped for mutual funds i.e. it is like when we started at a time when Union Bank AUM was about Rs 50 crore or so and today it is probably Rs 3,000 crore. We expect that we can do similar things with the two new banks coming.
The mutual fund industry is eyeing a four-fold rise in AUM to Rs 100 lakh crore from existing Rs 25 lakh crore and increase in investor base to 10 crore from current 2 crore over the next decade. Can this be achieved?
Not yet. In my view, the biggest thing we need to put in place is the distribution network. In India, if you sit across the table with somebody who has money to invest and explain mutual funds, I am confident that he/she will become an investor. What we need is to reach out to more and more people. Advertisements create a level of awareness. But client acquisition is the most important thing. The bigger opportunity lies outside the top 30 cities. Hand-holding is required. In fact, I will be wary of somebody who is starting to invest in mutual funds on their own just because they see an MF advertisement, opting for direct plans because they are cheaper and buying a fund that is the best performer in last one year. This is a dangerous thing because they are coming to the industry with the wrong understanding and wrong expectations. It is important to have distributors. The Rs 100 lakh crore AUM and 10 crore investor base will happen if we have 5 lakh distributors compared to 1 lakh ARNs (a distributor with an Application Reference Number or ARN code can sell mutual funds). We have to make it happen; it will not happen on its own.
How many first-time investors does Union Mutual Fund have? What is your penetration beyond top cities?
About 70% of our investors are first-time investors. Around 44% of folios for the company comes from B-15 cities at present, which means that more than 30% of its business is coming from those cities. We have been able to capture a lot of untapped potential of mutual fund assets. 4 of the top 10 cities for Union MF are B-30 cities such as Varanasi, Gorakhpur, Jaunpur, etc. My market share in those locations is meaningful. Money is available across the country. Money is not just concentrated in the top 10 cities.
When investors have to choose a mutual fund, we often see a preference for funds that have a high amount of assets or funds that belong to big fund-houses. Is that the right approach?
This is a perception issue. Performance of funds is not linked to size at all. It is a complete myth that larger funds will give better performance. Mutual funds are complete pass-through vehicles. If your fund does not perform, there is nothing that the promoter of the fund house can do about it. If something goes wrong in a fund, the promoter will not come and bail you out. That's not going to happen. So, mutual fund performance is completely size-agnostic. Also, we must remember that smaller mutual funds are more nimble. If a fund manager wants to exit 3-4% position in a Rs 300 crore fund, then that is not a big deal. They can get out in a day. But if you are a large fund and a 3% position means Rs 100 crore, then liquidity becomes an issue particularly in mid and smallcap funds. Liquidity is an important issue.
The SIP of many mutual funds are not doing well at the present due to weak markets. What would you tell those SIP investors?
It is possible that some SIP investors who have started investing in the last couple of years may be finding that their investment is below the cost price. This can happen. Markets move in cycles. The whole point of SIP is rupee-cost averaging. You buy more units when markets are low, and you buy less when markets are high. Since markets have fallen, you should continue to buy at a cheaper price. If you do not buy at a cheaper price, you are never going to see the benefit of SIP. How will you make money? So, treat this as a God-sent opportunity.
One of the things that have happened over the last 3-4 years is that investors have been sold a 15-20% corporate earnings growth. However, that has not happened for the market. During such times, investors came in expecting earnings growth to take off. Now, they are disappointed. How should investors manage their emotions?
This is why investors need advisors. A good advisor will tell you to wait for the storm to recede. Bad times do not last forever. This is not the last bear market we are seeing. It will happen again. So, investors should take advice. It is important for investors to be focussed on their goal. I do not mind if investors stop their SIPs when they have reached their goal and the market is at its highs. That kind of situation means investors have made their money, which is fine. But exiting without making money just because the sentiment is poor is a wrong thing to do.