CEO Speak

2 simple messages from a focused fund house

Harshendu Bindal, President, Franklin Templeton Investments

23rd December 2015

In a nutshell

Harshendu's new year message to distributors essentially advocates what FT as a fund house has always been good at: cut out the noise, focus on basics, aim to build a robust long term business. Key points from his message:

1. 2015 has been a good year for the MF industry in terms of flows and new investors.

2. Equity and bond markets appear well placed to deliver good performance in 2016, on the back of an improving macro environment

3. Combination of factors is pushing more household savings towards capital markets - incremental flows into mutual funds from small shifts in allocations can be huge

4. Technology and social media will continue to increase their relevance in our business

5. There will always be noise - around markets, regulations, competition. The key is to be able to filter the noise and focus only on two objectives: grow the investor count and aim for investment longevity.

Dear Partners,

We end 2015 on an ecstatic note, thanks to you and our investors, as the mutual fund industry scaled new highs. In a few days from now we enter 2016 with many more missions to accomplish and new goals to meet. I wish to share a few thoughts and leave you with some simple messages which could help you in your larger business objectives for 2016.

Preparing for 2016

Looking at markets in 2015- both equity and fixed income - they had their high and low moments. In case of equity, the broader markets were in the red by about 8%. Key reasons for the market weakness were the lack of earnings momentum which hopefully would return in 2016. Despite this weakness, net inflows into equity oriented funds in 2015 crossed the Rs.1 lakh crore mark.

On the fixed income front, we saw 125 basis points of rate cuts over the year which lent momentum to the category despite some turbulence in August and September. Now that the US Fed rate hike is behind us, some lingering concerns for the market include the impact of the 7th Pay commission panel report on fiscal deficit, any rise in inflation besides the RBI's concern on lack of full transmission of its policy rate cuts.

With GDP growing at 7.4% for the quarter ended September 2015 and the government aggressively pushing its policies like Make in India, Digital India, Startup India, I have no doubt in my mind that directionally, both markets are headed for the better. Besides, pick up in earnings growth, passage of the Goods and Services Tax (GST) Bill in Parliament (hopefully) and the Union Budget in February are other likely positive triggers. It is thus an opportune time for mutual fund investors (both existing and new) to capture this growth momentum through consistency and longevity in their investment approach. With less than 1% Indians holding mutual funds and over 70% of the AUM with the top 5 cities, AMCs and distributors should not only aim to grow the pie but also widen its reach across the length and breadth of the country. However, with only about 15,000 active distributors there is also a need to grow the distributor count especially in the B-15 towns. While technology can help us expand operationally, we need more 'feet on street' to explain the product and its features to first time investors as mutual funds are still a 'push' product.

As food for thought, let me quote some numbers on why I feel the growth potential for the industry is huge. The bank FD base is today over the Rs.90 lakh crore mark with incremental flows of Rs.8.6 crore in the past one year. Besides there is over Rs.21 lakh crore lying in savings bank accounts earning about 4% returns and Rs.7 lakh crore in current accounts with nil returns. It is estimated that about Rs.10 lakh crore flows into real estate every year. So, even if only 10% of these new flows come into mutual funds, we are talking about big inflows each year. With declining interest rates negatively impacting returns from traditional products and a lackluster gold and real estate market, most factors are positive for mutual funds. Putting all this in perspective, I am very confident that the industry has great scope for exponential growth if we set out the right strategies and get our messaging correct.

We also need to adopt technology which is changing fast as smart phones emerge as the new medium of engagement. We have to also accept the fact that technology would make transactions and recommendations a commodity. So we would be left with 'after sales engagement' as the lever to sustain sales over the long run. Social media too would be a big influencer and your presence on key platforms like Facebook, LinkedIn, WhatsApp, Twitter, etc, would be important in 2016.

While you work towards your business goals, there would be constant noise either because of any regulatory change, competition, market movement, etc. Like we tell our investors, it is important to filter the noise and be consistent in growing our investor base.

The Message is Simple

There is a great opportunity to grow our business strongly in 2016 and help investors make informed investment decisions. So let's keep it simple - grow the investor count and aim for investment longevity.

Good luck for 2016, and wish you a Merry Christmas and a very happy and fulfilling new year!

Harshendu Bindal

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