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WF: Congratulations on receiving the Outlook Money award as well as the Asia Asset award for the best investor education initiatives in the industry! Your investor and distributor education initiatives are setting new benchmarks in the industry.
K S Rao: We are humbled with the recognitions coming from Outlook Money and Asia Asset for being the Best Fund House with Innovative Investor Education Programs. We are thankful to all our associates and partners worked with us in this mission Financial Literacy. To recall, BSLAMC was the first fund house in the country to carve out dedicated vertical for Investor Education and Distribution Development way back in July 2013. Our commitment, consistency coupled with clarity and innovation started paying us rewards and recognition.
It's always a pleasure to connect again with the distribution fraternity through Saturday School. For distributors, as you know, we have been running a suite of empowerment programs under the Nipun umbrella for the last 3 years. This year, we have scaled it up even more, and as we speak, we have crossed 400 programs which have covered 24,000 IFAs across the country. As we strive harder, we are aware that expectations too increase each year, which always keeps us on our toes to raise the bar.
WF: You have launched a new training program Demo with Demo after demonetization. What does this program cover?
K S Rao: We in the industry recognize the huge opportunity that demonetization has presented our industry. Large amounts of retail savings have come into the banking system, and people have been looking for avenues to invest these savings. More people are expected to come into the tax bracket, which means they become potential investors in mutual funds. There is a huge customer acquisition opportunity for all of us - and particularly for IFAs who can reach out quickly to investors in their areas and guide them appropriately. At BSL, we approached this situation from two angles - one is education and the other is sales focus. To enable IFAs to really make the most of this huge opportunity, it is important first to help them understand the opportunity, help them understand appropriate solutions to offer, brush up their knowledge on these solutions and thus give them the confidence to go after the opportunity. That's what Demo with Demo is all about - the first Demo refers to Do Everything to Monetize the Opportunity and the second Demo refers to Debt and Money Market funds. To complement the education effort, we have the DeMo dhamaka sales focus program which motivates distributors to maximize this opportunity.
We are simultaneously running a productivity matrix program called 10x in 10y - how an IFA can increase his AuM 10 times in the next 10 years. We believe Demo with Demo will empower IFAs to achieve a 2x of their AuM within 1 financial year itself - and thus put them firmly on the path towards 10x in 10y. We are going through a fortuitous period where circumstances have provided a wonderful customer acquisition opportunity and a growth opportunity for everyone in the industry. Demo with Demo is meant to help IFAs really make the most of this opportunity.
The program is 2.5 hours duration. In the Jan-March 2017 quarter, we will reach out to few thousands of our channel partners across the regions and help them understand the power of the opportunity and how to guide investors to make appropriate choices.
Beyond demonetization, some of the other big trends that are favouring increase in retail appetite for debt funds include a falling interest rate environment - which results in savers searching for better options than low yielding deposits and also the structural wave of shift in incremental savings from physical to financial assets. As I mentioned earlier, an era of greater tax compliance is being ushered into the country - which is another mega trend supporting growth of mutual funds. For most first time investors in mutual funds, it is debt and money market funds that probably represent the best way to on-board them - and this program is a timely refresher to help IFAs boost their confidence and sharpen their focus on this asset class. We also take IFAs through the manner in which each product within the fixed income class is constructed and managed, which helps them get good clarity on appropriateness of each product for their customers.
Response has been very good from IFAs who have participated in these sessions, and I will encourage my IFA friends to glance at the schedule provided and pick the location and date of your choice and then contact your BSL RM to register for this program and make the most of the business opportunity, the right way - with the right knowledge.
WF: Some IFAs in recent weeks have got a little rattled with debt market volatility after the RBI credit policy announcement, particularly since the recent performance numbers - which is a key sales aid - now look choppy. How would you like to guide them about the Demo with Demo opportunity at a time when they are perhaps a little nervous on near term performance and when they face some objections from investors around near term performance?
K S Rao: I think this is a very relevant question. To my mind, such events emphasize the pitfalls of selling funds based on near term performance. In all our training programs, that is one thing we always stress on. Near term performance is always misleading - both ways - you can either get too optimistic or too pessimistic when you try to extrapolate 3 month and 6 month performance numbers. I believe thanks to Budget 2014 which extended the period for long term capital gains on debt funds to 3 years, all our focus for retail investors has automatically shifted to a 3 year horizon. When you are selling funds with a long term view, it follows that you must consider long term track records and not 3 month track records. I will encourage IFAs to showcase how the last 3 year returns from accrual funds and dynamic bond funds have not come as a result of similar returns every quarter over the last 12 quarters, but have resulted from varying performance numbers over this period. To pick one quarter and extrapolate will be misleading - and this can be established by simply looking at quarter on quarter returns over the last 3 years. Showcasing near term performance when it looks suitable is a short term approach as there will be times when it is not favourable - and then you cannot go back to the same customer with a different story.
The second aspect is to encourage more of a forward view than a rear view. The focus should be on how bank deposit rates are falling, how the trend continues to be downward and how debt funds are well positioned to provide better returns, especially on a post tax basis.
Third aspect which I would like to highlight to my IFA friends is my own experience in interacting with numerous educated young professionals working in large companies. Majority of these young savers are investing their monthly savings in recurring deposits in banks - not because they felt this was the best among all alternatives, but because they are simply not aware of the alternatives and are happy to go by the advice of their parents, who are very familiar with bank RDs. These are ideal potential investors for SIPs in debt funds. I think there is huge scope to popularize SIPs in debt funds as an alternative to bank RDs. SIPs as we know, have a clear long term orientation and help tackle market volatility very effectively. So, the real pitch I think, which will completely take the IFA away from near term volatility concerns is to aggressively and confidently sell debt fund SIPs as a superior alternative to bank RDs. Over time, after understanding their risk appetite and their long and short term goals, one can always introduce these investors to equity SIPs. But, between ELSS SIPs for tax savings and debt SIPs for short and medium term goals, you will be able to effectively enable these young savers to invest all their savings smartly.
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