AMC Speak 19th January 2015
The best way to build an equity fund
Karan Datta, Chief Business Officer, Axis MF

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The new bull market has brought with it a flurry of NFOs, many of them closed ended, and some thematic. NFOs in the last 15 months seem to have become the primary asset gathering vehicle for the industry. And yet, in all the din surrounding new offers, Axis is demonstrating that good old ways of building a fund still makes tremendous sense. Axis Long Term Equity Fund has a stellar track record - yet Karan and his team never sell performance. It started out as an ELSS fund, but Karan and his team have successfully given it a much broader positioning - one that enables team Axis to gather assets into the fund all year round and not just during tax season. This tax season, rather than pitching the product, team Axis has come up with a great new video, which amuses and enlightens at the same time, and drives home the message about the need to save tax. Does this approach actually pay off in terms of gathering assets? Read on as Karan takes us through how team Axis has built Axis Long Term Equity Fund from a 400 crore fund in Dec 2012 to close to 4000 crores today.

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WF: 2014 was marked by a flurry of NFO activity in the industry, with new offers seen as the primary asset gathering vehicle. The growth in assets of your Axis Long Term Equity Fund, especially in 2014, tells us a very different and extremely encouraging story. What went into the spectacular success of this fund?

Karan: Thanks Vijay, for asking that question. What you see in Axis Long Term Equity today is the result of lot of work that has gone on over the last three years. It started with a very small change and the change was the name itself, three years ago.

What we realized is that as a fund house we have a very compact basket of equity funds and hence each of the funds has to have a very clear articulation and positioning in the mind of the investor. At that point in time we realized that here is a product structure which has a 3 year lock-in and at the same time is perpetually open for sales right through the year. It happens to have a tax advantage, but clearly there can be much more than just a tax break in a fund that has both the features of having a 3 year lock in as well as is open for sale through the year.

With that realization, we came to the conclusion that this product must not just be an ELSS product, but must be positioned as a mainstream equity vehicle that strongly propogates long term equity investing, due to the 3 year lock-in feature. That's why we changed the name to Axis Long Term Equity Fund.

For us, it didn't stop just at a name change. Our sales efforts were completely aligned with the thinking behind the name change, and we worked hard to consistently promote the fund as a great mainstream equity fund - ideal for those who were genuinely considering long term equity investing.

One thing which we consciously never did was to sell performance. Now, the performance of this fund has been fantastic. But we realized early on that selling performance is not a sustainable way to build scale. Performance of the fund clearly helped investors and distributors gain conviction in the fund, but we as a fund house never really tried to sell the fund based on past performance. We wanted to sell the fund the way we wanted investors to buy it - not as a top decile performer of last year, but as a great vehicle to build long term wealth.

Our sales team took this fund aggressively to all our distribution partners - IFAs, national distributors, banks and worked with them to communicate the positioning of the fund as something beyond just a tax fund. We chose consciously not to get too active with NFOs - we rather focused our sales team's efforts on promoting each of our funds vigourously and consistently. We in fact had a couple of approvals in place for closed ended funds, but we chose not to launch them, and instead devoted our efforts to building our existing funds. So, it's a case of not only what we did, but also what we didn't do, that's helped us focus attention on our core products and build scale in them.

I think the success of our Long Term Equity Fund is really a combination of all of these factors. Its really a combination of positioning, performance and promotion - and being consistent across all three.

WF: You have recently come up with a very different way of educating investors about the need to get smart about saving tax, through a "live" video. Can you take us through this initiative?

Karan: As I mentioned, our promotions have never really focused on performance or product attributes. We've tried consistently to link a consumer need with a solution that we offer.

We recently launched a campaign about Mr.Taxman coming for a raid. This was a "live" video - its an actual office canteen during a busy lunch hour. Its actual office goers sitting down for their lunch, and in walks Mr. Taxman who raids their food, takes bites out of their servings and they don't know what's happening. None of the people in the video knew that we were filming it - it's a completely natural setting, and that's what makes their reactions and expressions so engaging. Its real.

Click here to see the video of the Taxman's raid

The video helps get a simple message across to investors - don't allow the taxman to take a bite out of your earnings. Get smart and save tax. That's another feature of what we do at Axis - we keep our messages simple, we never try to over-complicate.

The video has already got over 400,000 hits. Its popular not only among investors but feedback from industry participants too has been very encouraging. I would urge all our distribution partners to see it and pass on a link to their clients. I hope it will help you drive the message among your investors to get smart about saving tax.

WF: Pension funds which are now getting tax breaks are seen by a section of the industry as clones of ELSS funds. For a firm like Axis which has always sought to promote your Long Term Equity Fund as a long term investment beyond just a tax break, how do you see the advent of the new pension funds?

Karan: Our industry has been asking the regulators and the Government for several years to allow it a piece of managing the pension pie in India. The 80C tax benefit for MF pension plans is the first step in that direction - and to this extent, is a very welcome development.

Does it look like ELSS? From a tax break perspective, yes. But, as I said, we've at least made some progress. Hopefully, over time, we will be able to get MF plans included within 80 CCD - which is a section meant exclusively for pension funds.

Pension is a very powerful word, it has tremendous appeal for millions of savers. The big opportunity for the MF industry is to create solutions that offer what investors are really looking for in terms of meeting their pension requirements. Tax breaks on investments into pension funds is clearly a big driver - but creating solutions that meet customer requirements is equally, if not more important.

WF: What do you see as key business trends in 2015? Where do you see business momentum gathering pace and where do you think we ought to be focusing our attention this year?

Karan: I will start with your second question first. I think the biggest area where I would urge our distribution partners to focus attention is on building scale. We are leaving behind the past 5 years and looking ahead into the next five. The scale of business in the next 5 will be a multiple of what we saw in the previous 5. Equity fund inflows in 2014 were Rs.120,000 crores - which is more than the previous 5 years put together. This will only get bigger in the coming years as physical assets led by real estate lose their appeal and as falling interest rates make bank FDs relatively less attractive.

The key issue that I think everyone needs to be focusing on is ensuring that you are ready to do business at a scale that is much bigger than where you are today. Do you have the right infrastructure, the right technology to support you in the next growth wave that's coming? Is your business ready to serve twice, thrice the number of clients you have served so far?

As regards business momentum from an asset class perspective, I think we are now in a really sweet spot. The equity story is something all of us have understood and are convinced about. Fixed income should also do well, now that the rate cut cycle has commenced. And gold, may well spring a surprise after a few bad years, by doing a good job of portfolio insurance.

So, its not really any particular asset class that I think we all need to focus on - the key is to focus on building scale to manage much larger volumes of business in the next 5 years than we did in the previous 5 years.



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