Sunil has reason to look back at FY14-15 with satisfaction: its been one of the best years in the history of Sundaram Mutual. Not one to rest on past laurels, he's focusing on strengthening aspects of his business which he believes are not yet firing on all cylinders, while simultaneously deepening commitment to those that are. The IFA channel has traditionally been a source of strength for Sundaram Mutual, and Sunil is looking at a new initiative that will not only help deepen his fund house's engagement with IFAs, but can also showcase opportunities for IFAs to enhance wallet share from their clients. Read on as Sunil articulates how he proposes to build on a great FY14-15 to deliver even better results in FY15-16.

WF: How was FY14-15 for Sundaram Mutual? What were the key highlights, what were areas you would have wanted better outcomes?

Sunil Subramaniam: I think the last year was probably one of the best years in the history of the company. Not only did equity markets do well, but we bounced back to top quartile performance last year. I think we read the market recovery very well and were well positioned for it, before it actually happened. In particular, our performance in the mid and small caps segments was very strong.

This performance is especially heartening for us because we took a strategic call on the market's recovery much before the election results, and in fact promoted our series of micro cap closed ended fund launches very strongly. We went out into the market with a strong message, got investors into our small cap oriented funds, and have delivered a handsome performance to them.

The BSE Midcap index delivered around 50% return last fiscal, our midcap funds delivered over 70%. The BSE SmallCap index delivered 54%, our small cap fund delivered 107% and our microcap funds delivered upwards of 120% last fiscal.

To top this, we distributed a dividend of 65% in our micro cap funds. Sundaram Mutual, as you know, has a reputation of being a dividend-friendly fund house. We have been able to strengthen this image with our last round of dividends. Look at it from the point of view of an investor in our 5 year closed ended funds : he invested ahead of the market turnaround based on the high conviction message that our distribution partners took to him, and today, he has got 65% of that money back within a year, and has his original investment very much in the market, fully participating in the longer term story.

I believe this has done a lot to strengthen our brand image within the distribution fraternity as well as among investors. It's a true win-win-win story. I'd put this as the biggest highlight of the year.

The second highlight is that our equity assets crossed Rs.10,000 crores and have now come fairly close to our life time high of Rs.11,500 crores which we recorded in 2007. I hope this year we will be able to post a new life time high on equity assets.

The third highlight is our offshore initiative. A couple of years ago, we received approval from Monetary Authority of Singapore to set up an AMC in Singapore. Last year, we launched our first international mid cap fund, with daily dollar based NAV, and have raised more than 150 crores in that fund. This is truly a Made in India success story - no foreign JV partner - entirely our own effort in terms of fund management, distribution and marketing. We have successfully hoisted our flag in international markets and set the stage for the growth of a new vertical.

The next highlight is our PMS business. We began the year with a Rs. 300 crore PMS book and closed the year with over Rs.1000 crores. This vertical has now become a profitable on a stand alone basis for us and looks set for further scaling up in the coming years.

Next highlight is a significant expansion in our B-15 footprint. We have expanded B-15 branches from 45 to 94 during last year. This year, we will take it up to around 105, and will focus on ramping up business in all the new B-15 branches that we have recently opened. This sets a strong base for an expansion in our B-15 business.

The last, but not the least highlight is delivery against our mission that we set out for ourselves 3 years ago, when Harsha took over as the CEO, which we internally refer to as Project Voyager. We took on a task of building a well rounded asset management business, with strong presence in all the 3 main asset classes: equity, debt and institutional money market. Our debt book grew very well in the last 3 years, equities, as already mentioned, rebounded splendidly last year and we doubled our institutional book from Rs.3500 crs last year to 7500 crs, and are looking to scale up all of these a lot more in the coming year.

Our average AUM for last year and the opening AUM at the beginning of the year were both around levels of Rs.15,000 crs. We closed the year with Average AUM of Rs.20,000 crs, and in the course of the year attained a peak of over Rs.24,000 crs. During the year, we also distributed 40 dividends, paying out something like an average of Rs.39 per unit (390%).

You asked me also about areas where we would have liked better outcomes. One area clearly was our sales performance in the open ended space as compared to that in new fund offerings. Since many of our existing schemes outperformed their benchmarks, we believe that we could have done much much better in garnering what we believe is our rightful share of industry flows in the open ended space. This space continues to account for the largest slice of equity allocations - so its important for us to be very competitive in this space. So, while we are happy that we have reaffirmed our core strengths in identifying opportunities in the mid, small and microcaps, which has been our DNA, and raising money with appropriately timed new launches, we believe that going forward, more attention needs to be given to competing better in the open-ended space as well.

WF: What is your business outlook for FY15-16?

Sunil Subramaniam: We are looking to sustain equity momentum and plan to grow our equity book by about 40% to Rs.14,000 crores. There will be fewer NFOs - probably a third of what we did last year. We expect to grow our PMS book by about 50%.

Fixed income will perhaps see a more muted growth of 10-15% - I think the tax issues have slowed down momentum here and we also have some assets that will run off the books during the year.

We would like to double our institutional book to Rs. 14000 crs across money market and short term funds. In sum, we would like to close FY15-16 with an AuM of Rs. 32,000 crores, on the back of another year of all round growth across all asset classes and business verticals. We expect B-15 to contribute 30% of incremental non institutional business, up from 22% last year.

WF: What are your product, distribution and marketing plans for FY15-16?

Sunil Subramaniam: A significant new initiative that we have commenced is creating a central team called "distributor experience team". This team will work towards strengthening our brand's engagement with the IFA fraternity, which has traditionally been a core focus area for us.

As you are aware, we don't do foreign trips or contests. But what we do, and want to do a lot more of, with this initiative, is to strengthen our overall engagement with IFAs and work towards helping them strengthen their own businesses. One of the aspects we would like to leverage is to offer our IFAs a deeper engagement with Sundaram Group, to enable them to broad-base their own businesses and enhance customer wallet share. Sundaram Finance is active in car and vehicle finance, Royal Sundaram is active in general insurance, including health and auto, Sundaram Home Finance is an active player in home loans. By creating mechanisms for our IFAs to leverage our Group strengths, we are not only building a deeper engagement with them, but also showcasing many more solutions that are relevant to their customers, beyond investing in mutual funds.

The second aspect that our distributor experience team will focus on is inputs to help IFAs strengthen practice management. This could involve inputs to help drive customer acquisition or enhance customer engagement.

In addition to strengthening our IFA engagement, one area we will focus on considerably is strengthening our engagement with the bank channel. We are beginning to see significant business traction coming through, on the back of our equity performance in the mid and small caps spaces, and plan to leverage this to make significant inroads into this segment this year.

WF: There was a huge build up of excitement on retirement business in the run up to the Budget and then big disappointment at being ignored for the exclusive tax break. Looking beyond this immediate disappointment, how do you see the retirement business in India shaping up and in what way can the MF industry play a meaningful role in this vertical?

Sunil Subramaniam: Today the problem with the retirement business in India is that there are three players fighting for it : life insurance companies, NPS and mutual funds. Yes, the tax break issue is a big disappointment for the MF industry. But, I strongly believe that in addition to lobbying efforts for tax breaks, our industry must genuinely attempt to push up the customer engagement of investors with our industry from 2-3 years to 10 years plus. We need to do that anyway.

If investors continue to perceive mutual funds as tactical investments, we are not going to make enough inroads into the retirement business. The flip side is that when investors start considering mutual funds for 10 and 15 year horizons, we will anyway make deeper inroads into the retirement business.

We need to push the envelope with our product strategy. We need to come up with 10 year products and work on bringing in customer confidence into a 10 year product. The insurance industry has done this well, so can we.

There is an unfortunate misconception in the media, and I have spoken with you earlier on this subject (Click Here), that closed ended funds were being launched only as a means to give high sales commissions to distributors. The issue here is not about commissions, it is about getting investors comfortable with committing investments with our industry for longer periods of time. We focused a lot on 5 year funds, for exactly this reason. We have a proposal pending with SEBI for an 8 year product. Whether it is for the retirement business or otherwise, there is an imperative need for our industry to move from being perceived as a tactical investment to a long term solution.

That said, one of the issues we do have from a structural point of view is that we are one of the few countries where insurers have their own fund management teams. In most markets, insurers focus on their core competence of insurance, while the underlying fund management is given out to asset management companies. We need a similar reform in our market, which will allow businesses to focus on their respective core competencies and deliver a better overall solution to the investor.

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