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Paresh Shah, Mumbai
I have mainly retail clients - low to middle salary earners and many tiny entrepreneurs - from small businessmen down to vada pav walas, chai wallas and so on. For the HDFC retirement savings fund, I am targeting mainly these tiny entrepreneurs, who have no formal retirement funding sources like PF etc. I ask them simply: today, you are earning from your efforts and taking care of your needs, but when you grow old, who is going to take care of you? To explain the product to this audience, you cannot go with the normal pitch of variable asset allocation, 9-10% target return in the savings period of 20-25 years, then followed by an SWP with a 6% drawdown. Nobody will understand it. You have to simplify it, in a manner that makes sense to them. My proposition is very simple: give me Rs.50 per day from your earnings to put away into your retirement fund, and your fund can then give you Rs.500 per day when you retire 20-25 years from now. Get an added zero on your daily savings as your retirement income - that proposition instantly clicks with this target audience. I tell them clearly that they should not touch this money till they turn 60. The prospect of an added zero in their old age is powerful enough for them to readily accept the condition.
I have now started a simple communication to all parents of new born babies. Give me the 5000 rupees that you get as gifts for the child from relatives and friends. We will invest it in a way that the child gets Rs.50 lakhs when he/she retires. A gift amount of 5000 translating to 50 lakhs when the amount is needed most, is a very appealing prospect. In reality, what we will do is invest the 5000 rupees in HDFC's Children Gift Fund until age 18, and then switch the proceeds to the retirement savings fund. If you assume a 9-9.5% CAGR, you will get the desired amount of 50 lakhs on retirement. The point is that the 5000 rupees of gift would otherwise have gone into frivolous expenses. But offering the parents this option, is a huge attraction for them, as they feel very nice that they are doing something very useful with the gift money.
I have got my team to start retirement saving with this fund - I have allowed no exceptions. I know it is good for them. Somebody needs to push people to do the right thing - I do that job with my clients, with my team.
Tapas Chakraborty, Kolkata
I think the product and its construct are very good, and in fact are much needed for investors. It is very clearly goal oriented, it has a lock in followed by an exit load that clearly encourages staying invested till retirement, and it has portfolios that automatically rebalance based on selected asset allocation. In the retail world, there are two realities: (1) no matter how much an advisor attempts to perform periodic rebalancing of client portfolios, it is impossible to achieve a high execution rate, and (2) no matter how committed clients are towards staying invested for the long term, some factor or the other prevents them from actually staying invested in the same fund for 10-20 years. A product like the HDFC Retirement Savings Fund addresses both these gaps. I have seen with the Children's Gift Fund, investors have not redeemed any amounts in the last 10 years that I have been selling it. But the same investors haven't stayed invested in any other open ended equity fund for 10 years.
This is not a product that can be sold on a mass retail basis. You need to have detailed goal based conversations, you need to engage with small groups and also 1-on-1 sessions. We have done a number of activities promoting this fund, and are finding a lot of interest, especially in semi-urban and rural markets around Kolkata. There is I think a myth that rural markets have no appetite for mutual funds. Thanks to all the investor education initiatives and TV campaigns, awareness in rural markets is picking up well. The fact that you can start your retirement fund with as low as Rs.500 per month is a big attraction in rural markets. There is a lot of business potential I see for this product in semi-urban and rural markets, for those of us who decide to take the effort to reach out into these markets. In urban clusters, there are some questions we face on lock-in, on exit loads. People are somewhat confused with too much information, too much choice. One has to make the effort to declutter everything for such investors and help them understand the benefits of a goal based fund with a product structure that encourages long term investing.
Ronak Shah, Khambhat
As you are probably aware, Khambhat is a very small town in Gujarat. We are doing a lot of local activities to promote the HDFC Retirement Savings Fund, including newspaper inserts, extensive investor education sessions and so on. I believe goal based funds are very good to encourage long term investing habit. I have seen people never touching investments made in the name of their children. I also see very poor levels of retirement planning. I believe a product like this will be a big help in getting investors to plan for their retirement, the same way as they are planning for their children. I tell clients clearly that the way this fund will be managed is absolutely no different from other mutual funds. But the way you will manage it in your portfolio, will be very different. Just like you never touch the money you set aside for children, don't think of touching money you set aside for your retirement.
Response to our promotion efforts is very encouraging. I show clients the slides from the fund presentation which shows how prices of atta, milk and petrol have actually been rising at 8% p.a. and ask them to consider which of their investments including traditional insurance products are generating better returns that help them stay ahead of inflation.
Then I give them a perspective that they can readily relate to. In Khambhat, most people send their children to Ahmedabad or Vadodara for higher education. Children often don't return, and make their careers and lives in larger cities. I tell the parents to understand the reality that they cannot depend on their children after they retire and that they will have to fend for themselves, here in Khambhat only. They understand this, because deep down, they know this is a reality, even if they don't like it. I also tell them another thing: when your children have kids, and you buy chocolates for your grandchildren, your kids will think you are spoiling them. Buy the same chocolates from your own money, and nobody complains. If you want a healthy relationship with your children and grandchildren, be financially independent. Start saving for your retirement now.
Investors understand this very well, and I am seeing that many of my existing clients who have SIPs with me, are creating new SIPs in the retirement savings fund. The amounts are typically much larger for the retirement savings fund. When people commit for long period of 20 years+, the brand is important, and a name like HDFC invokes a feeling of trust and stability. I have around 900 SIPs now with a SIP book of Rs. 18 lakhs, at an average of Rs.2000 per SIP. For the retirement savings fund, the average SIP size is Rs.4500. This fund is not only helping investors start a proper retirement savings plan, but is also helping my SIP book grow much faster.
R N Gurusimha, Bangalore
This product is a true win-win proposition for all. I have been in this business for quite a long time now, and I have seen that the biggest issue that comes in the way of a great investor experience is client commitment to a plan. Most clients begin well, with all the good intentions. But somewhere down the line, for whatever reason, many of them fail to retain the same commitment to the plan, and often take wrong decisions. A product that is clearly goal oriented, with a 5 year lock in and an exit load after that until the age of 60, is a very good construct to help maintain the much required discipline and focus. I don't see investors worried about a lock in when they know they are saving for their retirement. What the product construct ensures is that this will perhaps be the last to get redeemed in the case of any emergencies or unforeseen changes.
The 3 asset allocation options allow advisors like us an option to create tailor made allocations for our clients, based on their individual circumstances, and move the allocations as and when required.
The video is very effective in communicating the proposition. We need to reach out to as many investors as we can, to help them understand the need to plan and save for their retirement with products like this. For advisors, retirement savings funds help us gather long term assets and build growing annuity incomes. I believe big brands promoting retirement savings funds actively will go a long way in spreading awareness and getting investors into genuinely long term plans, which is in everybody's best interests.
V Mahadevan, Trichy
I welcome this product. There is a clear need for retirement solutions from AMCs. Most people use life insurance products for retirement planning, which is often sub-optimal. Mutual funds can offer much better alternatives. In my client interactions, I have found ready acceptance to the retirement savings fund from HDFC. The goal orientation and the tax benefit are clearly major attractions. A 5 year lock-in and exit load thereafter don't seem to be deterrents, since investors are clearly investing in this fund for their retirement.
For distributors, selling this fund involves a very different approach than the regular pitches for multicap funds and close ended funds. One needs to engage in a lot of concept selling, before getting into specifics of the product. Those who invest the time and energy in promoting the concept of retirement planning, will see a lot of investor interest in solutions like this retirement savings fund. I see maximum traction in the 45-50 year old client segment, and in SIPs more than lumpsum investments.
Ramesh Maloo, Jaipur
I think this is a very good product for retail investors. The product structure and its goal orientation clearly focus the investor's attention towards long term investing towards a secure retirement. Staying invested for the long term is the best way to ensure a happy investing experience, and products that encourage retail investors to stay invested for the long term should therefore be widely promoted. The industry certainly needs such products.
Some investors are wary about the 5 year lock-in and an exit load thereafter. There are options available to them without these constraints. I think it is our job to communicate to them the benefits of these restrictions in helping them stay on course. It might take some time and some persistence in our efforts to get this message across to wide audiences, but I think the effort should be put in by all of us collectively.
To conclude
Retirement funds with tax breaks from fund houses offer an excellent opportunity for retail investors to save smartly for their golden years. For IFAs, they are a great way to build profitable, sticky retail AuM from SIPs that are typically higher ticket than normal retail SIPs and which tend to stay invested for much longer. Are you leveraging this opportunity sufficiently, to build your retail AuM?
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