CEO Speak 19th August 2014
What went into I-Pru becoming an advisor favourite?
Nimesh Shah, MD & CEO, ICICI Prudential MF
 

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I-Pru was voted as the No.1 choice of advisors on 5 out of 6 parameters of the AMC confidence section in the recently conducted 3rd annual Wealth Forum Advisor Confidence Survey (Click Here). Nimesh shares with us what really went into becoming an advisor favourite across so many parameters. Read on as he also shares his perspectives on why I-Pru strongly believes that closed ended equity funds in the current context are in investors' best interests, and his views on the road ahead for debt funds, after the recent tax changes.

WF : Heartiest congratulations on topping the league tables on 5 out of 6 AMC confidence parameters in our Wealth Forum Advisor Confidence Survey, 2014 (Click Here). You must be particularly delighted with the way ICICI Prudential AMC has risen in the equity space - which is a far cry from where it was when you took over the reins of this company.

Nimesh : First and foremost, I would like to thank all our esteemed advisors for this recognition. For us, this achievement is a reaffirmation and acknowledgement of our efforts to distinguish ourselves in the marketplace across stakeholders. It gladdens us when we receive feedback from advisors that they were able to live up to the commitment of good investment experience to their clients by advising ICICI Prudential AMC products. Making a notable difference to investors' money as well as to the industry practices is a driving force for our organization.

WF : It is rare to see an organization in pole position on so many parameters of advisor confidence. What in your view has contributed to this enviable position?

Nimesh : Over the last 5-6 years, we have brought in complete investor-centricity in the company. Every rupee invested is done keeping in mind the benefit to the final investor. In fact, 100% of our equity AuM has beaten benchmarks over the medium term (5 years) and long term (10 years) basis, which gives us confidence that we are working in the right direction for our investors and advisors.

We have also ensured offering a diversified product suite with every fund giving a different slice of market to the investor. Each product has a character of its own and it is performing as per our expectations. The purity of product positioning has been core to our practices with a commitment to continue to manage our funds strictly according to the mandate, irrespective of the market environment or short term underperformance, or any other factor. For instance, all three flagship funds - ICICI Prudential Value Discovery Fund, ICICI Prudential Dynamic Plan and ICICI Prudential Focused Bluechip Equity Fund are completely different from each other. Value Discovery Fund functions on value investing, Dynamic Plan works on volatility and Focused Bluechip Equity fund is a large cap play. Our investment calls have given investors a good investment experience. Today, I can state with confidence that our advisors take pride in having recommended our schemes to investors. Using the ICICI Prudential product bouquet, they can comfortably build a diversified portfolio for any investor. Diversity within a fund house is achievable with ICICI Prudential AMC.

Further, fund managers are supported by in-house teams providing market leading research, risk management and dealing capabilities. We have a culture where fund managers are encouraged to develop their individual styles, but at all times, these have to be practiced within the overall investment framework. We have consciously aligned styles with fund objectives. Indian fund managers take pride in being the best bottom-up stock pickers. For that matter, our experience in 2008 taught us to focus simultaneously on the 'top down' and 'bottom up' strategies. This blend of both the approaches makes us different.

WF : Yours is now a well-oiled machine, with every part contributing to moving the juggernaut ahead. What next have you set your sights on?

Nimesh : We will continue to remain focused on investment performance and committed to investor centricity. Managing public money is a huge responsibility and it is our constant endeavor to provide reasonable risk-adjusted returns to investors. We are confident that our process-oriented investment approach will help us sustain consistency in performance of our funds in the years to come. We have increased our focus on risk management which we believe is very critical in this business.

WF : There is a spirited debate in the industry on the merits or otherwise of closed-ended funds. You have been active in this space in recent months. What is your take on this debate?

Nimesh : At ICICI Prudential, we have a fairly large sized equity team with 17 investment professionals and we believe that we have adequate resources to handle a larger number of funds. Since September 2013, we have been launching closed-ended schemes through a series of fund launches. We have witnessed a very good response to these products from both investors and advisors in terms of the collections.These funds have brought in incremental investments as well as plenty of new investors into the equity market. We believe that the strategy has seen initial success since the investor experience on the basis of returns has been very good; we have been able to declare dividends in a very short span of time and now across most of the industry, closed-ended funds have become the flavor of the season.

Such products offer an excellent investment vehicle to investors and come with a focused vision; a long term view that capitalizes on certain themes and sections of the market. These themes may not necessarily be available through the roster of products on tap in the market or may come in varied forms. At times, these themes are opportune moments that investors must take advantage of just when the market presents such opportunities.

The other really good edge that closed-ended funds possess is that they provide the fund manager with the time to buy into-and stay invested in less-liquid stocks without worrying about redemptions and instead concentrating on building a good portfolio. The noted investor Jesse Livermore said, "Throughout all my years of investing I've found that the big money was never made in the buying or the selling. The big money was made in the waiting." These are words to take to heart-and mind.

This is perhaps the greatest advantage. Most investors miss out on making gains, probably because they moved out too early. A closed-ended fund of three years or more ensures that investors stay invested for the entire duration of the fund. That way an investor does not redeem mid-way at the first sign of panic or when the market is doing poorly. Typically, many investors in open-ended funds cash out when the cards are against them. A closed-ended fund ensures that an investor does not get carried away by the market's day-to-day see-sawing, focusing instead on the farther horizon.

While we are aware of the market environment at the time of entry, it will be difficult to forecast accurately the market conditions at the time of maturity. In order to give a better investment experience to our investors, we have consciously utilized a dividend option in all our closed-ended series. A dividend option enables us to generate returns for investors when we believe it is the right time for the same. We have not launched a growth option, as many a time, investors miss the opportunity to book profits, which is unlikely to happen in a pure dividend option.

Last but not the least, some of you may ask if the focus has now shifted from value investing to growth investing with the introduction of a new Growth Fund Series. Are value opportunities now behind us? We strongly believe that value and growth are complimentary and have the potential to co-exist across economies. During the last 9-12 months, value opportunities have been abundant, forming the basis for the launch of value series. Currently, with economic revival in the offing, growth strategy also has the potential to offer reasonable returns to investors over a 3-5 year period.

On an overall basis, we continue to believe that Indian investors are still under-invested in value themes when compared with other categories and therefore, our focus as a fund house remains on promoting this theme on a continuous basis. Given the current positive situation, we believe that we will move into a higher growth environment over the next few years. Our growth series participates in a situation which is positive, and focuses on areas, which are likely to grow in coming years.

WF : Now that the dust has settled on taxation of debt funds, how do you see the road ahead for this category in the retail space? Which product categories within debt funds do you think continue to have a sustainable value proposition for retail investors?

Nimesh : Debt investors will have to look at debt as a long-term investment as the Budget has defined long-term debt as that which is held for more than 36 months as opposed to the previous 12-month threshold. We believe that investors could now move more committed money into funds for a longer term rather than the short term; this will also allow them to take benefit of favorable interest rate movements.

There is now a larger incentive for people to remain committed for the long term. Our medium term expectation on moderation of interest rates continue to be strong, and thereby, we continue to be believe that long-term duration funds are good investments to buy for an investment horizon of medium to long term.

WF : What do you see as the biggest growth drivers going ahead for our industry and what should distributors be focusing on to harness these growth drivers?

Nimesh : The perceived challenges are actually huge opportunities and could prove to be the growth drivers going ahead for the industry. Currently, domestic investors remain under-invested in equities while over-invested in physical assets like real estate and gold. The only main challenge is that Indians are better savers than they are investors. In an inflationary economy as India, saving doesn't help beat inflation, investment does. Therefore, an 'investment cult' needs to be developed in the country. We strongly advise investors to reduce their investments in physical assets and move to financial assets. Fortunately, this appears to have commenced; Indian investors are slowly moving out of physical assets like gold and real estate, and investing in bank deposits or fixed income, which is a good sign and a potential growth driver for the industry going ahead.

The potential business opportunity over the next 3-5 years is very huge. We believe that advisors will need to focus on their ability to sell across asset classes and promote products that lead to a good investment experience for investors.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

This article is for information and reading for distributors and financial advisors. All data/information used in the article is specific to a time and may or may not be relevant in future post issuance of this article. Nothing contained in this article shall be construed to be an investment advise or an assurance of the benefits of investing in the type of financial instrument. Sectors/stocks mentioned in the article, if any, do not constitute as a recommendation. It is advised to consult the legal/tax/investment advisor to determine possible legal, tax and other financial implication before investing in any financial instrument. Investors are advised to read investment related documents and understand various risks involved before investing.



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