WF: How would you describe Union KBC's journey so far? What have been some of the key milestones that the firm has crossed?
Pradeepkumar: It has indeed been a very exciting journey since the time I joined Union KBC AMC in 2010. To say that it has been challenging would be an understatement. Against some significant polarisation happening in the industry, it has taken a lot of commitment and effort on our part to grow the business.
The most remarkable thing has been the way we have been able to attract new investors to the industry. About 90,000 of investors have invested in a mutual fund for the first time through Union KBC. Form the beginning itself, we were clear that we would try to find our own space in the industry.
Another event that we are quite proud of is the launch of Union KBC Trigger Fund. This was a very unique product that was carefully designed to provide a positive experience about mutual funds to retail investors. We realised that the best way to build confidence about mutual funds would be to make people realise that they can actually make money by investing in mutual funds. We achieved this by designing the product in such a way that once a predetermined level of appreciation was reached, the Fund would be wound up and the money returned to investors. Our investors were very pleased with the fact for the first time, a mutual fund gave back their money with about 30% appreciation in less than nine months.
WF: What is your vision for Union KBC over the next 10 years?
Pradeepkumar: We are clearly focussed on spreading the benefit of investing in capital markets to as many investors as possible. In the next 10 years, we would aim to have 50 lakh investors with us.
What are some of the key differentiators that you would like to create in your firm and its products, which will pull in distributors and investors towards Union KBC?
In any business, customers are the most important element. Mutual funds are no different. Our belief is that if we keep in mind the interest of our investors at every stage, business would certainly take off. It is this philosophy that prompted us to launch the Union KBC Trigger Fund. We clearly set aside our short term interest and went for what was good for the customers.
WF: What are some of KBC's key strengths that you would like to leverage in building Union KBC in India?
Pradeepkumar: KBC has more than 50 years of experience in asset management globally and have evolved as large, robust organisation with world class systems and processes in the areas of investments and risk management. We benefit greatly from their expertise.
WF: PSU banks represent perhaps the biggest under-leveraged distribution force for the MF industry. Having worked closely with Union Bank over the last few years, what is your assessment of the strengths and weaknesses of PSU banks as a distribution channel for mutual funds?
Pradeepkumar: PSUs banks are certainly among the most under-leveraged distribution channel in the mutual fund industry. Their network of branches and the large customer base provide a splendid opportunity. We have been able to tap the network of Union Bank of India fairly well. We have added more than 140,000 folios over the last four years or so. Out of that about two third would be first time investors in mutual funds. This was thanks largely to the network of Union Bank. However, considering the potential of the system, we have a long way to go.
Training of the marketing staff is very important in public sector banks. We have spent considerable resources in that area.
WF: The distribution business is going through another round of change, grappling with RIA regulations, direct plans and commission caps. There is, on the other hand, a big market opportunity, as retail investors' appetite for capital markets is visibly growing. How do you see distribution models evolving over the next 3-5 years, in this context?
Pradeepkumar: I am firmly of the view that we need ten times the number of distributors that we currently have. Mutual funds as a category are products for retail investors. However, to take them to retail investors, especially in smaller cities and towns, you need knowledgeable intermediaries who will talk face to face with potential investors. Initiation into mutual funds cannot happen remotely, certainly for bulk of the population in India. In my opinion, those distributors who can invest in reaching out to more clients and can keep the overheads low, will flourish.
I expect a lot more people moving into the advisory space. Because at the higher end of the market, there is appetite for quality advice and people are prepared to pay for it. Look at it this way, if an advisor is able to recommend a fund that produces even 1% outperformance, it more than justifies the cost.
WF: Flows seem to be largely concentrated into larger fund houses, even as investor appetite is growing. Some industry experts believe that there is only room for 15-20 AMCs to build scale profitably. Do you share this view? What will it take for more players to build viable businesses in the fund industry?
Pradeepkumar: I am of the firm view that our market needs more AMCs, not less. Given the geographic spread and the vast untapped potential, we probably need 100 mutual funds. Many AMCs have unique business models. At Union KBC, we were always clear that we could grow our business without stepping on anybody's toes. The challenge is to create differentiating strategies in terms of distribution, products and investment philosophy.
WF: What is your message to distributors as you begin your engagement with the IFA fraternity? What can your distribution partners look forward to from Union KBC?
Pradeepkumar: We see the IFA community playing a huge role in expanding the client base. We are prepared to engage with them actively and invest in training wherever required. Our goal is to develop long term partnerships. We would, of course, go about this in a calibrated way.
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