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WF : In what ways do you plan to make retail debt funds more relevant to Indian savers? What have we not done well enough in the past, which you propose to correct, to drive home the relevance of retail debt funds among the large pool of savers who have so far been indifferent to mutual funds?
Himanshu : Traditionally Mutual Funds in debt category have predominantly been institutional products, and in non-institutional space, it remained more of a seasonal offering rather than a part of asset allocation in every portfolio from long term perspective.
Though the trend is visibly changing over last couple of years where Debt category has gained popularity & acceptance within non-institutional investor base with varying needs.
Since products in debt category offer wide range of solutions in MF format, there lies scope to cater to different needs for varying investors ranging from low to high risk appetite and different time horizons.
Debt Funds by virtue of advantages they offer, reaching out targeting retail investors with the apt debt offering to suit their risk return profile and meeting their investment needs would hold the key.
WF : You are perhaps the first AMC to have set up a dedicated retail debt fund sales team that works alongside your existing sales teams. What is the rationale behind this move?
Himanshu : The industry has been shifting focus towards catering to the demand of products that have gained relevance from time to time in different market conditions. In this process the continuity of efforts in focusing and building on a particular product line gets disturbed. Hence we felt the need to take this initiative of sustaining the effort by creating a dedicated vertical that shall run with the single agenda of taking Debt asset class forward with aim to penetrate into every household. This shall include focusing on advisor & investor education highlighting relevance of the products through constant interactions and creating awareness about variety of solutions that Debt Mutual Funds offer vis-a-vis the traditional forms of savings & investments.
WF : Your fund house has consistently been at the forefront in category growth initiatives - Gold Savings Funds and Any Time Money Card linked to liquid funds are two recent examples that come readily to mind. You have now embarked on a mission to grow the retail debt category manifold in the coming years. What is the rationale behind this move?
Himanshu : Mutual funds despite several advantages remain low on penetration in India. In developed economies, large part of the money is managed by asset managers and not by banks, it remains opposite in India, hence there lies the scope. AUM as a percentage of GDP is pegged at 8% in India compared to 70% in US and 39% in Brazil.
Debt category as component of household savings remains high in India but this saving is channelized through traditional instruments & not through Mutual Fund route. Hence we believe that since Mutual funds offer variety of solutions including advantages of risk diversification, tax efficiency, potential to earn higher returns i.e. alpha generation through active fund management and not the least the convenience of operating MF account with growing use of technology, there is clear case of Mutual Funds to penetrate into every household.
With Mutual Funds being part of financial inclusion goal, there is lot to be done and RMF is willing to be part of this mission & hence we have taken this initiative
WF : There are over 3.5 crore tax payers in India, and that number keeps growing. The MF industry collectively has around 1 crore unique investors. Would you say that retail debt funds are relevant to every one of these 3.5 crore taxpayers? Is it fair to say that this industry can triple its footprint if it seriously focusses on the retail debt opportunity? What is the size of the business opportunity for AMCs and distributors in this space?
Himanshu : In terms of overall opportunity size, one is the penetration into investors already within MF industry that currently remains lesser than 10% of folios in Debt funds and second is to tap the large base of Tax payers & Bank account holders. Certainly in order of priority, there is clear need for existing customers already in the industry & existing tax payers base to subscribe to MF services catering to their savings & investment needs. And also there is no doubt that this would grow manifolds in times to come.
WF : The biggest benefit of alternative fixed income products like FDs is a fixed rate of return, while MFs are seen as variable return products. What kind of products should be promoted in the retail debt space, which can effectively compete against fixed deposits?
Himanshu : Debt Funds offer variety of solutions. Products as alternate to FDs should be low on volatility with potential of superior returns coupled with tax advantage. Product like RRSF Debt which typically maintains a moderate duration between 1-2 years and invests in well researched credits/ structures for yield enhancement and makes an idle solution for people looking at investment horizon of 1-2 years.
WF : What are the products from within your suite of funds that you will focus on for your retail debt initiative?
Himanshu : As highlighted, Debt Funds offer variety of solutions for all set of investors & their varying needs.
From retail debt perspective, it is important to distinguish products for savers and investors. Debt products in MF offer solutions for both these categories.
Savings Needs:
Reliance Money Manager Fund is the answer to this question, our alternate to Savings bank account!
This scheme predominantly invests in short maturity money market instruments, with high credit profile and low average portfolio duration. In a way, it is used as a means for short-term cash management by various kinds of investors.
An investor is able to acess his funds without any load anytime anywhere with Reliance Any Time Money Card - A mutual fund linked Debit Card with the added benefit of easy and load free redemptions. The card is VISA linked hence can be used across VISA ATMs and merchant establishments.
The account can be operated over online facility called Invest easy. Also the account can be operated over mobile phone through registered mobile number. Just an SMS can help investors to operate the account.
Investment Needs:
Alternative to FDs: RRSF Debt - A worthy option for Bank FDs!!!
Primary objective of this Fund is to generate optimal returns consistent with moderate level of credit and duration risk over a 15 to 18 month period. Focus on achieving returns through higher carry yields. Invest in acceptable credit quality private sector exposures in the plain vanilla and structured space. Since the fund would purely be run with accrual approach, it would remain ideal for investors looking at potentially higher return than fixed deposits with tax advantages & liquidity.
Alternative to small saving schemes & investors looking at regular income stream: Reliance Monthly Income Plan - A regular income scheme with equity flavour !!
This is a hybrid fund with allocation to Debt and a marginal allocation to equity which may go up to maximum 20%. It is ideal for a predominantly fixed income investor with a marginal appetite for equity risk. The investment horizon in this fund should typically be 2 years or more so that the long term benefit of having a marginal exposure to equity pays off. Owing to the strategy of right blend of duration & carry (for the debt portfolio) and flexi cap oriented & growth at reasonable price investment style (for equity portfolio), RMIP carries strong performance track record in the long term period and equally strong history of regular monthly dividends declared to meet requirements of regular income by the investors. Just to highlight RMIP has declared 45 consecutive dividends in last 45 months (as on December, 2012).
All weather funds with advantages of capturing different opportunities due to interest rate movements: Reliance Dynamic Bond Fund
Primary objective of this Fund is to keep this scheme as all-weather fund constantly aligning to changing fixed income scenario. The fund has dynamic asset allocation structure enabling complete flexibility in investment in debt instruments across yield curve & category of instruments including corporate & govt. bonds and money market instruments. Ideal funds for Investors who want to make allocation to fixed income to take advantage of interest rate movements and at the same time do not want to time the markets. So therefore it makes a passive and long term investment for investor, while being managed actively and dynamically, aligning to varying market conditions.
WF : What is your key message to your distribution partners as you embark on this major initiative of growing the industry's penetration through retail debt funds?
Himanshu :
Debt category remains part of every household portfolio though may or may not have Debt Mutual Funds, hence the scope of business opportunity. Look at Debt products not as seasonal products but solutions from the basket of products that can find way into every portfolio from long term perspective. Onboard both new & existing investors into safer products like money manager and then gradually advice products that are suitable basis client profiling
Retail Debt Strategy of RMF
Our focus is clearly on the retail as the untapped potential is very large. It is retail that would grow the business in a steady manner than the institutional business.
RCAM's multi-pronged approach involves bringing in innovative products, increasing the number of advisors, growing its retail reach by opening new branches and extensive use of technology.
Our immediate thrust would be to increase penetration of Debt funds into existing investor base. We are actively collaborating with our partners to conduct cross-sell related activities.
Our next goal as part of its retail thrust, RCAM has set its eyes on the savings bank account holders with sizeable balances in their bank deposits.
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