Bajaj Capital Eying 50 Years

Anil Chopra 
Group CEO 
Bajaj Capital

Can you take us through the journey so far?

Bajaj Capital was started in 1964 by our chairman K. K. Bajaj. We are inching towards our 50th year, the golden jubilee year is in three weeks time from now. This is an important milestone achieved by our company and my association with the company has been for last 30 years now, I had joined the company in May 1984. I am a chartered accountant by profession and also a certified financial planner. When I had joined we had 3 branches and 60 people. And today we are present in 220 locations and have close to 5500 people working with us now. 

If you observe the current market status the retail investor has maximum exposure in physical assets like real estate and gold. I would like to know what is the asset allocation across these financial assets in present scenario?

The asset allocation keeps changing according to market sentiments and macro economic factors. In last 4-5 years, the equity market is in slow growth and inflation was high, the interest rates are also high. Hence there was inclination toward investing in physical assets such as gold and real estate. From 2009 to 2012, there was a big shift in asset allocation from equity to gold and real estate. But off-late it started to tilt towards equity because real estate markets opportunities are dried up and the appreciation has not happened as per the expectations. The deliveries were slow due to infrastructural neck. The developers are not able to deliver the projects on time. So lot of investors who have invested in these projects are stuck. They are not putting any fresh money. Gold also being a commodity turned its cycle and now gold prices are gone on a downturn worldwide. Hence it has lost the favour of the clients. 

If you keep gold and real estate aside, what is the asset allocation for retail investor in other financial assets at present?

First of all, we need to define who retail investor is, and who HNI is. We classify retail investor as a person whose salary is less than 50 thousand and total assets account for less than 25 lakh, they majorly invest 60 per cent in debt, 30 per cent in equity and 10 per cent in gold. But this percentage change is very fast if we look at the High Networth Individuals. HNIs have more capacity to invest, so their exposure to the real estate is as high as 40 per cent, 30 per cent to equity and 30 per cent to debt. The HNIs have not been attracted to gold in a big way on the other-hand retail investor has shown their interest in gold. The retail investor has gone in a big way for mutual funds via Systematic Investment Plans, corporate FD’s. Here these retail investor have avoided real estate because it is not their cup of tea and to begin with the real estate in the country, the minimum investment is 50-60 lakh onwards. Only the retail investor has a dream to own a house and start paying EMI, but it is not called as investment, it is a fulfilment of need. 

During CY 2009 - 2012, the fixed income instruments such as corporate FD’s, private company issued NCD’s came into lime light. How much risk they carry and are they safe enough to invest for retail investor?

Nowadays corporate FD’s, NCD’s, tax free bonds and inflation bonds are more popular in large section of society. As far as corporate NCD’s are concern, they carry less risk compared to corporate FD’s because they have rating such as AA+ or AA- and they are secured by some assets of the company. Hence technically corporate NCD’s are less risky than corporate FD’s. The corporate FD’s are completely unsecured. Hence they carry huge risk as the company's financial health can deteriorate at any point of time. If the company is not able to repay these deposits then the company does not have any recourse. If the company's financial health becomes weak then the government will first take Income tax, Excise tax, etc. then the secured bank loans are paid. After that the company FD’s comes which is the lowest in the priority. Hence the risk is higher but the risk can be reduced by looking at the company's track record and avoiding high interest rate offering companies as their balance sheets are not strong. The companies paying slightly lesser interest rates and having good rating like AA or AAA are Mahindra Finance, Dewan Housing and HDFC which are safe and the risk associated is also less.
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Do you have any data that shows how many corporate FD’s have failed in past?

The corporate FD’s are riskier in nature. Almost 400-500 companies have raised the corporate FD’s in past 30 years. About 15-20 companies had defaulted also. There was a time in 90’s where NBFC’s were raising deposits and there was a series of defaulters by these NBFC’s like DCM financial services among them. Recently, Ind-Swift has gone to the Company Law Board to pay the FD in instalments over the period. 

Moving to the Mutual Fund industry, what is the scenario of industry in terms of distribution and commission? 

The commission in mutual fund distribution has reduced in august 2009. The distributors which are more revenue minded and not customer minded, distributes the products where they will get maximum commission. But the better practice is to understand the customer, his needs and give them the product which suits him despite of quantum of the commission. In this you have a long term sustaining business.  Further, if you are working ethically having large customer base and understanding customer first, then there is concept of trail commission in mutual fund. If you recommend any SIP for next 10-15 years, over the period the trail commission builds up. Hence you have to be patient. 

Is it so that financial planning is taking over the traditional way of selling financial instruments?

Off course, this is happening for last 5-8 years now. We at Bajaj Capital are pioneer of financial planning in the country. We brought the concept of need based selling way back in 2001. The concept is very simple and you should have bucket of products to offer your clients and the focus should not be on products, the focus should be on clients. If you are my client, then instead of selling an insurance policy where the commission is higher, I need to understand what is your need and goal, what is your risk taking capacity, what is your current investment pattern and what products suits your requirement. After that I will recommend debt fund, liquid mutual fund, insurance plan or term insurance which will depend upon your needs.

Looking at the per capita income for a retail investor, is this practice a profitable for retail investor whose income is less than 50 thousands per month?

The retail investor who has earnings less than 50 thousands per month is expected to save 30-40 per cent of earnings. So he has to save 15 to 20 thousand per month. Then he should spread the funds in various instruments such as provided funds, public provided funds, debt funds and liquid funds. On equity side, he should start mutual fund SIP of 2-3 thousands each totalling to 6-7 thousand per month over a longer term. So the cost is very low and he can attain the needs as and when they arrive. Further, 4-5 years down the line the retail investor should start saving more and more as his career enhancements happens. 

Is financial planning done by smaller and localised firms run by financial experts more cost effective and personalised than bigger firms like you?

No, we also give personalised advice. Today we are present in 220 cities and have 1500 financial advisers. We as a company can provide high profile research to our adviser which is not possible for single person to research on. Also only one agent can become an adviser of one life insurance company so he cannot become a complete financial adviser because he will only talk about the products of that company. We at Bajaj Capital are not representing any insurance company or mutual fund company, we are representing the client. So we can give best of the solution across the companies available in the country. So in this regards, companies like Bajaj Capital are in better position. 

Your new venture is real estate broker. I would like to know the role of an organised real estate broker like you in coming future?

Our role is very simple. We have to evaluate the builders or the developers. There may be 3-4 hundred builders in the country. But we have to select best ones as per their track records and trustworthiness and group packing. So instead of working on all the real estate developers, we will be choosing 10-15 builders which are the best in class. Then as per our client needs we will select best possible projects whether residential or commercial and give those solutions to our clients. So there is big scope for the organised real estate broker also. 

Can you give us some numbers on the distribution of financial instrument industry?

It is a very large industry. There are closed to 40000 individual people distributing insurance plans and some 30000 individual people selling mutual fund products. And there are banks which are also giving advice on life insurance, health insurance and mutual funds.  There are 13-15 national distributors like Bajaj Capital. Then there are regional distributors and small firms. It is a well developed market and a well developed sector where somebody needs advice then he can go to financial adviser, regional distributor or national distributors or a bank as well.