“Adoption of mutual funds will increase manyfold in ‘Bharat’ beyond metros and Tier I cities”

Interview with Seemant Shukla, Chief Business Officer of JM Financial Asset Management Ltd

What are the key initiatives or strategies that you implement to drive business growth and success at JM Financial Asset Management Limited?
Over the past few years, we have revitalized our relationships with our existing partners while also expanding our reach to new partners entering the industry. This has been achieved through the dedicated efforts of our relationship team and leveraging digital platforms. Our presence has now extended to 14 locations with dedicated relationship teams. Notably, in the last 1 ½ years, we have added three new locations: Lucknow, Baroda, and Indore. We have also upgraded infrastructure and strengthened team resources across multiple branches, resulting in positive responses from both our partner channel and digital/offline channels, leading to a 35-40 per cent growth in partner count.

Given that coverage and partnerships are the cornerstone of our business, we have observed promising growth indicators such as increased investor folios and inflows, supported by our proficient Fund Management team. Additionally, SIP counts and monthly active partner contributions have shown substantial growth over the past two years.

At JM Financial Mutual Fund, we recognize that our success is intertwined with that of our partners. Our emphasis on quality engagement, maintaining strong connections, and meeting service requirements through various communication channels has been instrumental in our journey of success thus far.

Could you elaborate on the company's approach to investment and portfolio management?
With Satish Ramanathan joining us, our Fund Management team (FM) has developed an internal process-driven investment model, termed the “GeeQ model”. It primarily focuses on Growth of Earnings and Quality of Earnings. We are firm believers that Growth with Quality Earnings is a good parameter for long-term compounding and wealth creation. Another key aspect is to be #truetothelabel. All our equity funds follow the mandate and stick to the same e.g., our Flexicap fund has seen multiple market cycles and has therefore seen large cap allocations go from as high as 90 per cent to even below 40 per cent levels.

As an AMC we are not very keen on launching many NFOs. Since the last 2 years, we have launched just one equity fund in the Midcap Fund category. We are focused on our existing schemes and getting the allocation right within them. That does not mean we will not have NFOs in future, we will definitely plan and launch new funds when we see the potential of a long-term opportunity in a particular segment of the market.

Risk Management is also something that the team looks at very closely and not just the return potential. The risk we take for earning that one unit of Alpha should fit within our Risk-Return parameters.

What trends do you foresee shaping the asset management landscape in the coming years, and how are you preparing to adapt to these changes?
Adoption of Mutual Funds will increase manyfold including in “Bharat”, which is beyond Metros/Tier I cities. We have already seen that retail folios from B30 are almost 45 per cent of the Industry and AUM contribution is now around 18-20 per cent. It is important to note that metros have large Institutional clients, hence the AUM from metros will continue to remain high. 

SIPs have already caught up and now SIP accounts/folios have crossed the 8 crore mark. Digital and increased internet penetration has made things easier from an access perspective and awareness of Mutual Funds has grown thanks to investor awareness programs and distributor efforts. This trend is going to grow and penetration of mutual funds will be much higher in smaller towns and cities. In the AMC landscape, we may see some positioning models where AMCs will target certain market niches and then grow from that niche.

We also foresee those niches may not necessarily be around products, but can be carved out of strategy (active/passive), asset class, distribution or service models etc. We have also initiated a few ideas on a project basis and which might become unique in their own way, fingers crossed!

Can you discuss any recent developments or achievements that you, as a Chief Business Officer, are particularly proud of?
Over the past 2-3 years, we have intensified our efforts to engage and collaborate with our partners. Initially, there was some apprehension, but we were confident that our approach would lead to improved partner engagement over time. It's gratifying to note that our strategies have delivered results faster than anticipated, which we internally refer to as "JM Financial MF version 2.0."

Under the leadership of our CEO, Amitabh Mohanty, we have bolstered our team with professionals across various domains. We are particularly pleased with our long-term vision, evident in our investments in the Fund Management team, business modelling, and nationwide resource additions that have strengthened our branch network.

At JM Financial MF, we firmly believe that senior management and CXOs play a crucial role as facilitators and enablers, guiding teams towards optimal performance through knowledge sharing, streamlined processes, and adherence to compliance standards. With the foundational elements in place, we are optimistic about future growth and scalability.

The commendable work accomplished by our teams in recent years has been truly rewarding to witness as someone overseeing this transformative journey. While we celebrate these achievements, we also recognize that this is just the beginning. As Robert Frost aptly said, we have "miles to go before we sleep," signifying our ongoing commitment to continuous improvement and sustained success.

What advice would you give to investors looking to invest Rs 1 lakh in mutual funds? 

Four words only. Start now and diversify.

There is no good time or bad time to invest in financial markets since India is the place to be if you are a long-term investor. The economy is doing well, and the demographic and consumption patterns indicate that it will continue to do well for a decent amount of time. The government, with initiatives like Skill India and Startup India etc., is trying to ensure gainful employment of youth. All these factors make India a compelling place to invest. So, if you wish to be a part of this growth story and build wealth from it, then the sooner you begin the better.

A word of caution though – do not get overexcited by markets. There is a reason they are compared to rollercoasters since what is doing very well in recent times will have some ups and downs. Ensure that you invest in line with your understanding of markets/asset classes, risk appetite and investment horizon. Get in touch with a distributor or good financial advisor, who will guide you through the journey of building wealth for the future.

Looking ahead, what are your thoughts on the future of asset management as an industry and the role of technology in shaping this industry?

I think for us Indians, technology is now a way of life, be it micropayments to lending to ticket booking to “Digi Yatra” for Airport check-ins and in my view, India is now leading the world in this area.

Technology is not the future; it is already here. All industries including BFSI and especially AMCs which have challenges on account of the cost of acquisition, service and transaction have actually started leveraging technology

The next leg of growth and efficiency will come with the increased use of AI where we will see a massive impact on the industry in terms of data usage, efficiency, risk management and automation of services/ processes. This will have a larger impact on all aspects of the AMC business, be it Fund Management, Distribution, Risk Management and Compliance etc. 

One important aspect of money or money management is human behaviour where human-to-human interaction is necessary, am not sure how tech will be able to read the emotion or sentiment (if it’s not in data form) of the investor.

There is a saying that “A machine will never be able to replace human interaction that is required before any decision is made”. We will still rely on the advice given to us by a distributor or advisor, especially in times when markets are down or extremely volatile “Kya karein” is the most common question. It is times like this when investors need reassurance which will be difficult for a machine to provide. 

Could you please elaborate on the recently mandated stress test for mutual fund AMCs? What are your thoughts on the same?
The Regulator has always been proactive when it comes to championing the cause of the retail investor. Considering the recent growth in certain sub-segments of the equity asset class, the Regulator has mandated a stress test which indicates how liquid is the underlying portfolio of these sub-segment schemes, where the inflows have been relatively higher than in the past.

The idea of conducting the stress test is to see whether the scheme can withstand market shocks if any arise. I am sure as part of risk management or check; a large number of players must be running such stress tests internally. Now with this data being published, investors also have access to this information, helping them make informed investment decisions.  

Disclaimer: The opinions expressed above are personal and may not reflect the views of Dalal Street Investment Journal.