What prompted you to enter the mutual fund industry?
Bansal: Despite the impressive growth in the mutual fund industry, penetration still remains low in India when compared to other large economies. Investment is still complex for most individuals and, with the use of technology, there is an opportunity to make things simpler. We see low-cost fund management as another opportunity that will allow a large number of retail investors to access mutual funds. Indian investors’ needs and preferences have become much more diverse. So, there is opportunity to build different products for different groups of investors as per their needs. For example, a new investor would want a simple, easy-to-understand product, whereas an active investor might need a simple yet nuanced product focused on a particular market, sector etc.
But mutual funds offer low margins. At present, Navi MF is small-sized, with a corpus of just Rs 728 crore. Isn’t that too small to make some serious money?
Jain: We want to first focus on getting investors and retaining them. Like Sachin says, there is no point in having an asset target as we will achieve that target sooner or later. If we get investors, we’ll get the assets.
In our Nifty index fund NFO, which was open for 24 days, we got around 22,000 investors. Our target is to get at least 10-20 lakh investors for this fund itself. In the long run, we are looking to get 10-15 percent of the overall investor market share. If you look at the top fund houses, they account for 20-25 percent of investor share.
Bansal:Technology is at the heart of Navi’s strategy and we are a tech-first company. The aim is to not just make transactions seamless, but also use technology to help investors make better investment decisions. We want to provide them the right recommendations in a transparent manner through technology, with just the right amount of information. Technology will also help us lower our operations cost.Jain: We are coming up with our own mobile app. Investors will be able to make transactions on this app. Through the app, we will also spread awareness and educate investors on various aspects of mutual funds. We want to use technology to reduce the tracking errors in passive funds. There is scope for a lot of automation in the stock buying and selling process, which can reduce the tracking error in a passive scheme.
The mutual fund industry already has 42 companies. How will Navi MF differentiate itself?
Jain: There is still lot of room for more fund houses to come in and add value to investors. Right now, there are two crore unique investors that have made MF investments. This number will become 10 crores in the next 10 years. This growth opportunity is the reason why we are seeing so many new firms applying for MF licenses. We don’t have to necessarily do things very differently. The important thing is that we keep our focus on investors and gain their trust.
Navi MF recently launched a Nifty index fund, which has the lowest expense ratio. So, is the focus going to be on passively-managed funds?
Jain: Yes, our focus will be on passive funds, initially. We already have six actively-managed schemes, which we got after the acquisition of Essel MF. These schemes cover most of the equity categories, which can meet investors’ requirements. So, in the next few months, we will be filing for permission to roll out a few passive funds with SEBI. We have already filed for a passively-managed mid-cap fund and for a passively-managed small-cap fund. We have also filed for a Nifty Next 50 fund. At some point, we also plan to launch passive debt funds.
Why do you want to focus on passive funds?
Jain: Passive funds have seen strong investor interest in the last couple of years, on the back of performances delivered by active funds in relation to passive funds. There are lots of areas in the passive space that we have identified and that’s where we want to focus first as we begin under the Navi brand. It is not that we won’t focus on active funds as some investors look up to them for getting better-than-benchmark returns, but first we want to fill the gaps in the passive space.
But, will you be adding to your actively-managed funds. For example, you don’t have a mid or small-cap fund.Jain: For active schemes, we will wait for a few months before taking a call. Active fund management in mid- and small-cap funds is a lot trickier than large-cap funds. We are also looking to add to our fund management team. There are few people we have identified, and they would be joining us in a couple of months.