There were two very important developments with far-reaching consequences. The first was categorisation of schemes by SEBI. This should lead to a situation where it becomes simpler for investors and distributors to understand different schemes and make meaningful comparisons among them. The second big change was the reduction in the total expense ratio and the changes in distribution commission. In the short run, there would be some impact on the revenues of asset-management companies. In the longer run, I expect things to stabilise and what is most likely is that higher volumes will compensate for the lower margins.
From an investment point of view, it has been a volatile year, especially for mid and small caps. It appears that investors have become more mature and have learnt to be patient. To put it in numbers, the assets under management in retail schemes have increased by 36 per cent YoY, while the share of individuals in total industry AUM has also increased from 50 to 53 per cent on a yearly basis.
Excluding mutual fund employees, the total number of mutual fund distributors registered with AMFI rose to 116,708 from 92,565 a year ago. That translates into growth of 26 per cent. Going by the commission-disclosure report from AMFI, commission payouts to distributors shot up around 70 per cent in FY18 as compared to FY17. So the prospects for intermediaries are certainly positive.
USP of investment strategy
Our investment strategy is driven by a thoroughly fundamental approach. Momentum has no place in our selection of stocks. We have a very robust investment process in place which we strictly adhere to. The core of our process is the belief that stock prices track their intrinsic values over time. Stock selection is guided by business, management and valuation approach. However, we would not hesitate to exit an investment if our original investment rationale is substantially weakened, in the event of a valuation re-rating or if we find an alternative idea with better risk-reward trade off.
Impact of SEBI's reclassification
Currently, out of 37 fund categories available as per SEBI reclassification, we are present in 11. After the new guidelines, we did not have to merge any of our existing schemes, since they were very well differentiated from one another.
Becoming more investor-friendly
The most important thing we always endeavour to do is to run our funds true to label. We have followed this path even before the reclassification of schemes. We are also trying to simplify our communication and make it available in regional languages. We have about 48 per cent of our folios from Beyond Top 30 cities (B30) and it is important that we have communication that is easily understood by people in those cities.