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New Kid, Giant Steps

Though a late entrant, HSBC has already made a mark in the competitive Indian mutual fund industry. In less than three years, it has grown into one of the top ten fund houses in the country.

HSBC Mutual Fund has seen exponential growth. In less than three years of existence, the fund house has grown into one of the top ten fund houses in the country. From a mere Rs 1,930 crore in July 2003, its assets have swelled to Rs 7,327 crore now. The market share too has rose from 1.72 per cent to 4.17 per cent during the same period. The fund house attributes this phenomenal growth to a "process-driven approach to investment management, superior investment performance, being true to label, ethical processes and managing funds in the best interests of customers". But whatever may be the reason, one thing is for sure, that HSBC Mutual Fund is here to play a major role in the growth of the Indian mutual fund industry.

Background
HSBC AMC (India) Private Limited is sponsored by HSBC Capital Markets (India) Private Limited. Both the fund and its sponsor are a part of the HSBC Group, which is one of the world's largest banking and financial services organisation.

HSBC AMC started its operations in India with the launch of a set of core products in December 2002. These were an equity fund, a medium-term debt fund, a short-term debt fund and a cash fund. All the debt products had institutional and retail variants.

From the very beginning, Brand HSBC has worked in favour of the AMC. For example, the fund house collected Rs 806 crore during its launch, which enabled it to start off as the 20th largest fund house out of the 30 that were operating in the country then.

Agrees Sanjay Prakash, CEO, HSBC Mutual Fund, "Yes, it is true that we have an extremely strong parentage, and we are a part of one of the largest banking and financial services company in the world. And having a strong brand was helpful, when we launched our initial products in India in late 2002 with no track record. While HSBC is one of our key distributors, our products are distributed actively by approximately 1,650 other distributors around the country. I believe that we have leveraged the HSBC brand well, as it has recognition in all major cities for over 150 years."

Products and Performance
Though the fund house has grown to be a major player in the country, the product basket is far from complete. In fact, the fund house lacks some basic funds like a tax planning fund and a balanced fund. It does not have a single sector fund either.

However, the fund house has some big plans to beef up its array of offers. "On the equity side, we are looking to launch an equity linked savings scheme, which will provide tax benefits to investors and provide them the power of equity over the long term. We are also evaluating an equity dividend yield fund that will act as a defensive equity strategy for investors. On the debt side we are looking at launching a series of fixed maturity plans," said Prakash.

As far as the existing products are concerned, HSBC Mutual Fund has some star performers in the form of HSBC Equity, HSBC Income and HSBC Cash.

HSBC Equity had a ballistic start. Launched in December 2002, the fund exploited the mid-cap rally of 2003 to deliver a whopping 160.25 per cent return and became the second hottest diversified equity fund that year. It followed it up with a top quartile return of 39 per cent the next year. So impressive was the performance, that every other investor portfolio had HSBC Equity in it. From a mere Rs 182 crore fund two years back, HSBC Equity raced to manage over Rs 1,600 crore in February 2005. Of late, though, a poor call in auto and metal sectors coupled with a large-cap bias has slowed down the fund's progress. But we believe it's one of the rough patches that every fund experiences and HSBC would be able to overcome it.

Recent Launches
HSBC Mutual Fund undertook a unique experiment during the launch of its maiden mid-cap fund. It capped the maximum permissible investment at Rs 700 crore during the new fund offer. The strategy made sense in view of the risk that one associates with illiquid mid- and small-caps stocks. By limiting the size to Rs 700 crore, the fund could handle these problems more efficiently. Secondly, this cap was a great marketing strategy. But the gamble flopped. At the end of its offering, the fund failed to mop up even Rs 400 crore.

However, the fund house is not disappointed. "We believe that our collection of Rs 380 crore was good given the market sentiment prevalent at the time. Additionally, we marketed the product in a manner that highlighted the risks associated with mid-caps and the need for investors to look at this fund with a longer tenure in mind. Equity market remained weak during this period and investors who had bought other IPOs saw their NAVs open below issue price resulting in reluctance on part of most investors to take additional exposure to equity markets. In fact, in hindsight, it was a good time to invest as the market bottomed out around the close date of our offering," adds Prakash.

In around two and a half months of its existence, the fund has gained a handsome 24.20 per cent.

Outlook
HSBC Mutual Fund is already a force to reckon with. If it succeeds with its recent launches and some proposed key fund launches, including an ELSS scheme, it would further strengthen its hold on the Indian mutual fund industry. We see a bright future ahead for this fund house.