Tata Asset Management (TAM), manager of the Tata Mutual Fund, has built up a tremendous investor base across 300 cities in India by providing steady long-term returns on a range of funds.With four schemes in the global top 100 best performing funds and eight awards for best fund performance under its belt, the company is feeling a justifiable sense of optimism.
Ved Prakash Chaturvedi, managing director of TAM, talks to Arvind Sridhar on how TAM has grown over the past few years and where it is headed in the future.
Today TAM manages a corpus of over Rs26,230 crores (as of April 15, 2008) from approximately Rs1,000 crore in March 2003. How has this journey been and what are the main reasons for this growth?
The most exciting part of this journey has been our approach towards selling to a large number of individual investors across the length and breadth of our country. Our mission has been to provide opportunities to invest across the risk-return spectrum to as large a number of investors in India as possible. We have focused on enhancing our investor’s delight by working on our long-term fund performance, on our distribution reach and on our communication to our distribution partners and to our investors.
This has helped us provide an opportunity to an ever-increasing number of individuals who have invested with us to plan their financial lifecycle and take benefit of the growth that the Indian capital markets have offered. Today we service about two million investors across 300 cities in India. The entire team at Tata Asset Management has shown an absolute commitment and focus on high integrity and excellence in every area to reach this stage.
The key driver of this business is the quality of the long-term returns that our funds provide.We are very proud of this fact and have received several awards for this performance across various categories like equity funds, balanced and income funds, etc. More importantly, we
have worked hard to uphold the quality and value of our brand.
This year especially, we are very excited about the fact that four of our schemes have been ranked in the top 100 best performing funds in the world.
What is Tata Mutual Fund’s position in the market vis-à-vis its competitors? What steps are you taking to make it the leading fund house? What are the challenges?
We set out with a mission of being in the top five private sector players in the mutual funds industry. As of March 2008, we are the number six player and are very close to reaching our mission. In the meanwhile our assets have grown by over 25 times over the past five years. Our prime focus now is on building a larger retail presence. It is a matter of pride for us that though most of our competition comes from global players like Franklin Templeton, Fidelity,Merrill Lynch, etc, we are in the top four in terms of our fund performance and the retail franchise that we have built.
Some of our competitors have a large retail footprint of their own captive distribution.We have to work that much harder, and create greater shelf space through our distribution partners.
To enhance our footprint, we want to create more products and more
opportunities for investors.We are also looking at global opportunities for investment to improve our basket of products. Our brand has great value in India and our efforts have been to ensure that we protect and enhance that value, by ensuring that investors get the implicit product benefit that they are looking for.
Which funds managed by the company are doing particularly well?
Three of our funds — Tata Balanced Fund (balanced fund category), Tata Infrastructure Fund (diversified equity fund category) and Tata Liquid Fund (liquid fund — institutional category) have won awards across categories from CNBC-TV18 – CRISIL. This fact makes us very happy, especially since we are receiving best performance awards in the face of global competition. Clearly our fund management and research team have done a very good job.
We are very happy with the Tata Infrastructure Fund that was launched three years ago. It has been the most successful asset class in the Indian industry over the last three years and has been copied by the competition. The fact that we are award winners and that we anticipated this one big mega trend before anyone else in our industry, is something that underlines our commitment to thought leadership. We have earned enormous credibility from the industry.
What is your value proposition to investors?
The one key value proposition that investors look for is the opportunity and ability to earn returns on their savings in line with their risk appetite. We have to deliver this consistently over the years. Investors who understand their risk appetite and then invest will not be hurt, because they know the risks associated with their return expectations.
It is a great responsibility on us to ensure that the perceptions of risk and return, and the linkage between the two are communicated and understood by our distribution partners and we manage money in line within this entire riskreturn paradigm.We have built credibility on our ability to provide returns across various product categories over the last ten years. This consistency is our USP.
With increasing volatility in the stock markets, how are these risks being factored in within the funds of Tata Mutual Fund?
People feel that fund management companies are only about managing equity money. It is not so; we also manage our debt assets very proactively. At the very short end of the risk spectrum, we manage the Tata Liquid Fund for very conservative investors.
Investors with a long term time horizon can buy equity funds. Long term investment is all about buying into quality companies after a lot of research, evaluating them for what they can deliver in earnings and ensuring that evaluation is rigorous, credible and unrelenting over a long period of time. Long-term value will be delivered by the value that the businesses create, which is directly reflected in the earnings growth and hence the valuation of the company.
Volatility in the market reflects a shortterm view of what the value of a particular share is. Over the last 5-10 years, we have seen several volatile periods, and have delivered growth not only in returns but also in assets. In the last five years, we have grown almost every quarter without exception, in every asset class and every parameter — assets under management, number of investors, earnings per share (EPS), return on equity (ROE).
With an anticipated recession in the US and a similar decline in other global markets, how is the company hedging its risks against investments made in foreign markets?
Ours is a simple mantra. Irrespective of market trends or economical cycles, investors should come to equity funds only for the long term and with a view of not less than three years. This is very important as it is linked to the long-term value we can create for our investors. We discourage investors with a short-term view from coming to equity funds.
It is very easy to get short-term money from the market and show assets growth, but our strategy has been to build investor expectations in line with long term market reality. Most of the investors have thus stayed with us for the longterm. Surprisingly, in the last couple of months, with the market being volatile, we have actually had inflows almost every day, which is a testimony to the success of our strategy.
How is the advent of foreign players impacting the growth of Indian asset management companies? What is the impact on investors?
The advent of foreign players definitely benefits any industry and enhanced global competition benefits investors. Given the fact that the Indian mutual fund market has just started growing, the penetration is very low. Most of our large competitors are owned by global brands. In our view quality competition is very welcome as it lifts the overall level of the game.
The Tata Group as a whole is charting new territories with an aim to become a global company. How does Tata Mutual Fund align itself with this goal?
We started an overseas fund two and a half years ago.We give non-binding advice from here. The fund has close to a billion dollars in assets, which has been raised from over 50,000 overseas investors. That has been a great learning. We are now present directly or through
representatives in five countries.We will be raising assets from these countries over the next year.
Our view is that India will be an important investment destination in the years to come.We will be positioning our skills for global investors and we should provide them with high quality experience of investing. The early experience has been very good, especially the fund in Japan, which has already declared a dividend of 27 per cent. In an economy like Japan, this is of immense value. The investors have been delighted and are investing more with us. This experience will hopefully help us build the other overseas franchises.
What can investors look forward to from Tata Mutual Fund in the next few years?
There are five broad investment themes that we feel will deliver value to investors. One is the local consumption demand growth, a mega trend with a large and growing population becoming more affluent and therefore increasing consumption.The second theme is that of native skill endowment. Indians are one of the best in IT and pharmaceuticals. New areas will emerge in the future, like semi-conductor technologies, etc. Thiswill provide value creation opportunities.
The third is infrastructure.We have been bullish on infrastructure and are industry leaders in launching India’s first infrastructure fund. I believe that this area will drive the growth of the Indian economy. The fourth area is linked to domestic financial intermediation. India has a high savings rate and India also needs to create assets. Somebody has to intermediate between savings and investment in these assets. Hence financial intermediaries like banks will do very well in India.
Lastly, global cost arbitrage is also an important theme. This has worked across various industries. These investment opportunities have evolved over the last decade, and will continue over the next decade too. The relative emphasis on these themes will shift depending on the market’s liking, but broadly these themes will create value.
The Tata Group has a legacy of doing things differently, with an approach of reaching the common man. How is this ideology been ingrained in Tata Mutual Fund?
We have done many things in our efforts to reach the common man. Ultimately, the individual investor needs advice on what to do with their savings, they need access, proper periodic feedback and returns in line with their long-term goals.
We work with a large number of distribution partners and franchisees, holding 200-300 road shows every year and educating investors. By providing very low minimum denominations of Rs500, any investor can invest in our products.
We also work with a large number of banks, for example with the State Bank of India, to reach small towns and villages in the country. We communicate periodically, as to how our funds have performed.
Most important, we have a proactive stance in declaring dividends whenever we have had profits in funds to ensure that investors get revenue on their investments. Our track record for declaring dividends has been very intense. Some of our funds have declared multiple dividends.