Bajaj Finserv AMC, India’s 41st mutual fund house, is gearing up to launch inaugural new fund offers (NFOs). With 87 funds filed across equity, debt and hybrid categories, Bajaj Finserv seeks to capitalize on its existing 100 million customers, leveraging its clientele for the new fund house. To lead this initiative, Nimesh Chandan, a former fund manager at Canara Robeco AMC, has been appointed as the chief investment officer, while the group’s head of strategy and a former BCG Partner Ganesh Mohan takes on the role of chief executive. In an exclusive interview, Sanjiv Bajaj, chairman and managing director, Bajaj Finserv, and Mohan, share insights into their vision and strategy. Edited excerpts:
Why are you launching Bajaj Finserv AMC?
Bajaj: Our journey began in 2007. We decided to focus on India’s middle class because they knew us well. They already bought scooters, motorcycles and electrical appliances from us. We started with the early part of a person’s life cycle—getting a loan. So, we started expanding Bajaj Finance. We then said, okay, as a person makes a lot of money, they will buy a house, or a two-wheeler and a four-wheeler. So, asset protection and life protection came in the form of general and life insurance. And accordingly, we started setting up each business. We applied for the mutual fund licence in 2011. That was around the time when the Securities and Exchange Board of India (Sebi) dramatically changed its first set of regulations for MFs and cut its commissions. We decided we would wait for those things to settle down.
Then we built our digital distribution. We let the customer start experiencing our products. The biggest challenge for any new fintech or insurtech firm is your customer acquisition cost. We pay to get customers on board one time. After that we never pay. The first time also, acquisition cost is not direct the way startups are paying. For us, it is our investment in digital, in 150,000 stores, in creating a strong sales team.
Two, we realised that a large number of distributors are common across different products and services. So, now we have a large number of distributors who know what is different and unique about us. Our focus has always been the right product, with transparency. For example, even in 0% financing our documentation says what our IRR (internal rate of return) is, because the manufacturer is paying us. Third, is the entire culture we have built on empowerment, innovation, the rewards for our teams, for them to feel like owners in building their businesses rather than a top down approach. Simple things like being in Pune, and not being in Mumbai, was a very conscious decision 10 years ago, to signal that we don’t wish to be in the midst of all that noise in Mumbai.
What will set apart Bajaj Finserv AMC?
Mohan: There are three possible sources of alpha. One is information. But today, we all get the same information, so that isn’t a big edge. The second is analysis. Can you process that information with better tools and models? Again here, there’s still some juice but by and large it’s squeezed. That brings us to the third and the biggest advantage, which we believe is really going to be the key driver for the future, that is, the behavioural edge. Can we keep on improving on our decision-making ability over a period of time, using the right kinds of checklists, templates, nudges, as well as tools screeners? That’s the edge we aim for.
You will need five years to establish a track record. So, shouldn’t you have launched earlier?
Mohan: We have built-in experience of investment management in group businesses such as insurance. Plus, our fund managers individually have a huge amount of industry experience.
What will set your products apart?
Mohan: We will only launch products where we see a definite scope for alpha. For example, we will not launch a large cap fund where you end up tracking or mimicking the index for 75-80% of your portfolio.
Distributor margins are shrinking and expense ratios are getting lowered. Isn’t this a challenge?
Mohan: As any industry matures, margins shrink. To compensate for it, the industry has higher volumes. We think distributors can compensate for shrinking commissions by expanding volumes.
Can you sell MFs to loan customers?
Bajaj: Today on the Bajaj Finance app we distribute many MFs. As a lending institution, it is allowed. This is not allowed in insurance by the insurance regulator, which does not allow an insurance company to sell any other products to customers. We have been presenting other financial products to customers of one product for the past 10-15 years at their concurrences within the framework of the law. The ability to be visible and present itself is a very big advantage.
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Updated: 07 Jun 2023, 09:02 AM IST