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Saturday, Aug 13, 2005

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Principal Mutual betting on PSU banks for expansion

Aarati Krishnan

Chennai , Aug. 12

PRINCIPAL Mutual Fund says it is looking at a "customer-oriented" rather than "distributor- oriented" strategy to grow its mutual fund business. It hopes to route a larger proportion of its mutual fund sales through public sector banks.

"They are focused on long term relationships with their clients and bring in the real retail money," said Mr Sanjay Sachdev, Managing Director and CEO, Principal PNB Asset Management Company. Principal will continue to sell its products through the private and foreign banks that today dominate the distribution of mutual funds.

The fund has been forging a series of distribution tie-ups with public sector banks. After its recent alliance with Indian Overseas Bank, Principal's products will be distributed by five public sector banks - Vijaya Bank, Punjab National Bank, Union Bank, Andhra Bank and Indian Overseas Bank. He says that public sector banks have a long-standing relationship with their customers and thus, would not be driven by short-term considerations like commissions, while advising clients on what funds they should buy or sell.

"We are marching to a different drummer. We are not focused on ramping up our assets under management; instead we want steady growth," explains Mr Sachdev. He says Principal discourages investors with "churn" on their mind and wants to acquire those who are willing to take at least a three-year view on their investment. This approach has contributed to a steady growth in assets over the past couple of years. Principal claims its investor base has nearly tripled from 1.4 lakh to 4.5 lakh investors over the past 18 months, while equity assets under management have also expanded sharply.

The fund prefers to take an equally conservative tack when it comes to fund management strategies. "I do not encourage our fund managers to top the (return) rankings in any month or quarter. The focus is on consistent returns, low-risk strategies and good performance over a three-year period," he says.

Asked about the expanding universe of mid-cap and small-cap stocks, Mr Sachdev says that the fund takes a conservative approach to such stocks.

"Admitted, there are quality companies in the mid-cap space and today, in a bull market, there is good liquidity in these stocks. But we have to construct our portfolios with the bad times in mind, as well," he cautions. Going against the market trend, Principal is now rolling out a large-cap fund, which will invest exclusively in stocks with a market capitalisation of over Rs 2,000 crore, as "there are many quality companies in this space that one can invest in".

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