The Hindu Business Line : Lotus India gearing up for real estate funds

Mumbai, Feb. 17 Lotus India Mutual Fund, which came into existence in late 2006, currently has Rs 10,000 crore of assets under management (AUM). Mr Ajay Bagga, CEO of Lotus India Asset Management Company, spoke to Business Line about the recent market volatility, touching on retail participation, products and processes, and opportunities for the mutual fund industry.

Lotus India Asset Management Company a joint venture between Fullerton Fund Management Company — a subsidiary of Singapore-based Temasek Holdings — and Rana Talwar-led Sabre Capital Worldwide.

What do you have to say about the recent market volatility?

We were anticipating it to some extent. From October onwards we were rejigging our portfolio to come out of the high beta sectors and into more defensive sectors where we found value. We did buy in January, because we got good inflows.

There were no outflows; literally there were no redemptions from retail or HNIs, but only from a few corporate investors who had cash flow calls. People were trying to average out their holdings and were bargain hunting. Nobody was willing to convert paper loss into actual loss, which shows that Indian investors have matured.

How have you managed to get past the Rs 10,000-crore AUM mark in one-year’s time?

Overall the macro story is a huge opportunity, what has worked for us is putting upfront infrastructure in place. We have presence in 60 locations with 200 people of our own, helping us in getting acceptability fast.

We were quick in launching a lot of innovative products, we were the first to launch quantitative model-based equity fund and tax saving fund. We launched the entire range of debt products early last year, anticipating a fall in rates.

Have you managed to reach out to investors beyond the metros?

We have very strong distribution relationship. Today we have 9,200 distributors to sell our products across the country. We have tried to find out what exactly the distributors needed to service customers and tried to fulfil that need and that has helped us a lot.

The Uttar Pradesh and Uttarakhand does more retail business for us than our Delhi branch because in these two States we are present in 14 locations. Secondly, in any given fund nearly 6,000 distributors are selling the product. We already have 1.5-lakh investors with us in a short period of a year.

We have 8,000 SIPs (Systematic Investment Plans), starting from Rs 100 with no load. We want to take it to a lakh SIPs in three years. Also, investors have the choice to get the interest on their bank deposits automatically transferred every month into SIP, so their principal stays as fixed deposit and the interest goes as SIP. We are looking at innovative products and processes to really go deep into retail.

Tell us about the innovative products launched by the fund house.

Lotus recently became the first mutual fund house to launch a ‘Quant Fund’ called Lotus India Agile Fund, which works on a mathematical model back tested for the last 11 years. Stocks are selected based on quantitative analysis by computer-based models. The fund has 11 stocks where it invests 9 per cent of the total corpus in each of these 11 stocks.

The portfolio is reviewed and reset every month, whereby one or two stocks are rejigged. So far we were trying for adequate representation in equity and debt products. Lotus has now 10 products on the equity side and 7 products on the debt side, we need 3-4 more equity products and then we will go for more exotic products like Real Estate and Gold Exchange Traded Fund.

As soon as the SEBI guidelines come through we will file for real estate Funds. We are a strong real estate player; our parent Fullerton Fund Management and various other subsidiaries of Temasek run real estate trusts around Asia. So we hope to leverage their experience to launch products in India.

What steps are needed to further develop the mutual fund industry and how big is the opportunity?

What we need is pension reforms, we need the PFRDA Bill cleared. After reforms in the US in 1981, close to $4 trillion of the US pension money is now mostly invested in equities.

We also need freedom for the banks to invest their investible surplus in the capital markets. Household savings have been growing at 15 per cent per annum for the last five years and we are looking at a pool of $300 billion as household savings per annum, and still mutual funds are getting a miniscule amount out of that. Overall, the macro story is a huge opportunity.

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