Changing gears: Bandhan MF plans to unlock its growth potential

How does the acquisition help Bandhan Group? it is growing rapidly now 40 trillion mutual fund (MF) industry. And Bandhan MF can take advantage of the many outlets of Bandhan Bank in rural areas. And, it has already implemented its expansion plans.

debt side story

Bandhan MF did According to data from the Association of Mutual Funds in India (Amfi), the average assets under management (AUM) stood at Rs 1.18 trillion in the December quarter. It is the 9th largest fund house in the country.

The asset mix of the fund house is tilted towards debt schemes. Did Of the 1.18 trillion AUM, 60% is in debt funds, 21% in equity funds and the rest in various asset classes.

Experts say that what has worked in favor of the fund house is the performance of its debt schemes. “The fund house has followed a well-structured investment process and has shown strong competence on interest rate calls and credit selection. As an investment philosophy, the fund house has always focused on high-rated securities across the credit spectrum, even before the credit crunch emerged in 2018,” says Kaustubh Belapurkar, director, fund research, Morningstar.

“We recognize the need to offer high quality fixed income products with mostly medium-term risks over relevant investment time horizons as a core set of fixed income offerings. In addition, we have a suite of satellite products Which takes high credit or duration risk as mandated. This framework has helped us navigate investment risks better, backed by a robust credit research process and team,” Suyash Chowdhary, Head-Fixed Income, Bandhan MF is called.

“Additionally, we conduct in-house macro-economic research and analysis, which is a key input into our term risk management,” he says.

While the fund house has done well on the debt side in terms of performance, it has been more of a mixed bag on the equity side.

For example, Bandhan Flexi Cap has given a CAGR (Compound Annual Growth Rate) return of 14.4% over a three year period as against the category average of 19.1%. Over a five year period, the fund has given 6.9% CAGR returns as against the category average of 10.1%.

Bandhan Focused Equity has given a CAGR return of 12.6% (see graphic) over a three-year period against the category average of 18.8%. Over a five year period, the fund has given 4.9% CAGR returns as against the category average of 9.4%.

Bandhan Emerging Businesses Fund, a small cap fund launched in 2020, has given a CAGR return of 28.7% over a three year period as against the category average of 32.2%.

On the other hand, the fund house has delivered strong performance in its Equity Linked Savings Scheme and Value Fund. Bandhan Tax Advantage has given a CAGR return of 28.2% over a period of three years as against the category average return of 19.1%. Bandhan Sterling Value has given a CAGR return of 31.6% over a period of three years as against the category average return of 24%.

equity puzzle

Equity scheme performance is important for any fund house as equity schemes usually get more sticky retail inflows, while debt schemes usually get bigger inflows from institutional investors.

Bandhan MF CEO Vishal Kapoor says the fund house needs to take steps to improve performance in some key categories.

In this direction, Manish Gunwani, who takes over as Head-Equity from Anoop Bhaskar, has been tasked with increasing the stock coverage in the fund house from 250 to over 400 and strengthening its equity research team. Belapurkar explains, “While Bandhan MF had a robust investment process on the equity side, Gunavani will bring additional focus and granularity to the investment process.”

Kapoor says that learning and fine-tuning the investment process is part of a continuous process for a fund house. “With every new market cycle, there is a new learning. We are discussing whether it is possible to use certain risk indicators more actively, which could bring more stability and give early warning alerts to fund managers he says.

According to Gunwani, a lot of risk management metrics are value-oriented. “But price is one outcome that one cannot control. So, it cannot be the starting point. I feel that as an active fund manager, there are three fundamental risks that need to be managed – business model, management and evaluation,” he says.

“The underlying assumption of active fund management is that the current stock price does not fully reflect the value of the company being considered for investment. Therefore, a price-based or benchmark-based risk management tool is a good starting point.” No,” he says.

Cross-learning can also happen within the fund house itself. For example, the fund house also runs AI-based investment products under its portfolio management services (PMS). Kapoor says that this PMS, unlike others in the industry, gives more priority to risk management.

Will Bandhan’s reach help?

Bandhan Bank has 5,639 banking outlets across the country, of which more than 70% are in semi-urban and rural areas. The rest are in metro and urban locations.

Gaurav Parija, head-sales and marketing, Bandhan MF, says, “For the next two-three years, the sales team is looking to strengthen the already existing distribution channels and strengthen their presence there.”

For now, Bandhan Bank is in the early stages of its Wealth Management offering. Its income from MF distribution was justified 3.7 crore by March 31, 2022, against 527 cr of MF assets.

The team at Bandhan MF sees the potential advantage of having an inhouse bank for MF distribution, but its benefits will have to wait for now.

“Bandhan Bank is looking to expand their wealth management, they are setting up systems, they are hiring people. We will work closely with them like any other partner and provide best-in-class training, certifications. And if at the end of the day they see what we’re doing, hopefully they’ll give us a bigger share,” says Parija.

Apart from focusing on increasing the retail share, the fund house is also looking to grow its institutional investor base. Currently, it has 51 folios or investment accounts in the institutional category (including banks and financial institutions) with assets under management 1,310 crores. Kapoor says the fund house is also exploring the opportunity to manage overseas funds through GIFT City (Gujarat International Finance Tec-City).