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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to Q1 FY '22 Earnings Conference Call of HDFC Asset Management Company Limited. [Operator Instructions] Please note that this conference is being recorded.From the management team, we have Mr. Navneet Munot, MD and CEO; Mr. Piyush Surana, Chief Financial Officer; and Mr. Simal Kanuga, Chief Investor Relations Officer.I now hand the conference over to Mr. Simal Kanuga, who will give us a brief, following which we will proceed with the question-and-answer session.Thank you, and over to you, Mr. Simal.
Thank you so much. Good evening, everyone, and thank you very much for getting on to this call. Our presentation is available on our website as well as that of the exchanges. As usual, we'll start off with an update on the industry, and then follow it up with our company. We'll open it up for questions after that.The first quarter of the current financial year has seen healthy inflows into equity-oriented funds as against an outflow of INR 84 billion in quarter end March '21. This quarter for net inflow will be INR 251 billion. We have seen reversal in trends from the month of March 2021, and that continues as we speak.The interesting thing that we have observe dis gross equity flows. The average monthly gross flows for the financial year ended March '21 was INR 237 billion as against that average monthly gross flows for the first quarter of the current financial year was INR 337 billion. Average monthly reductions, which were INR 290 billion in last financial year, lead to INR 253 billion in this quarter.Net funds saw outflows of INR 20 billion, while liquid funds witnessed inflows of INR 95 billion. Other, which include ETFs, arbitrage funds and hedge funds, investing overseas, continued to see healthy inflows. Individual folios for the first time had crossed 100 million mark, ended at 102 million as of June end. Individual AUM is INR 18.3 billion, with 70% of that in equity-oriented funds. B-30 continues to be at 16% of the overall industry AUM and 27% of equity-oriented AUM. SIP flows, as you would all know, for the month of June 2021 was INR 92 billion. We will now move to our company. We closed the quarter with AUM of INR 4,187 billion, market share of 12.4%. The quarterly average AUM of INR 4,169 billion, market share of 12.6%. For reasons mentioned in earlier calls, we also present market share and AUM data. Our market share in quarterly average AUM, as seen here, is at 13.7%, while closing basis, it is at 13.6%. In terms of actively managed equity-oriented AUM, our market share stands at 12.9% on QA AUM basis and 12.6% on closing AUM basis. At this point, it would be pertinent for us to mention that we recently concluded a sectoral NFO banking and financial services fund.During the quarter, we had also launched asset allocation fund of funds, which has seen healthy response. Our market share in debt is at 14.5% in QA AUM and 14.7% in closing AUM. In liquid, it is at 15.5% and 15.9% in QA AUM and closing AUM, respectively.We continue to have a favorable asset mix as compared to that of industry in terms of higher proportion of equity assets. 57.9% of our AUM comes from individual investors. Comparable number for industry is 53.7%. We continue to enjoy highest market share in individual AUM, and that stands at 13.5%. We processed systematic transactions, adding up to INR 9.8 billion in month of June 2021. The number we report is on actual cash flow basis. For the quarter as a whole, we received inflows to the tune of INR 28.3 billion through systematic transactions.When we are on topic of systematic transaction, we would like to highlight an interesting campaign we ran in a month or 2. We called it NurtureNature and committed to plant a tree for every new SIP that got digitally registered in equity-oriented strategy. We planned this around World Environment Day and ran it for a couple of things. The results were truly encouraging and for strong interest across the country. Our B-30 market share of 11.5% makes us a distant #2.On the digital front, we are making some material changes. We have recently refreshed our mobile app, simple and powerful. And the feedback we are getting on this is truly encouraging. I think rather than stating what all we are doing, it would be good for us to update all of you as and when we get done. You will definitely hear much more from us on this. We continue our journey in creating a state-of-the-art digital infrastructure and leveraging on this for enhancing customer experience. We now move to financials. The company has showed an improved performance during quarter ended June 30, 2021, as compared to corresponding quarter end 2020. The revenues from operations increased due to an increase in AUM as well as more remunerative mix with higher percentage of equity AUM. However, during the quarter, the company incurred additional business promotion expenses. Since such cumulative expenses are accounted for in the books of the scheme, they result in lower management fees to the company. The company has also seen some dilution in margin due to a reduction in total expense ratio in equity scheme due to increase in the size. Other income was higher in this quarter on larger book size and mark-to-market gain on investments.In February 2021, a grant of ESOP was made to certain employees, and the expense -- employee benefit expense includes the pro rata amortization of the fair value of the ESOP as required by Indian accounting framework applicable to the company. This is a noncash charge, which is not as deductible and is book value neutral. In quarter 1 FY '22, this noncash charge amounted to INR 176 million.Besides this, employee benefit expense also showed increase as the company resumed its practice of annual increments in employee remuneration after taking a break from the back of last year due to COVID-19 pandemic. This allowance of certain expenses and higher tax on company's investment income has contributed to the increase in company tax rate.We now move to financial highlights for the quarter. The numbers for the quarter are as follows: the operating profit of the company for quarter ended June 30, 2021, was INR 3,652 million as compared to INR 3,006 million for the quarter ended June 30, 2020, an increase of 21%. Profit before tax for the quarter ended June 30, 2021, was up by 23% to INR 4,661 million as compared to INR 3,804 million for the quarter ended 2020. Profit after tax for the quarter ended June 30, 2021, was INR 3,454 million as compared to INR 3,024 million for the quarter ended June 30, 2020, an increase of 14%. Our operating margin now stands at 35 basis points for the quarter ended June 30, 2021, as compared to 34 basis points for the quarter ended June 30, 2020.We would now like to open up for questions. As Neera announced, we have both Navneet and Piyush here. We'll be happy to take questions, if any.Neera, we can open the line for questions.
[Operator Instructions] The first question is from the line of [ Shalijah ] from [ Concept Investments ].
My first question is, what is the target equity, non-equity mix for the next 2 to 3 years?
[ Shalijah ], we do not have a target as such, but you would have noticed that our share is better than the overall industry share. Our overall equity within the overall assets is higher than the rest of the industry, and we would love to see that going forward.
Okay. And my second question is like we've been seeing a continuous decline in our market share for over a year now. So what do you think is attributable for this goal? And what are we doing in this point to this thing?
So I think Simal has mentioned earlier, first of all, when you look at the market share, the more relevant data to be seen, mainly data on the Slide 8, which is the market share, excluding ETF. Because you know that the ETF AUM here has over 80% of the AUM from 2 [ AMCs ] and also from the government disinvestment program in the PSU and ETFs. But of course, we have seen a marginal decline in the market share of ETFs AUM as well.But we wouldn't read too much into it. Are we worried? No, but we are definitely doing something to change it. No doubt about it, of course, here. We continue with our efforts and focus, which we are hopeful and confident will result in a healthy market share. We believe that we have all the necessary ingredients in place. These things, whether we like it or not, are not a straight line. We do go through gyrations.As you are aware, there has been a period where some of our equity funds aren't doing as well. There has been a significant improvement in the government, some of the funds are in top quartile or even in top decile in the last '21 performance. Even the performance over 3 and 5 years has started looking good and being recognized by our distribution partners as well as clients. We have been making efforts on all accounts, including better connectivity with our partners to spread this message. You would have seen some of the other marketing campaigns recently. Simal talked about the NurtureNature campaign that we did as an ESG initiative, but also it has -- the digital adoption of our digital assets as well as increase in the flows into SIPs, bringing new investors and then new partners into our fold and a variety of other initiatives that are underway, which gives us confidence that over a period of time, you would see improvement in market share.
Okay. And by the way, do we see our market share getting back to 23% like it was earlier?
So as Simal talked about, think about it -- some of the product gaps, so some of the categories where we were not fully present. I mean as you know that from 2018 onwards, as per the SEBI classification, there are 4 categories where in equity, we have been the largest player in fixed income. We are present in almost all categories across duration and credit products. And of course, we are the largest player on the money markets side. But there are a few categories like sector and thematic funds, passive products, both ETF and index funds, international funds and then, of course, some of the fund of funds. Some of these categories, our product bouquet wasn't full. But over the last couple of quarters, we have launched a few products. We are going to have some more products over the next several quarters. In fact, Simal can correct me that last quarter, we had 2 NFOs, which I don't remember when is the last time HDFC AMC had 2 NFOs in 1 quarter. And both of them met with very good response from our partners and investors. And we believe that all of these efforts, including the performance improvement, would be noticed by the market. And we should be able to see a gradual improvement in the market share.
The next question is from the line of Aditya Jain from Citigroup.
On the equity AUM growth quarter-over-quarter, these 2 have been decent. Can you talk about -- qualitatively talk about what kind of market share you are seeing in flows? Is it improving? Roughly what region is it in?
So Aditya, we don't give the number on the flows for the competitive reason. I think, over the quarters or years, we have mentioned that, we have repeated that point. But overall, as you know, that in the industry, flows have reversed. For 9-odd months, industry were seeing outflows. Over the last 3 or 4 months, industry has started seeing positive flow. We believe that -- I think over the next several quarters, equity flow should remain healthy.
Got it. On the income...
Specifically, if you're asking about our funds, I think some of our funds managed by the newer fund managers who joined us in the last 1 or 2 years, they have seen good traction, whereas the new fund that got launched in December quarter, the dividend yield fund, the large and mid-cap fund, focused equity fund, multi-strategy, multi-asset fund, I think some of these funds have seen good traction over the last few months. And of course, we've been highlighting the fact that the [ fund ] has improved across the board. And over the product time, we should see flows coming back across all categories.
Got it. On the ESOP cost, could you say what are the expected numbers for full year FY '22 and then '23? I assume those will be clear number, but that's what they are from a modeling portion?
So I'll take this one. Last call, we had talked about the ESOP and the structure of the ESOP, which is vesting over 3 years, right, and 1/3 vesting this year. So -- and the second vesting is after 2 years and the third one after 3 years.So the costs that you see are upfronted in the first year because the first year has the full cost of the first tranche, half the cost of the second tranche and 1/3 of the cost of the third tranche. And since these were granted in February, so one full year gets over in Feb. So this cost that you've seen this quarter, logically speaking, you would see the same cost in the next 2 quarters. And the last quarter, it would dip.And then the next 2 years would be a lower cost based on the vesting schedule that I just talked. So you could kind of based on this information do some calculation and figure out what would be the likely cost.
Got it. Okay. And then just last thing, you were -- you mentioned briefly about your own digital investments. Could you talk about how significant they are or how they are placed versus new digital channels like apps like Groww and Paytm Money and INDwealth? So how important is the own acquisition versus thought the third-party apps, which are getting good traction these days?
So I think Simal talked about refresh that by -- due to -- to use the app and have a feel for yourself, being able to voice search on our corporate website, being able -- DPI gateway for third-party integration with some of the distributors. We've got an R&D with access on mobile solution to partners. I mean I can go on, but as -- I think I say this that isn't a lot about culture, it's about mindset. It's about people's participation and making it a way of life for your people. It's not only about technology, applications, portal or the app. But it's about ingraining a culture of automation, a culture of customer centricity, removing every possible friction in their journey, moving from, I would say, a KYC to UIC, know your customer to understand your customer. Enabling our partners to scale up their business. How do we use data and analytics in every part of our business? How can we automate our processes? So all I would say is that -- I mean, digital is going to be the backbone of everything we do, entire ecosystem. I mean even at the cost of repeating some of the things I mentioned. How do we serve our customers? How do we make their journey like as frictionless as possible? How do we onboard a new distributor? How do we serve those distributors? How analytics can help them in upselling? How do we deliver our content better? We make it a more contextual and more consumable. So it's about a variety of things and then making the organization future ready. We have good digital assets over the years, we've been investing. We'll be investing a lot more in that as we speak.
The next question is from the line of Kunal Thanvi from Banyan Tree Advisors.
Congratulations to the team for a decent set of numbers. And I hope the team at HDFC is doing well and safe.So I have 2 questions. The first question was on the SIP market share. We see SIP market share has been trending down. And just wanted a comment on what was the driver in the market share fall? Is it the lower number of new SIPs or high cancellations? Because what we've been seeing in the overall industry number is that there has been significant rise in the usage, and the cancellation is a bit more plateaued. So how is HDFC AMC seeing this similar trend from the company perspective?
So of course, I mean you would know, Kunal, over the years, I think we have been clearly a leader in the SIP. In fact, more than a decade back, where SIPs were not as prevalent, I think we were one of the largest player in the SIP market. We have worked very hard as an organization to promote the concept of SIP in the mutual fund industry.In fact, I mean over the years, when you have a cycle, which is not in your favor, when performance took a dip, we also saw a little bit of cancellation, less addition of the new SIPs. As we discussed here when we talked about the flows coming back into equities, we expect the same thing to happen in the SIP book as well. A couple of other initiatives that we have taken off late, they also include how do we retain our leadership on the SIP front. That's very, very critical component of our business growth strategy. It has always been and will always be.
Sure. I get it. The reason I asked this question like -- and maybe a follow-up on the same. One thing that we hear across the industry is that the digital players, be it the Groww, the ETMONEYs of the world, the PhonePes of the world, we are driving them new addition in the SIP. In the last call, we had also mentioned -- we talked about it. So how are they built with these third-party apps in terms of getting like new customers that are entering the market?
So every possible thing, I mean, working with all our partners who historically have helped us in building the SIP book, whether they are the banks or the national distributors or the MFDs, large or small, as well as the fintechs are another set of partners for us. So we will be -- we have been a partner with all of them.As I mentioned that, as noted, I mean, we intensify our efforts in better partnership with them as we improve our overall capabilities. I see no reason that even in the fintech space, why our market share should not be higher than where it is currently. And a couple of other things, I think Simal talked about at the NurtureNature campaign, and we were very pleased by the response of investors and our partners. We will be taking more initiatives to ensure that we get our fair share of the SIPs. Apart from there, I would also say that it's a lot about market making. One is getting the market share from what we deserve, HDFC AMC, but also the -- one can talk about the INR 9,200 crores of SIP flow. But looking at the overall savings pool, that number should be much larger over the next several years. And I think as a leading industry player, we will do whatever it takes to ensure that not only work on gaining the market share from the current book, but also work as a collaborator with other industry players how do we grow that substantially.So working with millennials, I mean providing the best possible investment education and providing the best possible transaction tool to millennials. Several of them over the last 1 year or 15 months, we have seen have got a lot more attracted towards direct investing. We believe that for long-term value creation, it's important that they don't take the focus away from mutual fund products, particularly through the SIP route.And whether it's our marketing strategy, whether it's our digital strategy, whether whatever initiatives we are taking on being more pricing centered, being more customer-centered, I think, and moving from client services to a client delight or a customer delight, I think all of those should help us in helping the industry and expanding that market.
The next question is from the line of Prakash Kapadia from Anived Portfolio Managers.
I have 2 questions. Clearly, if I look at the last 1 year first in the lockdown, the share of [indiscernible] as well as individual investors in cash volume has been steadily increasing. It's always been like 2/3 of the overall cash share volumes. Typically, what happens when this changes? Because somewhere this direct route of investing market has to rationalize. And when this correction happens, do we see immediate flows to mutual funds coming soon or they come with a lag? What typically happens? Because we've seen so many cycles across markets. What typically happens? Do these investors come back to mutual funds, and they have a larger role to play in mutual funds because some of them burn their fingers and they come back but with a lag? That's the first question. And secondly, if you could quantify the amount raised last quarter through NFO?
If I can interrupt the question is on direct equity versus mutual fund participation by HNI?
Yes. Because currently, we are seeing this euphoria. So what happens when these changes? Do we see more participation in mutual funds when this normalizes, when they burn their fingers? Do they come back? Do they come back with a vengeance? Do they come back with a lag? If you could put some...
We have seen that, Prakash. I mean it's not the first in the market. We have seen it earlier also, 2007 or '99, 2000 or in '91, '92. Industry has gone through these phases. I mean there are always -- and moneymaking becomes a lot easier. The way it has been in the last 12, 14 months, a lot of people get attracted to direct investing over a period of time. They realize the benefit of professional management and giving money to mutual funds.We believe that I think over a period of time, we should be able to start getting that share. I'm talking about the industry as a whole and, of course, for us as well. And I think the -- one of the messages that for industry as well as we would be working very hard is value creation is not about like trying to make money on a daily or weekly basis. But value creation, if you've seen some of our recent campaigns, is about what we are calling STP, a sound investment, plus time, plus patience.And it clearly exhibited that as an industry, I mean if I look at some of our products which have got 20, 25 years of track record and the compounding that has happened that people who invested INR 1 lakh 25 years back, they have like INR 80 lakh, INR 85 lakh or INR 90 lakh or a INR 10,000 SIP over a 25-year period has become INR 8 or INR 9 crores. As we go around and spread that message more strongly and make our UI, UX, which they see while trading in the secondary market or investing in IPO, when they see use our use of transaction as easy as that or as, I would say, user-friendly as that, hopefully, I think we should be able to get that back.But globally, I mean, we are seeing the same thing. There are a large number of newer investors who are entering the equity market or rather, I would say, capital markets. And yes, I mean, one of the savings option, as long as we are able to provide a better experience and give our story better that in the lower end, it's better, you compound your money by giving money to professional fund managers like us. I think we should be able to benefit from that trend. I think the trend is very welcome. Honestly, if you ask me, I will -- more than 10 million accounts have got opened in demand. I think that shows that the interest in the capital market is just as how our industry makes our product as appealing to -- I mean the proposition is appealing to these investors. And hopefully, we should also benefit from that.
Right. And if you could quantify the amount raised through NFO during the last quarter?
So I think in our asset allocator fund, it is around INR 1,100 crores. In our BFSI fund, it was INR 1,877 crores, if I remember correctly. Yes.
And lastly, you did mention about this cycle. So within the cycle, assuming the cycle has to reverse and normalize sooner or later, so that flows then come immediately. People realized, okay, I'm better off making 15%, 18% rather than making that quick buck and then losing everything. So does that happen with the lag in terms of these individual investors coming back to mutual fund? Or it typically takes its own time and effort once the market normalizes?
I think a part of this, what we are seeing this time is structural. Maybe I think some people think that they can manage and they can invest directly in stock. I mean there is a good experience they've got, maybe they want to continue. A lot of investors who have entered recently over a period of time as they make money, they might give that money to the professional fund managers and start refocusing on their own profession or their own business. I think that would be a faster utilization of time on a lighter note. I think it's -- we'll have to wait and watch, I mean, what is that tipping point where the new mutual fund folios are greater than the new demat accounts.I mean I'll just give you a data point. Between 2017 and 2020, if I remember correctly, our peak investor grew at like 70% or so in absolute numbers. And during that time, the demat accounts increased by like somewhere around 40%, 50%, so which are adding more unique investors than the demat accounts, where people who are entering the secondary market.Now in the last 1 year, that -- maybe 15 months or so, yes, that has reversed. I mean we have seen around 15% increase in unique investors, while the demat accounts, I mean, are growing at like 50% or so. But we have seen these cycles before. And as I mentioned, as long as our industry collaborates and the message that we have been delivering, which are [ funds are here ], as long as we are able to spread that message -- market is very large. I mean the underpenetration is so much that there would be enough scope for us to grow.
The next question is from the line of Prashant Kothari from Pictet.
I just want to quickly understand the means that we are seeing? I mean I understand from the 13 2.8 completion with the regulations. But why is it that the yields have not really gone up with equity mix looking favorable for us in the last quarter?
Are you talking about margin dilution?
No, I'm talking about the yield -- operating revenue, which is 49 basis points, why is it not kind of going back to FY '20 levels while the equity mix has certainly become better?
Let me talk about the margin compression a little bit. So I think it's -- I think, over the years, we have mentioned that margins are a function of the asset mix that we have equity -- money market. It's also a matter of flow versus the stock.And when I say asset mix within the asset class also. So when you talk about the debt, credit funds versus money market funds where margins are distinctly different. In equity also, there are products where margins are lower. There are products where margins are higher. Some of the newer funds, the money has been raised recently, payouts may have been higher. I mean the overall commission would have been higher versus the stock that we have. Payouts would be lower. It's a combination of a variety of things.Also, I think there has been some competitive pressure. You might have heard about some of the NFOs that have happened and the money has come at a higher cost for the industry. I'm talking about overall. And we have to be cognizant of that fact. And it's a fine balancing for us to look at growth versus margins when we play in our game.
Would you have any long-term view on where the margins could be after, let's say, 5, 10 years?
So I mean Piyush would have mentioned earlier several times that we look at equities more like around 80 basis points or so. And fixed income, it used to be like mid-30s, but it has fallen because the proportion has changed. People have, I would say, a different view on interest rates now as well as on the credit environment. And money has been at the front end of the curve where margins are lower. And of course, I mean, there is a bit of interest coming into the passive fund where margins are lower.I think over the next few years, in India, we still believe that active funds will continue to grow. And relatively, we have healthier margins than the industry even in the fixed income, the bouquet that we have, we believe that our margins can sustain where we are currently. And in fact, they were higher sometime back, but we hope that at least we should be able to maintain where we are currently. And we are exploring all options. I mean, looking at some of the categories where we are at present, I mentioned in the beginning, some of those products. And we provide the exposure to domestic investors to invest internationally, et cetera, to international funds. Over a period of time, we expect that the margins could be where they are. But I think globally, if we see the way margins have been under pressure in this industry with the move happening from active to passive and markets become more and more efficient, obviously, there would be some pressure, and I think we cannot deny that. How will we respond? So we will respond through, as I mentioned earlier, on a variety of initiatives on the digital and automation side, how we build that better operating leverage on that side and also exploring some other revenue streams.As of now, almost our entire revenue and profits come from our old product. There has been a very strong belief, which I agree that there is so much of a runway for growth in that space, given the massive underpenetration in India. At the same time, looking at the global play and also changing taste of various investors, I think that we would be open to look at what else we can do on the non-mutual fund side, which includes PMS and AIF, margins would be better. It's on the drawing board. Hopefully, we should be able to share over the next couple of quarters what we are thinking on, on that front. So on the core products, as the margins I gave you, that has been the case over the last few years. We hope that we should be able to sustain notwithstanding the competitive pressure that's emerging. But over a period of time, yes, if you look at the global trend, then definitely, India is on the higher side.
The next question is from the line of Prayesh Jain from Yes Securities.
Firstly, on the -- if I look at the AUM sequentially, we have moved from something like INR 1.66 trillion to INR 1.72 trillion. This is just a growth of 3% on a sequential basis, where the market returns it still has been pretty strong in the market inside of the mutual funds and sometimes given 6%, 7% enough returns or even higher. So does that mean that would have seen some outflows on the equity side?
Prayesh, the thing is I think you are watching those numbers that you mentioned, our quarterly average AUM, if you look at the closing AUM, it has gone up from INR 1,654 billion million to INR 1,805 billion in the quarter.So if you look at Page 9 of the presentation, on the right-hand side, we have given the closing AUM number. And that would just indicate that. So it basically -- in terms of -- if you look at 15,000-odd in the quarter has been the AUM. When you're looking at point-to-point market terms, you need to compare with this.
So even if you look that, Simal, this still seems to be -- considering that the market has seen sharp increase in flows, there seems to be some disconnect as to whether the -- are we seeing lesser addition?
Yes. We are seeing -- obviously, we've been -- and that is visible in the market share, right? So if you look at our market share number, the market share is -- what you're saying is absolutely right.
Okay. And Simal, on the liquid side, our market share is dipping sequentially as well. Any thoughts there?
I think we had a significant increase in our market share in liquid. I mean when crisis around March and April, obviously, money move to safe havens and we got higher flows within the liquid fund. But as the corporate requirement of money has gone up over the quarters, I mean, the overall in the liquid fund category has come down for us. And now market share is more reasonable where -- I mean it was exceptionally on the higher side last year.
Yes. I was talking more some of -- even some in Q4 onwards, Q4 to Q1 also our market share has dropped. Is there any specific reasons right there?
Liquid is very difficult to predict. I mean there's a shot of growth on corporate treasuries, institutions and some of the other investors, I mean, keep changing in line with the situation in the money market and it could be specific cases of a couple of investors coming in, now moving out on those particular days, yes.
Okay. Okay. And lastly, on the other income very sharp jump, but primarily because of NPM on equity side? Or what was the reason for that?
The other income has gone up for a couple of reasons. We've got some mark-to-market gains on some of the portfolio. Besides that, this whole business of the Essel Group NCD that we spoke about, so that is being set today. We talked about it, I think, on the last call also. And so we made some gains by selling off on that debenture..
Could you quantify the Essel part?
I don't think we want to get into quantifying it.
Okay. Sir, I was just trying to get the sustainability of the other income trend, other income.
So on that, if -- I wouldn't kind of look at this quarter as something that one could extrapolate there's certainly some which is likely to sustain because of the way interest rates are at this juncture. So there is a fair amount of here. But beyond that, I don't think we'd like to give any guidance.
But having said that, I mean, you can see our portfolios. I mean we are 88.5% invested in mutual funds, which is primarily liquid product. Again, 0.5% in arbitrage fund, which, again -- I mean, you would know where the prevailing yields are and remaining in debentures and tax rebonds. So you can look at prevailing yields and you can look at your own estimate. Also, look at the fact that the dividend payment is coming up in the next few days, which would take some money off the book.
The next question is from the line of Piran Engineer from CLSA.
Congrats on the quarter. I had a couple of questions. So firstly, regarding incremental margins being lower than back book margin. Now that has been a story that has been playing out since October 2018. Where are we now in that cycle? Is most of the back book repriced downwards? And probably will you see maybe just a couple of quarters of downward repricing? Or is this going to be a continued trend for at least a couple of years?
So Piran, we've talked about this before. And so this is going to last for some time. And as I've always mentioned, it's going to be difficult to project the rate and the time period for which this will happen. The back book, like we've talked in the past, was accumulated in a different dispensation and the flows are coming at a different price. So until they merge at some point in time, this is likely to continue to happen.
Okay. But is it fair to say that more than half of today's AUM has come, let's say, in the new pricing dispensation era, like in the last 2.5?
Piran, I don't think we can kind of give you any more information than what we've already done on this.
Okay, sure. No problem. And secondly, you mentioned about extra scheme-related expenses this quarter. Could you please quantify it?
No, not really, but some business development expenditures that we've started incurring for example, things like SIPs and stuff like that, so that is some additional expense that has happened. But I don't think we'll quantify that. From a competitive perspective, it doesn't make sense for us to do that.
Okay. okay. Got it. And just lastly, in terms of you speaking about partnering with fintech and being -- having your fair share of market share in that distribution channel, if you could just tell us how the commission rates look like in that channel versus a traditional distribution channel?
So some of them who have been gaining a large amount of new SIPs, they all bring the money in the direct plan. In fact, they have the RIA or not in the RNS fund distributors, some of them maybe with fund distributors, it would be a mix of that.
Okay. But if you put in regular plans, are your offerings at par commissions or lower or higher?
At par far, I guess. Yes.
The next question is from the line of Anshu from Edelweiss.
My question has been answered.
The next question is from the line of Saurabh from JPMorgan.
Sir, on the launches, how many more points are you expecting to do this year, the NFOs?
So we have talked about the categories where we would be looking at product launch. Among the core categories, multi-cap fund is something that we would be launching in sometime among sector. We would be expecting an MSC fund from us. On the whole passive side, there are a couple of products that we have lined up. The first we started would be an equal weight fund, and there are a few more in pipeline at various stages. One international fund, I mean, that's in the pipeline. So yes, we would -- we have our hands full for next couple of quarters.
But sir, I mean, for the full year, I mean, how much do we expect 4, 5 or?
I don't know whether it's 5 or it's 1. You have seen what we can collect versus maybe many others. It depends on the -- I think it's more about which category of product than what kind of money can be collected here. I don't think numbers mean that much, yes.
Okay, fair point. And sir, on this direct part, one is if you can quantify what's the IT budget at HDFC AMC? And second is, any sourcing that you get from these platforms as part of that direct sourcing or relative part of that national distributors?
So the platform that comes out of it into direct plan is part of direct only.
Okay, part of direct. So how much will be HDFC direct as in from your branches of that [indiscernible]?
So Saurabh, we have not broken out those numbers because it is like multichannel. Some bit of it comes on our website. Some bit of it comes through our physical branches, and then after the RIAs as well as the fintech platforms.
Okay. But the fintechs will be like -- I mean, can you give a -- I mean a rough range of where that number will it? Is it the dominant part of this part?
Of our current book, not dominant part for sure. Because SIP creation is a more recent phenomenon than an older one. And our book is like much...
No, no, sir, of the incremental, incremental?
On the incremental side, no, I don't think. Not in value on it. Numbers, maybe.
Okay. And the technology IT, will it be how much, sir?
I can't give you the amount of money. And then as I mentioned, I think part of it is CapEx, part of it is revenue expenditure. Part of it is like partnerships. Part of it is like our own development. It's just a combination of various things. So I think I won't be able to give you an IT project as such within the overall expenditures.
Okay. And just one final question, sir. I mean we are seeing some competition pushing a lot very aggressively now into passive ETFs, and you have Zerodha now launching a passive ETF and you've seen what they've done with the booking industry. So I mean what's your view on this business now? Would you be looking to expand this more aggressively? Or -- so how would you think about this passive ETF?
I think if you look at the overall size of the industry, it's still small. And you talked about one player. I mean we've, I think, mentioned in the last call, the border is -- I think the more participants will only help spending the market. The market is very small. I mean all said and done, we still have like 2.5 crore unique investors in India in 1.35 billion people.We have set a very audacious, I would say, a mission for ourselves that we want to be the wealth creator for every Indian. So we have a little over 5 million unique accounts. We think we have a very, very long way to go. Some of them will come in active funds. Some of them will come in passive funds. Some of them will come in solutions-oriented products. I think in India, different households will have different needs. I think at our end, the way we are looking at business is not looking at the way -- I mean the asset managers will look at, okay, active versus passive or equity versus fixed income or mutual fund versus AIF, PMS; or within the distribution direct versus with distributors; within distributors, banks versus NDs versus MFDs or RIAs or looking at T-30 versus B-30, on and so forth.I think at our end, the way we are thinking is like there are tens of millions of savers in India who are here to get the right kind of product, which they can use for meeting their financial goals. As long as we are able to provide right kind of solutions to these people by understanding them better, working with our partners or working with digital platforms, over a period of time, we should be able to grow. Surely, I mean, assets have grown tremendously globally. I think there is a lot for that product to grow in India as well. In fact, we earlier mentioned about we would also be launching a couple of products to fill our product bouquet. But whether this will significantly dent the growth potential of the other segments of the business, the answer is no. Will it really expand the market? The answer is clearly yes. And I think I mentioned that last time that a large number of people in India are yet to meet this case. They don't get up in morning, how do I beat the market today or in the next 6 months and 1 year. So I think we are very clear that I think we are going to put customers at the center and how we can help them in meeting their financial goals, meeting their life goals. And as long as we are able to do that, what product and then how we construct the solution is something that I think we collaboratively will all do in industry. And newer players who will bring new innovation whether in terms of product, in terms of delivery, in terms of providing different experience to investors, they are all welcome as part of the industry. We'll all work together. At our end, I think our mission is absolutely clear. We want to be the wealth creator for every Indian, and we believe that this product has a lot more potential to grow. And we need to reach out to a lot many more investors than what we have reached out in the last 25, 30 years as an industry.
The next question is from the line of [ Nitin Jain ] from [ Fairview Capital Partners ].
Can you hear me?
Yes, okay.
Yes. So based on the data that the company has provided in the last pre-annual reports, so it seems that the -- it is continuing to lose its distributors. So for example, in FY '19, you had [indiscernible] distributors on your panel, which dipped to 70,000 in FY '20. And now we are down to 65,000. So like I've asked this question before as well, but all I've got is that the company values its distributors. So just wanted to get your perspective on why people are leaving us compared to what -- the peers are reporting an increasing trend of panel distributors?
I think we're back to more or less where we were in terms of number of those distributors. In between there was a trend where some of these distributors, if I remember correctly, were moving to platforms like [ Prudent and NG and all ] because I think aggregating technology and the other IT backbone is available, you get better service. So some of them kind of waltz with these platforms. So maybe the number may have gone down, but then newer distributors are starting. And our numbers are there. In fact, I'm happy to state that in our sector for the BFSI fund, we had more than 10,000 MFDs participated in that. So I think we have a clear, I would say, acceptance among that category of distributors.
Okay. No, the reason why I asked this is from the time since SEBI has banned upfront commissions, HDFC has been seeing a consistent decline. So does it have anything to do with that because the company straightaway passed on to the distributors?
No. So I think -- see, there are 2 ways to look at it. One is basically the 70,000 kind of a number that we are talking is the entire universe. The active distributors, the list is obviously much smaller. And I think what Navneet referred to saying that in our latest BFSI NFO, we saw more than 10,000 distributors participating, which is a very, very large number.So something of that sort in terms of -- if you look at -- and I think that is a point that Navneet made. Some of the smaller distributors have actually moved to platform and for reasons of efficiency and cost benefit analysis.
Okay. And the other significant trend that seems to have played out in the last couple of years is the rise of passive investing. So if you see, they have risen from somewhere around 8,000 crores to 9,000 crores. In 2010, they are close to 2 lakh crores, 2.5 lakh crores, like the entire passive AUM. So I've tried to get the company's perspective earlier as well, but it was kind of -- the only response was that, no, it is still a very small part of the entire industry. But if you see in the last 3 years, it is the fastest-growing section of the industry as well. And some of our peers have like 35%, 40% market share in that. So what is our strategy? I mean are we -- do we want to wait some more time? And then like take aggressive corrective actions? How is the company planning?
No, let me do one thing. I'll give you some data, and then Navneet can give the strategy part of it. So the number, if you look at as of June end for the passive ETF is 3 lakh 20,000 crores. Now out of this 3 lakh 20,000 crores, the 2 government -- quasi-government owned entities, they are -- they add up to close to 2 lakh crores, right? Actually more than 2 lakh crores.And that is basically government of India, EPFO money, and some of the other provident funds, which tend to mirror image the EPFO. So the last part of that money, where we talk about out of 3 lakh 20,000 crores, 2 lakh crore goes to these 2 asset management companies. And as of now, all of that money has been allocated to both of those in ratio of 3:1. That's point number one.Second is, so this is the other close to INR 40,000 crores is the liquid debt and the Bharat bond ETF. And out of that INR 40,000 crores, close to INR 34,000 crores is the Bharat bond ETFs, which is, again, government-owned entities, the PSU, fixed income capital raise, which has been done through 1 asset management company. We did not participate in that bid for economic reasons.Then you have some bit of money in the CPSE and the Bharat 22 ETF, okay? That was government disinvestment program, close to around INR 22,000 crores has been from that. Now government has come out and made a statement. So the divestment secretary has made a statement that this would no more be the preferred route of further disinvestments.Then there is a gold ETF, which is close to around INR 16,000 crores. We have a fairly healthy share there. We are the second largest in that space. So if you look at all of these numbers, so yes, the number seeming looks very large. Having said that, if you kind of break those numbers and look at the target market segment, does not necessarily really kind of fit into the way we look at it.Now when you look at the retail participation in passive, and that tends to happen through index funds rather than to ETFs, it is close to around INR 25,000 crores of AUM in index funds. Out of that INR 25,000 crores, we have total -- we have an AUM of INR 5,600 crores. So we are literally kind of more than 1/5 of that market.And as Navneet mentioned earlier, we've recently got an approval from the regulator to launch an equal weight index fund, which you would -- we would be launching it maybe sometime during the course of this quarter. But Navneet can throw more light on the strategy part.
I think we've talked about it, and I mentioned earlier that there would be growth in both active as well as passive as we see India evolving. Even globally, I mean, we mentioned earlier that passives have done very well in terms of incremental growth. But my sense is that over the next few years, even globally, it may be a little contrarian view that I think active is going to make a strong comeback. In India, I think there is strong growth potential on both sides, passive as well as active.I think even at the cost of repeating maybe second or third time, I would say that the way we would look at ourselves is not like active versus passive or I mean in those terms, but like we're putting the customer at the center and then using our capability as an investment manager, right? I mean we can do active, we can do passive, we can do -- I mean, whatever it comes to investment management, put that along with our risk management and the overall product capability. And then using the power of data and analytics and providing the right kind of contextual and consumable content, whether it comes through any kind of channel, whether the traditional channel or the digital platform, the idea is that how do we reach out to more number of savers and provide them the right kind of solution with the help of our partners or the digital platforms. That is the idea. If it means like maybe investing a little bit more in passives than we have done historically, we will surely do that.
The next question is from the line of Madhu Gupta from Quantum Asset Management.
So basically, I wanted to know whether HDFC AMC has any scope for further reducing its -- or driving operating leverage benefits going ahead? And if that is so then, in which areas do you see the savings coming in from? And the second question would be the latest regulatory -- I mean as per the new regulation, under the compensation of key management employees, at least 20% of that should be going to the mutual funds in which we are managing. So is that going to impact your employee costs in any way? Any color on that?
On the first, I mean, on operating leverage, I mean, the business, inherently, the asset management business globally is known for its high operating leverage, right? I mean new fund manager at our end is, let's say, managing INR 5,000 or INR 10,000 crores of assets. That AUM doubles in the next 2 years given our franchise. Would we have another fund manager for that? No, I mean, the manager is managing that, the same set of branches, the same set of the overall cost which we have.Of course, a part of it would be variable. Let's say, the money coming in from the distributor, there is a cost attached to it. But our margins, obviously, there is a -- I mean if you look at the overall margin, there is obviously a positive operating leverage.Having said that, I think Piyush has been highlighting it over the last couple of quarters that some of the cost reductions that have happened, particularly, I think the organization ensures that during the tough time of last 1 year, a lot of cost rationalization happened. Some of those costs will come back as we start looking at newer growth avenues and expanding the market and launching the new products, investing in marketing and business development, investing in IT and technology -- I mean, in the technology and digital, et cetera.So some bit of costs will come back. Having said that, structurally, I mean, if the question is about the operating leverage, yes, inherently, this is a business with a very high operating leverage.
The reason I'm asking is like if you look at HDFC AMC, the cost is -- compared to this year, you're already only quite low. So is there a scope for further reduction in that? Or this is the optimal which you can reach in -- I mean beyond this, there is going to be an increase?
I think is more important that, Madhu, would be like how these flows kind of come back and build market action on the revenue side, I think rather than on the operating on the cost side. I think in the last call, we mentioned that some of the cost reduction that we saw last year in FY 2021, they were on account of reduction in travel, in business development, some of the other overheads, et cetera. Some part of this cost is going to come back. And we wouldn't want to like hold that on because I think we would like to invest in growing our business.So some of it may sustain. I think the cost rationalization that has happened as we use technology better, some of it, which could not be spent last year, for example, travel, I think would come back at some point in time. But structurally -- and again, repeating the same point, if you're asking about operating leverage, yes, I mean, it is there as the size keeps growing. So for us, more important would be how do we grow the revenues and how do we grow the AUM.
Got it. Got it. And regarding the regulatory change where now the compensation -- 20% of the compensation essentially being mutual funds, which means -- I mean the management are managing. So would that kind of have an impact on your employee cost? Do you see any kind of...
I think in the AGM also, our Chairman talked about it. He applauded -- I mean praised the regulators for bringing this in. And I mean he mentioned that we would be happy to implement. Of course, he talked about some bit of flexibility that can be given to the asset managers on how to implement it. But otherwise, I think even, otherwise, most of our employees as it is would have their money invested in the fund now, so in their own funds. So I don't think it will dramatically change the way people look at their investments and our employee cost, not necessarily. All I think the Chairman ask for was like if some bit of flexibility can be given. A younger employee may have a different kind of risk/return expectations or a risk profile or let's say different employees would have their own different financial needs. But otherwise, in general, I think it's a welcome move and he applauded it.
And to your pointed question, will it affect our employee cost? No, it won't.
The next question is from the line of Venkatesh Sanjeevi from Pictet Asset Management.
Just a gentle observation on the domestic mutual fund in the industry, is that -- a lot of products get sold by distributors based on the 10-year term performance, maybe 1 year or maybe maximum 2 years or so. What was done well in the recent past needing to sell and get sold, even if you see the way international funds are getting flows now -- segments have done getting flows, it seems to be that case.So the question is how can this kind of change? Can it -- can other parameters like risk or turnover or other aspects of a fund can be highlighted? Are AMCs taking steps to sort of sell the products on things apart from just near-term performance? Do you think it is feasible to get such -- that sort of maturity over the industry as well?
No, that's a great point, Venkatesh, you made that people focus so much on, I would say, a fund alpha on the short-term side rather than looking at the investor alpha. More important is how do you meet investor's goal, how do you create the alpha for the investors over a long period rather than keep chasing last 1 year or 3 years' performance. And there are a number of studies, I'm sure you know that better, where I think [ turning ] money based on the recent performance doesn't lead to better outcome for the end investor.I think over the years, we are seeing a good number of our partners understanding that aspect. I think fund houses selling with the distributor and selling with all the other stakeholders, which has seen a lot of efforts on that front to highlight the importance of staying invested for the long term. Initially, I talked about our newer marketing campaign about the STP, it's sound investment plus time plus patience and not trying to chase the side of the season, which really create value for you over the long period. And we hope that as markets become more mature and investors as well as the distributors pay a lot more attention to long-term performance and long-term value creation rather than keep chasing the short-term performance.
But do you think AMFI body needs to have -- regulated mutual funds for the year campaign came out, kind of bring something on that side and try to build awareness and stuff, just 1 or 2 funds trying to do this?
No, I think everybody in the industry, and I must complement every player over the last several years, have been working very hard to highlight the importance of long-term investing, highlight the importance of staying disciplined, the whole SIP campaign, how -- staying disciplined and keep investing on a monthly basis over a longer period is better than chasing the short-term market movement. I think it's been happening. The entire industry is doing it together.Can we do more? I mean, of course, everything -- I mean that's true for everything that the industry can do related to whatever we are doing. And your point is absolutely right that all the stakeholders need to work together to ensure that investors look at like creating value towards much longer period than trying to chase short-term performance.
The next question is from the line of [ Mr. Mukerji ], private investor.
Basically 90% of my retail fund holding is in HDFC AMC and 90% of my portfolio share is also at AMC. So I have -- I'm viewing this very carefully. And what I have observed is that compared to other AMCs, HDFC AMC is lacking some aggressiveness in their portfolio. For example, if I see SBI focused fund, if I see Axis fund, they are having significant weight on Avenue Supermart, significant weight on Alphabet and those companies which are growing very fast, whereas if I see HDFC AMC portfolio, there are funds which are holding Jagran Prakashan and such sort of stock in their portfolio.So my question is, if HDFC wants to go ahead with value-based investing, this is perfectly fine. But why the current HDFC AMC offer aggressive -- because I, as an investor, I as a customer, if I want to invest a part of my money in aggressive funds, then I have to go to other AMCs because HDFC AMC is not offering me any portfolio of that sort. And what is your thinking on that? Because that is my first point.
So if you look at -- I think I mentioned it in the beginning. If you look at the longer-term track record of several of our funds, which have been in existence for a very, very long time, I think the performance speaks for itself. There could be cycles in the short run. But more important is the way money has got multiplied over the years. We talked about our Flexi Cap Fund, which used to be HDFC Equity Fund or the HDFC Balanced Advantage Fund, which was a different name but the same product. Over the years, that kind of performance, that has delivered. At any point in time, one can always pick up like, let's say, 1 or 2 names, I wouldn't comment on the individual stock name. But they don't reflect the aggressiveness or the conservativeness, I think, as more important is remaining true to the label, remaining true to the fund philosophy that you have, to the mandate that you have and what you have communicated to the investor. And that is what that we have exhibited over the last couple of decades. And we see no reason that most of our funds won't be able to deliver that kind of performance that investors expect from us over a long period. I think our focus has always been on adjusted returns. There are various kinds of products the investors who are looking at, let's say, a small cap fund that they can enter or they can invest in a small cap fund versus looking at a concentrated portfolio or couple of high conviction ideas. They can look at a focused equity fund, those who are looking at a more diversified across market cap and invest in flexi cap. Those who want a little bit of fixed income within the portfolio can look at balanced advantage or the hybrid equity fund.And within that, different fund managers have got different investment styles. And this whole value and growth and quality -- and I'll just say that -- I mean, I don't know who said this, that every investing is value investing because when you don't say I do wet in swimming. I mean every swimming is like you get wet. I mean in investing, you look for value, which is more than what we are paying today. So different managers have a different lens of looking at the stocks and a different style. But I think all I can say is that the history has clearly proven that we have an investment strategy and investment philosophy and investment process and the people who have been able to demonstrate high-quality, I would say, performance over a very long period of time. Thank you so much and really appreciate your confidence in the AMC. Thank you so much.
My second question is, how do we incentivize a manager? Because if I see -- I have fund in all the small cap, mid-cap, whatever you say, I have my investment in all these funds. But when I see their portfolio, there are -- there is a significant amount of overlap between all these funds. So I want to know how do you incentivize fund managers because if the AMU is increasing, it is increasing because of maybe inflation or maybe new fund that is coming into that particular new fund. So what weight you are giving to automatic increase in the AMC because of inflation? And what weight you are giving to new funds that the investor is devoting or putting into that particular mutual fund? Because that shows the trust that I'm having on that, suppose if I believe that focused fund will do very good, that the focused funds will do very good, then I will pour in more money into that. So how do you -- what is my share of wallet? How much of that is coming into the incentive-based system? How is it getting tracked?
I think the question is -- is it about fund manager incentives? Mr. [ Mukerji ] if you don't mind, maybe this would not be a best platform to discuss this. But if you're okay, you can just hop in a mail to us or give us your contact, we'll call you and address this query of yours.
Okay. And my last question is, I see on YouTube, although we have a lot of trust on HDFC brand, everybody is positive about it, but there are several YouTube videos, which are talking negative about the HDFC AMC, its fund managers, its performance. Now if a small guy from a small town is viewing those YouTube videos and he is also viewing the videos of other competitive AMCs, he may get biased. How do we counter that?
So I mean, you cannot respond to the millions of tweets and millions of comments on the social media. That won't be possible for a company. But I think the proof is in the pudding. So I mean we can clearly see the recent -- our NurtureNature campaign or some of the other flows, the response that we get from smaller towns is highly increasing. I think our brand is highly respected across the country, whether it's large town or small town. And I think we -- the people look up to us as a highly trustworthy brand. And I don't think that's some comments here and there really impact investors' decision-making.I mean you are -- 90% of your money is with us. I'm sure there would be many other investors like you, and I hope there are more and more investors like you who have that faith in an AMC, which has put the purpose at the center of everything that we do, which is to be the value creator for every Indian.
The next question is from the line of Utkarsh Solapurwala from Damos Capital.
So recently, now we have launched index fund at a very low TR ratio. So going forward, if many other digitally -- digital-only AMC will launch lower TR, there would be price competition. So what we sort of you view on that price-based competition in India?
I mean our industry competition has always been there. I mean it's not something new. But of course, I think there are innovations and products. There are innovations in terms of delivering those products, et cetera. As I mentioned earlier, that given the opportunity in India in this industry, the more the merrier. More and more of these participants will help in expanding the market. And you just have 2.5 crore investors. I think it's for lower fee for an AMC. I mean if they are able to bring in not many more investors, I think as an industry participant, I would welcome that. Having said that, as I've been repeating a couple of times, for us, it's like how do we provide the right solution to each investor and each of our partners in meeting their financial goals? We wouldn't really look at 1 particular product that has got at a much lower cost. There would be various things that every investor would need. And it's not only about -- I mean, if history is any guide and every investors' experience would clearly state that it is not about saving a few basis points here and there that really helps in meeting their own life goals or financial goals. I think it's about the overall package that an AMC or an asset manager delivers. I think we always believe that together with partners, both the mutual fund as well as the other stakeholders should work on enhancing the investor alpha, while we, the manufacturer, continue to work on delivering better fund alpha. And I think that's a more important part.For us, I mean, we mentioned it several times. Our business over the last 20 years has got built on this premise that we have a scale. We are one of the largest players. We aspire to have quality, which is reflecting in our asset mix and the way we source our business, the way we have built our business. And of course, we want industry-leading profitability and wouldn't really sacrifice one for the other. And all of this with purpose at the center, which is to be the wealth creator for every Indian.
The next question is from the line of Hiral Desai from Anived Portfolio Managers.
So I actually had a question on the cost side, Navneet, but you sort of answered that in one of the earlier questions, and I think you covered it fairly in a detailed manner. But just wanted to understand, out of this sort of the total 10 basis points of cost that we had last year, what proportion of this would be variable in nature? Just a ballpark number.
In the past, we've talked about it at roughly out of our cost between 20%, 25% are variable.
20% to 25%.
Yes.
Got it. And lastly for Piyush, are there any other collaterals still sitting related to the Essel NCD or it's done?
No, I mean, from a financial perspective, there's nothing else. Pretty much done.
The next question is from the line of Kunal from Banyan Tree Advisors.
My question now relates to -- we have seen a lot of traction in the business after PFRDA changing the realization there. And HDFC being the largest private player there, can you throw some light on that business? And the long-term -- from a very long-term perspective, -- we are -- if I'm not wrong, at INR 18,000 crores of AUM now. How do we look at that market? Because large part of that market is locked with PSU. How do we look at it from 5 to 10 years?
So I mean that's part of one of our group company. I'm sure you would have an opportunity to ask them about -- specifically about that company and that business. But in general, I mean, of course, in India, if you look at the overall savings pool, if you look at the demographics, if you look at the need for investment product, I think all investment products will coexist. I think mutual funds have a play, pension products have a play, some of the other products have a play. And everybody can coexist and there is enough opportunity for all the players. But specifically, on that business and how it's evolving, I think I may have a view, but it better if you ask HDFC Life.
The next question is from the line of Kapil Agrawal from Itus Capital Advisory.
So my question is regarding -- yes. I mean your flagship equity fund has seen significant growth in the last 1.5 years. And that has made up for some underperformance from 2015 to '19. But when it comes to raising capital, some of your competition has been quite aggressive, and they fared much better in this regard. So how are you looking at growing your AUM both in terms of inflows and new fund offerings? Can you give us some color on where you're targeting also?
So first of all, on the performance, as you mentioned that there were some time when there was an issue in terms of performance of some of the key schemes, that you have seen a material reversal on that front. And as I mentioned earlier, that some of the -- those schemes are now in top decile. In fact, some of them are in top quartile in 1 year. And of course, even 3 and 5 years, has started looking good. And it's being recognized by our distribution partners as well as clients. Of course, it takes a little bit of time for them to recognize the reversion, but we are hopeful that the one that we are doing and giving that message and people have been noticing it.And have we done anything differently? Not, honestly, I mean, not really. What was not working in the last couple of years is now working. So our investment team has seen few such cycles in past, and that makes them stick to their connection because they've seen some of these cycles before, and this has been like another cycle. And we are very happy to say that the interest in those positions or on those convictions have got vindicated. It does take time for the market to recognize this fully, but we can today confidently state that things are improving on the ground. I also mentioned, I think in the beginning, we mentioned about the style diversity, which even some of the earlier calls, we have talked about the whole idea of achieving style diversities. It's working out reasonably well. So some of the newer fund managers are now managing almost 15% of our AUM, and some of those funds have seen traction. We also have a good product pipeline in place while we expect those to start increasing in the core flagship products, which are one of the best-in-class, long-term performance track record, though they went through a cycle of underperformance and now coming back.
Could you highlight something regarding the new fund offerings? Any particular markets or any particular types that you are targeting? Could you highlight something?
Maybe you have missed it earlier, we have talked about the categories where our presence has been less. I think after the SEBI classification as far as the core categories are concerned across equity, fixed income, gold, we have our product basket almost full. We would be launching a multi-cap fund at some point in time, after all the approvals and other things in place. We would be launching a few passive funds, maybe some on index side, some on the ETF side. We would be launching some international funds. We would be launching some funds on the sector and thematic side. Last quarter, we had this NFO banking and financial services, and some more on the thematic and sector side are in the pipeline. Having said that, I think I might have mentioned this on the last call, my first call that I have always praised and appreciated HDFC AMC for one thing that this AMC would never launch a product because this is [ the fat ] of the season, unless the investment team believes in it very strongly, unless we believe that at any point in time, at least a segment of investors would have the need for that product in their overall investment portfolio, unless we see a sustainable -- sustainability as well as the longevity of that product, we wouldn't launch just because we want to do an NFO. I mean we have never done that, and we would never do that. But wherever there are product gaps, we would fill that over the next several quarters or years.
Sure. I have one last question. And you've touched upon this before earlier in this call, regarding some of the newer entrants to the market investing directly. How are you looking to target these people? Like could you highlight something -- any particular steps that you've taken or going to take to target these markets?
So I think our belief has always been that partners are very important. This is a large country. There are, I mean, hundreds of towns and 600,000 villages in India. There are 1.35 billion people across the country. If we look at the number of advisers, today, there is like 1 for 18,000 people. Investing is not only about like an ease of transaction or doing it. It's a lot about behavioral aspect. And that's where the importance of a good adviser or a good distributor is very critical to do the handholding at the right time that in the month of March 2020, you don't move out of equities and maybe the other way around. So we strongly believe that partners have a big role to play. Having said that, I mean, there would be investors who will kind of do it yourself, just like they do for several other aspects in their life. They would like to do even investing on their own, and then we would have the best-in-class platform for those as well. But our fundamental belief is that partners are important for us. And there is no reason to believe that they won't remain important for our business to continue to grow.
The next question is from the line of [ Franklin ] from Equentis Wealth.
So right now, the -- one of the main issues which is there in our minds is the shift that is happening between increasing in the number of demat accounts and the mutual fund accounts. So I mean, right now, also we have discussed it a bit in the call as well that when the market increases, you actually see a lot of increase in these demat accounts. So my question is actually based on your experience and in the past, what percentage of -- when the market turns around or even remain subdued or even goes negative, what percentage of these incremental new additions that are happening into these demat accounts actually come towards the mutual fund category?
I think we quoted that number earlier that between 2017 and '20, if you look at the proportion of the new accounts that got added by the mutual fund industry versus the demat accounts, I think that was like mutual fund industry was adding a lot many more unique investors than the new demat account. Now that trend has got reversed over the last 15 months, a variety of reasons. Of course, markets have been favorable to people. I mean the work from home may have made a difference. Maybe some of the platforms which have made investing into secondary market a lot more easier, I'm sure that may have made a difference. And of course, some of the millennials and some of the -- I mean younger investors are liking that experience. And it's not only in India. I think it's been a global trend. I mean the so-called domino effect.Now how does the -- and how do we respond? I'm talking about the entire industry and for us as well. So I mean if -- I won't look at it as a challenge. I mean I would look at both. I mean, of course, if everybody thinks that making money is so easy and then they can trade and can create wealth over a longer period of time, I mean that's concerning. The other way to look at it is it's a big opportunity. It just shows the interest in the capital market. It just shows that the investing habits are changing. I think some of the earlier ways of investing versus maybe people are thinking that capital markets are a better place to put money. So from that perspective, it's an opportunity.So how do we need to respond both as an AMC as well as an industry? I would say that -- I mean, if you look at why this trend is happening, keep aside the near-term market movement, et cetera, and all, I think we need to, as an industry, do about, I would say, faster digital adoption, provide a better user interface, a better user experience when they are investing in mutual funds, related to, let's say, when they are investing on their own through some of these platforms.We need to do a lot more, I would say, deeper focus on investor education. How do we highlight the importance of long-term value creation that happens with the power of compounding by remaining disciplined? I mean setting the right goals doing your asset allocation, remaining disciplined across market cycles, and that's how the wealth gets created and spread that message in the language that these people, I would say, absorb better. We also -- to redesign the product and marketing strategy in how do we deliver this message. As I mentioned, I mean, a while ago that in the, I would say, in the language that they would prefer we made that content a lot more, I would say, better consumables, better contextual. And of course, the right kind of partnership that some of these platforms, which have been able to attract a lot of these investors, they themselves have mentioned that a large number of their investors don't make as much money as they can make by just investing in fixed deposits, right? I'm sure you would have heard or read their comments because they have the experience of what their investors are doing by trading in the market. So -- and then at our end, I mean, from a mutual fund industry perspective or as an HDFC AMC, we need to partner with them and ensure that our products are there for investors to see with the right kind of messaging and right kind of packaging. I think if we do all of this together, I have no doubt in mind that next few years, we would also be able to attract a lot of these investors into the mutual fund fold.
Okay. And my next question is on the equity AUM shares, both for you and as the industry, if you see the trend -- the longer-term trend, the share of equity AUM has been constantly increasing. And that probably largely got to do because our interests are declining on a structural basis. So probably maybe 5, 10 years down the line also, it is very much possible that the interest rates may not hit the peak, and it makes actually investing much more attractive compared to debt investing. So is it possible that we could see our equity share moving to like somewhere around 65% -- 60%, 65% kind of a level, if you have to just take a slightly longer-term view?
We would love to see it that way. I mean if you look at the profitability, but that's not how the world works. So let's say -- I mean, even in other countries where interest rates are very low, is it that people only invest in equity, I mean, even at negative yields, there are trillions of dollars invested in bond funds and money market fund. Different investors have different income needs, different investing needs, and I think we need to have products for all investors. And I mean if you look at the total size of the fixed deposit market and some of the other fixed income products like bonds and post office and all of that, I mean, that's like a large market. And there also, I think mutual fund, have a good proposition to attract those investors. So I think, yes, both will grow. I don't see any reason that only equity will grow, and there is not much scope for us to grow on the fixed income side. I think on the retail side, particularly, there is tremendous hope for us to grow in individual investors' book.
Ladies and gentlemen, we'll take the last question from the line of [ Nitin Jain ] from Fairview Capital Partners.
Yes. So just a follow-up. Net of the increased ESOP expenses, what would our operating margins have been like in basis points?
36%, 37%? I think it's 37% -- 36.5%?
Okay. So 37. Okay. And Navneet mentioned sometime back that the funds managed by the newer fund managers are getting increased traction. So is it possible to spell out the funds?
Sure, yes. So it is -- there is a gentleman by the name of Amit Ganatra, he manages the HDFC capital builder fund. He manages the HDFC multi-asset fund. He manages HDFC asset allocator, fund of funds. He also now manages the HDFC tax saver fund.Gopal Agarwal, who's one of the other managers, he manages the HDFC Focused 30 Fund. He manages a fund called HDFC large and mid-cap fund. He manages HDFC dividend yield. These are the funds.
And now Anand Laddha would be managing the banking and financial services fund. Another fund manager, and, of course, that fund hasn't grown but I think maybe the investment cycle turn, then Rakesh Vyas who manages our infrastructure and housing opportunity funds.
I now hand the conference over to Mr. Navneet Munot for closing comments.
Thank you so much for being with us, and I hope you and your loved ones are doing well. Stay safe. Stay healthy. Thank you.
Thank you very much. On behalf of HDFC Asset Management Company Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.