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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 '23 Earnings Conference Call of HDFC Asset Management Company Limited. From the management team, we have with us Mr. Navneet Munot; Mr. Naozad Sirwalla; and Mr. Simal Kanuga. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Simal Kanuga, who will give us a brief following which, we will proceed with the Q&A session. Thank you, and over to you, Mr. Kanuga.
Thank you so much, John. Good evening, and we really appreciate all of you taking time out for this call on Friday. The results for the quarter ended June 22, along with a brief business update, is available on our website under the AMC shareholder tab and also on the exchanges.
Let me start off on the industry. So net flows for the industry continues to remain strong. I'm talking about the equity flows. During the quarter, industry saw net new flows add up to INR 783 billion, lower than INR 968 billion for quarter ended March '22, but materially higher as compared to INR 251 billion for the quarter ended June '21. What we did mention last quarter does hold for this quarter too. The equity inflow number includes index funds and index funds comprises of both equity as well as debt index funds. We do not have a data separately available for equity and debt index funds as yet. Inflows in net index funds have seen material uptick and hence thus create data to an extent.
Let us look at it from AUM perspective to get some idea. AUM of debt index funds stood at INR 23 billion as of June '21. And that number now is INR 417 billion, so nearly a INR 400 billion increase. As this is pure fixed income, material part of growth is in form of inflows. Fixed income funds continue to see outflows. This quarter, industry lost INR 1,178 billion. The number for the previous quarter was INR 1,046 billion. It would make logical sense to add debt index fund numbers here.
Actually, one should even add AUM or flows in debt PPL, which is currently merged in overall ETF number. Net plus liquidity ETF now account for INR 606 billion in terms of AUM. The corresponding number as of June '21 was INR 399 billion. Liquid funds saw net new flows of INR 133 billion for the quarter and others of the category, which is basically ETF, arbitrage funds and fund of funds investing overseas saw inflows of INR 216 billion.
Individual investors continue to allocate to mutual funds. And now the live folio count stands at INR 133.9 million with the overall unit number of investors at INR 35.3 million. SIP flows for the month of June was similar to that of March '22 at around INR 123 billion. We closed the quarter at overall AUM of INR 3,966 billion, market share of 11.1%. Excluding EPS, our market share is 12.4% on closing AUM and 12.3% on quarterly average.
If one looks at actively managed equity-oriented AUM, our market share is more or less constant as compared to March '22. We continue to enjoy a favorable asset mix as compared to that of industry and also favorable ratio in terms of AUM from individual to nonindividual investors. Our market share in B30 AUM is 11.4%, and that makes us a distal number, too. In terms of systematic transactions, we processed over 3.73 million transactions, totaling up to INR 12.8 billion in month of June 2022 as against INR 12.3 billion in March of 2022.
Before we move to financials, let me quickly update on what is happening in terms of new products and other businesses. There was a regulatory embargo at industry level on launch of any new mutual fund scheme for the quarter. We have approval for 9 ETF, though a few of them do need some kind of data extension -- or as we have clarified that earlier today.
Assuming all approvals fall in place, we propose to launch all of these during the course of the quarter. We have a few more ETFs and index funds, which have been filed. We'll launch those as and when the approvals combined. In terms of sector and thematic funds, as mentioned during the previous quarter, we have 4 funds awaiting clearance and the same will be launched over time subject to those approvals coming by.
We also filed for a fund that we would track the MSCI Emerging Markets Index. In terms of category 2 AIF, we have filed PPM with SEBI in early June. A quick recap here, we are launching a fund of funds, which could invest across the entire spectrum, right from early stage VC fund to mid-market so growth funds to buyout funds. In terms of our wholly-owned subsidiary in GIFT, we are progressing well and hope to go live over the next couple of quarters.
Now we move to financials. Revenue from operations grew by 3% year-on-year and 1% on a quarter-on-quarter basis. Other income for the quarter is materially lower due to lower MTM gains in debt neutral funds on account of increase in interest rates as well as the MTM loss attributable to market volatility on mandatory equity mutual fund investments. Employee costs for the quarter was INR 780 million versus INR 835 million.
If you take the cost of ESOP, which is a noncash expenditure, employee costs for the current quarter stands at INR 677 million as against INR 659 million for the quarter ended June '21. Other expenses have increased by 27% year-on-year basis. First quarter of the last financial year was in time for lockdown or say reduced operations. We would like to draw your attention to the expenses for the quarter ended June 2019. That was a normalized quarter pre-COVID. It was INR 406 million.
So over a period of 3 years, the cost has gone up from INR 406 million to INR 525 million, an absolute increase of 29% or a CAGR of just above 9%. Profit after tax fell by 9% both year-on-year and quarter-on-quarter basis with lower other income being the key contributor. Before we open it up for questions, I would just like to hand over the call to Navneet to make a couple of comments. So thanks, and we will hear Navneet and post that, we'll open it for questions.
Good evening. So first of all, at the outset, I want to place our sincere appreciation for contribution made by Prashant over the last 19 years or so. You must have heard about the announcement we made earlier today in reference to his resignation.
In 2003, when Zurich Financial Services decided to move out of India, Prashant along with their team moved to HDFC Mutual Fund and everyone knows Prashant has a distinction of being the longest-serving fund manager in India. I've known Prashant for many years and has the highest regards for him as a fund manager as well as CIO.
The HDFC AMC investment team is known to be amongst one of the best in the country. I've now spent nearly 1.5 years at HDFC AMC and can vouch for the processes and debt that is second to none. In fact, this got further verified when I hear the same from fund managers, who have joined us in the last couple of years from other AMCs and also the analysts who have joined us from the sell-side.
Talking about the fund management team. So on the equity side, we have Chirag with experience of over 20 years; Gopal Agrawal over 18 years; Roshi Jain, over 20 years; Anand Laddha over 18 years; Rakesh Vyas over 20 years; Srinivasan Ramamurthy over 15 years. And I'm sure several of you would know most of these people well and so all our other analysts.
We have further beefed up our team by adding Rahul Baijal, who has just joined us from Sundaram Mutual Fund. Again, an experience of over 20 years across sell-side and buy-side. There are 9 dedicated analysts with experience ranging from 6 years to 20 plus years. Most of them have experience over a decade and are counted among the best in the sector that they cover.
The combined years of experience of our equity investment team, when I look at all of these people, would come to something like to 30 to 40 years. Over and above, we have Krishan Daga and Arun Agarwal who manage arbitrage funds, passive strategies. Again, Krishan has experience of over 30 years. Arun would have experience of over 24 years.
Now let's look at fixed income, Shobhit and Anil Bamboli has been with us for over 18 years. Shobhit has experience of 30 years while Anil would have experience of around 28 years.
Anupam Joshi, who manages some of our fixed income schemes like liquid funds, corporate bond funds, low duration funds, et cetera, has experience of 21 years. Vikash Agarwal, he has experience of over 16 years and of that 14 with us. And Praveen Jain, he has experience of 17 years and of that 14 with us. Along with the analyst Sankalp and Bhavesh, we are talking of an experience of over [ 140 ] years of fixed income fund management side too. So this wonderful team that has worked under Prashant will now be led by [indiscernible] of Chirag and Shobit. Chirag Setalvad is one of the founding member of the investment team when HDFC AMC got setup in 2000. So he's been with us from like day 1 in 2000, but for a couple of years in between that is 2004 to '07 is now going to lead the equity team. Chirag has been part of the system, and that should make for a comfortable transition in terms of equity investment and research process. He's been one of the most respected fund manager in India, managing strategies running over almost 2 decades.
Shobhit Mehrotra will take over as head of fixed income. Shobhit again is a veteran fixed income fund management with over 3 decades of which experience in fixed income and credit research. Both of them will be leading a team of 30 committed investment professionals. In HDFC AMC, we are proud of our people, our processes and our philosophy that is to test of time. I'm very confident that this team will leave no stone unturned to carry the legacy further [indiscernible].
Thanks, Navneet. Nirav what we can do is we can start building on the questions queue and happy to take questions from here on.
[Operator Instructions] The first question is from the line of Kunal Thanvi from Banyan Tree Advisors.
So I had 3 questions. First was on the organization structure. So what we understand is Shobhit and Chirag will take as debt and equity head, respectively. So will we have a CIO or they continue reporting to Navneet directly? That is question number one.
Second is on industry, you see that there has been a significant outflow in the [indiscernible]. Can you throw some light, what are the reasons for it? How do we see fixed income as a category mix in medium to short term? And thirdly, on any thoughts on the buyback with the kind of cash we have in the [indiscernible] would have. Yes, these are my 3 questions.
Sure. So on the first question, there's a distinct focus on 2 different asset classes. Chirag will lead the equity team and Shobhit will lead the fixed income team. Out of them will report to me. On your other question on the debt part, yes, you are absolutely right. Last year, we had net redemption in the -- in the debt as a category, I'm talking of the industry flows as well as the last quarter. Maybe rates have been moving up, and the fixed income fund returns may not have been as attractive. But I guess, as and when people believe that rates are stabilizing, there's a possibility that money starts coming back into the fixed income funds.
They also move along with the overall system in liquidity, which you would know that has shrunk over the last couple of quarters. Your third question on the capital allocation. I think we have always said something that our Board is cognizant, and we will continue to evaluate best possible options. If and when there is a right kind of an opportunity comes by, we'll keep exploring all those options. You would know that our dividend payout ratio for the last financial year was just a shared under 65%. And I would like to believe that this should [ slope upfront ].
Sure, sure. That's helpful. Then if 1 more I can squeeze on was on the...
Your voice is not coming very clear.
Is it better now?
Yes.
Yes. If I can squeeze 1 more question was on the ETF. If we see the overall ETF was moved on a sequential and Y-o-Y basis. It seems to have improved. Can you help us understand what has led the consumer? Is it entirely driven by the improvement in the equity mix? Or we were able to -- the pressure on the ETF itself has [indiscernible].
No, no. I think it's [indiscernible] some with of rounding up, but I don't think that you should read much into this.
The next question is from the line of Mohit Surana from CLSA India.
My first question is then -- last year during -- when we were losing market share in equity, you had alluded that broadly our market share in outflows were stable, and we were kind of losing market share in gross new inflows. So if you could just qualitatively update us on how the situation has changed on that front? Because as I understand, schemes performance has been quite good over the last 1, 1.5 years. So if you could just update on that?
And secondly, if you could just elaborate on what are the benefits that we can see that will accrue to HDFC AMC on account of HDFC Bank and HDFC merger? Those are 2 questions.
Sure. Some equity market share for the quarter was more or less stable. I can tell you 2 things. One that our market share in redemptions has fallen, which definitely is good news. And on the other hand, our market share in gross flow is getting better by the day, which is lose out on a large number of SIP registrations that happened during the last couple of years, but we are catching up on that. It used to be a pioneer when it comes to the SIP creation. And we are very hopeful over the next couple of quarters, couple of years, we would look to regain that market share in SIP. And related question would also be the linkages between performance and the share within outflows as well as inflows. I would say that improved performance and the result in increase in market share is a bit of a time delay between those 2 things. My experience tells me that performance either way, good or bad, tends to be ignored for a couple of quarters and then gets noticed, but there is a belief there is a phase of temporary.
Investors and distributors will then start planning in action, but the real action would fall over the next couple of quarters. So it takes time for one to start seeing results of good performance or downside associated with difficult period of performance. So to repeat the point, I think we are seeing the market share is stabilizing and fall in the market share in redemption and increase in the market share in gross flows.
Sure, sir...
Merger, I think we mentioned earlier that the impact on us due to the merger can be neutral to positive. I think we become part of a larger entity with a much deep distribution network.
The next question is from the line of Madhukar Ladha from Elara Capital.
Just harping on the yield question by monthly earlier participants. There is a material uptick in the yield and sort of if I do a little bit of a back calculation, it seems to be coming from the equity side. Any sort of color or comment on that to be very helpful. The other thing that I noticed in the numbers is that the other income has fallen dramatically and so has the tax of amount and your tax rate has come off to about 18.4%.
Now this probably suggests a loss in the other income, a realized loss in the other income and you creating a deferred tax asset. If you could elaborate whether my reading is right, and what is this loss pertaining to that would be helpful. Yes, those are my 2 questions.
Madhukar, on the yield side, and I think tax one, Naozad will answer for you. I think the yield side, as I stated earlier, it is nothing but a marginal mix in -- marginal change in the mix. And secondly, as I stated, some bit of round up. So what tends to happen is last quarter, you would have seen it at 48%, it being at 48.4%, and if it goes to 49.6%, it goes to 50%. So some bit of rounding up and some bit of asset mix change.
So these 2 things have led to an improving. Also, if you want to really get into a microscope, there were 0 NFOs in this quarter. So the so-called low-cost flows into the AUMs were also lower -- so low revenue. I mean lower revenue flow into the AUM was lower. So these 2 things would have led to some bit of, but as I stated earlier, don't really look into it beyond a point. I think the years are in line with what we mentioned in the previous quarter and I think it was for the upside, but that's not the case.
And just to add something Navneet, directionally, do you continue with your regular commentary of -- for those sort of declining in active equity yields?
Absolutely. I think see, we have stated this even earlier, right, if you recall. See what tends to happen is if you look at our book, somewhere at [ mid 70s ] versus that the flows are nowhere near that number. So absolutely, you're right. There is going to be dilution in yield as more and more money comes in. I think one thing that you need to kind of also consider the pace of dilution of yields. See what happened last year when we started the year 2021, '22, we started with an AUM base of just about -- I'm talking about industry as a whole, started with an AUM base of INR 13-odd trillion. And we saw inflows -- gross inflows adding up to close to INR 5.9 or INR 5.95 trillion. So there was a 45% of the AUM in terms of gross flow.
Now if you look at current numbers in terms of run rate, currently, the run rate is INR 50,000 crores or INR 500 billion, what was last year and this year. Now if you look at, say, another INR 5.9 trillion even flowing in, it is on a denominator of nearly INR 18 trillion or INR 19 trillion. So the pace of dilution of yields might slow down. But yes, there would be dilution in yield as more and more money comes in.
On the taxing -- I will take the question on -- so other income, we also explained earlier, it is lower largely to lower MTM gains on debt mutual funds and MTM losses on account of the equity mutual fund [indiscernible]. On the effective tax rate for the period of ended June '22 slower due to reduction in deferred tax charge on account of MTM losses and also reversal of deferred tax liabilities on certain investments that were sold and set off against carrying forward losses.
The next question is from the line of Prayesh Jain from Motilal Oswal.
Firstly, some on distribution annually. So if I think about the [indiscernible] HDFC Bank today. If I compare it with ICICI Bank or Axis Bank, when [indiscernible] mutual funds, the share of the group AMC is up for the 60%. Now if you look at HDFC Bank, the bank is closely about -- around 30%, 35%. Is it some of the distributors commissioning disposed by [indiscernible] why is that low and you think that there is a possibility that this can really come back to something like a very high number going ahead [indiscernible]. So do you think that we can really [indiscernible] that would be my first question. Secondly, from a medium-term perspective on the ETFs front. How do you see the ETFs moving on the debt side? What I understand is the current [indiscernible]? And how do you see that moving ahead once the ETF stabilizes and that also some questions to be following [indiscernible] ?
And lastly, on the equity side, what kind of -- could you give some understanding as to what is the current book [indiscernible] some understanding there.
So I think the first part of your question was HDFC and HDFC Bank merger. It's a positive effect of that on distribution. So Navneet?
As I mentioned earlier, that we become part of a larger network. Of course, HDFC Bank has always been running an open architecture. They're going to continue with that. However, it's potentially become the subsidiary, there is a greater value alignment, and that should have a positive implications. Your other question was on...
That was -- one of them was debt yield. So I think if you look at Prayesh from a debt yield perspective, I think yields have been fairly more or less constant only at somewhere in late 20s. Whether they are low, yes, I think it is lower than what it used to be because of lower assets in the credit risk and some of the other higher-yielding funds. Having said that, on the other hand, we are seeing some bit of migration happening in favor of debt index funds. So even if we think that with the increased YPM on the credit risk fund, we might get in more money there. and thereby higher yield, some bit of that will get diluted by flows into debt index funds.
So net-net, I think if you look at the debt side of our business, the yields should be more or less constant the way we see it. Somewhere between 25 and 30 basis points is what we would -- we understand to be at. So that is on the yield side.
And my last question was on the share of legacy effect in current mix [indiscernible] exact numbers, but any color there -- that will be helpful.
Prayesh, we don't really comment on that, but the way we would like to kind of help you understand is on our legacy book. Our yields are somewhere on the -- equity legacy book, I mean. Our yields are somewhere into 70s so -- and that is as of say, 30th June. So you can see that the entire book that does exist on 30th of June is giving us a yield of around somewhere in mid-70s. And then the new flows are obviously all over the place in sense that when we did our last NFO, the direct plan TER were somewhere in 40s. So you are getting in yields as low as 40, but most of the flows that are happening in our regular -- whatever the existing funds, they are, obviously, at a yield better than 40, but nowhere near 75.
And last question, what are the trends and commission payouts in the industry? Is there any competition -- increased competition or anything that you can -- any trends that you are witnessing currently?
So I think Prayesh things are definitely getting better as compared to what it was early part of last year. But yes, competition is definitely intense. Now again, this whole NFO saga has started so more number of new fund offers would put in some kind of an additional pressure. But like what we saw in the first half of last year, we are not seeing anywhere -- numbers anywhere as bad as those. So things are definitely better. Industry as a whole has kind of, I think, realized that it makes sense to do business at a rational price. See, it is better than where it was last year, lower than where our historic book is.
The next question is from the line of Saurabh from JP Morgan Chase.
Sir, I have just 2 questions. One is on the SIP and individual market share. So besides the performance, are there any specific initiatives you have lined up to kind of improve that? The second is, is there any only distributor feedback on Prashant Jain departing and do you think there will be an impact on new flows into the AMC. And third is now with the new structuring, where the concentration of AUM in the top 2 or 3 [ founders ]?
So first one was, what we are doing on SIP?
The variety of things, as I mentioned that HDFC AMC has been a pioneer when it comes to creating the cult around SIP. We were one of the first -- we were among the early players to focus a lot on that. I think over the last several months, I think we have tried to regain that in terms of our engagement with the distributors. Of course, as we mentioned, performance also helps -- as the performance has improved across the board that is also helping us.
And all the other initiatives, whether it comes to marketing, if you look at our social media handles and the other form of marketing that we have been doing, I think, in terms of that improving our digital asset, undoing our user experience or creating a new SIP or getting a new customer on board. All of those things we have been working and the results are very, very visible. As product also get approved, as I think we mentioned earlier that there is a bit of lag between the performance and the flows.
And particularly with the banks and the other national distributors where the products go out of their recommendation list, on the focus list. When they come back, there's a bit of a lag between when you start seeing those numbers, whether in SIP or in terms of the lump sum flows. We have started seeing a positive impact, as the products are getting approved or getting on the focus list or on the recommended list across most of the banks and the national distributors. Your other question was on, will it the Prashant departure impact the flow? I mean [indiscernible] today. But as I mentioned earlier that I think we have a very solid team. One of the data points I can give you is that -- I mean, if you look at all our actively managed funds and now we have different fund managers, who have been managing funds at different times. So when I talked about Joshi or Gopal or Srinivas or Chirag or now Rahul will be managing. Most of our existing products have been getting money, positive flows.
So money has been coming into almost 90% of our equity managed fund. I mean, the positive flows are there in almost 90% of our equity managed fund. So I think we remain confident that distributors would continue to support us.
And Saurabh obviously, the concentration of the AUM will go down. So if you look at Prashant manages somewhere around 23%, 24% of our AUM. And we are yet to kind of make a formal announcement on this scheme will be managed by which manager, but given the split between 1, 2 or 3 managers depending on what we finally decide. Yes, concentration of AUM would go down as compared to where it was.
The next question is from the line of Dipanjan Ghosh from Citi.
Just 2 questions from my side. One is you mentioned on the OpEx number and compared it with the pre-pandemic levels. Just wanted to get some sense on direction regarding to the overall movement in your operating expenses. The second is, if I -- on the distribution side, if I look at 2 things. One is, I mean, if I look at the disclosure on commissions, and just trying to get some sense of where the commission kind of pinched up during FY '22. It seems that the distributors or the larger ones who have been contributing bulk of the flows for the industry and also for -- due to some extent, where the commissions increase are a little bit higher. And also, to some extent -- if I see the gross number, the overall gross growth on the top 10 distributed significantly high in FY '22. So just wanted to get some sense on these 2 things.
So on the cost. As we discussed, we increased in other expenses largely attributable to business promotion, technology spend and like going back to normal, we have the distribution training, we have travel, et cetera. We mentioned on the call earlier. Over the course of 3 years, June 2019 quarter, we spent about INR 40 crores of expenses and the current quarter is INR 52 crores, and that's sort of CAGR of 9%.
Having said that, we are, of course, always mindful of what we spend. And at the same time, we don't want to be shy of from investing in the business. So the digital world is changing. We have to sort of spend on technology, data securities and IT infrastructure is again something we continue to spend money on. So I think we will obviously be mindful of where we are going to spend money via HDFC, but costs in some performance shape will sort of be there for us. And that's the trend we expect.
Sure. On the second part?
So I think you just mentioned about higher distribution commissions being paid to the larger guys and they being larger contributors to gross flow. See, yes, there has been some level of concentration in terms of large approvals. In terms of commissions, I think the commissions across the board have been high, but as we have always maintained, right. If you look at it from our any broad distribution channels perspective, banking, national distributors and MFDs, they tend to be as expensive in that following order, banks being the most expensive and followed by national distributors, followed by MFDs. So yes, that has been the case.
The next question is from the line of Amey Sathe from Tata Asset Management.
Yes. I got 2 questions, sir. First question on the dividend payout. At what point do you think you can increase the payout to, say, closer to 95% to 100% considering we have around INR [indiscernible] crore of network now.
I mentioned that last year and the last 2 years, you would have seen an upward trajectory as far as the payout issue is concerned. And my sense is that this will have upper trajectory going forward as well. I mean the slope should move up.
Okay. Okay. But is there anything that you're looking at in the sense some kind of level of cash and cash [indiscernible] network that you think after that, you will be comfortable increasing it to higher levels?
So as I mentioned earlier, I mean the Board is cognizant of that and we'll continue to evaluate that possible options. I mean from the cash requirement perspective, we need to keep -- set some can aside for abiding by [indiscernible] game. We need to see RAS. It will help us make a strong business case. We also have to put in some capital into [indiscernible]. But otherwise, as I mentioned earlier, that payout ratio should have an upward trajectory.
Okay. Got it. Second question is on distributable side. So post TER cut since we passed on most of the tier cut to the distributors, a lot of them sort of -- we are not keen doing business. That is the feedback that we got from the distributor community. So are they coming back to us now? So is it possible to get some kind of a collective statement? How has been the engagement with them?
So across the board, we are seeing positive traction, whether it's the banks, whether it's national distributors, whether it's the mutual fund distributors. I think in terms of our overall engagement and activities with them has gone up substantially, and we have seen the results. So -- and we feel very positive about the traction across all channels.
Okay. Okay. And then last question. So you made 1 comment that last 2 years, we couldn't do much of a free price station. So were there any specific reasons?
No, that was -- Amey, that was because of like overall, our traction was pretty slow because of slightly muted performance and stuff like that.
The next question is from the line of Lalit Deo from Equirus Securities.
Sir, just wanted to understand that despite the market volatility, the SIP flows the industry has remained strong.[indiscernible] it has improved during the quarter. But at the same time, we also understand the net SIP inflows are about like 40% to 50% in the industry level. So how is that trend for us and recently, we are seeing that the slowdown in the new SIP registrations also. So are we seeing any slowdown in the registration as well?
Yes. I think the net SIP is a bit of -- we have read these reports, right? Because -- but finally, what is SIP. SIP is the inflow that is coming in. The numbers that we are presenting for our asset management company is based on cash flow basis. So if you are saying that we are getting INR 12.8 billion, we are getting that much amount of money in the half. These are not registrations. These are actually based on the cash flows. And what we are reporting is the systematic transactions in total. So that is one part of it. And the second part of the question?
On the overall, whether the market volatility would impact the flows, it is interesting. When I look at the daily transaction sheet, I try to see increased number of transactions, especially on the day the market corrects sharply and it is pretty interesting, which means that investors are actually trying to buy more than market correct. And I'm talking the number of transactions that are in. Of course, if the returns over, say, a year or 2 do not look attractive, there would be some amount of inertia. There would be an impact on the flows. But I must give this credit to the -- you talked about like SIP flows remaining robust and I must give the -- should give the credit to the entire ecosystem, which is regulators, industry, distribution fraternity, media, the application of mutual funds for getting the message of long-term investing across.
And I think volatility is now being taken a stride and the best example of that is like growth in the SIP flows over medium to long term.
Just want to add there, right -- the SIP itself is a growth, right? So we are talking about growth on growth. So this -- whatever INR [indiscernible] crores is actually additional money coming into the mutual fund industry. So it's a step function. We have seen like a rapid growth. If it stabilizes for some time, that would not really concern us beyond the point.
Sure sir. And sir like data [indiscernible] the employee expenses if you see excluding the ESOP expenses, so that has grown sequentially 13%. So any specific reason for the same?
So I think 1 is, of course, we had our appraisals, which is sort of flowing through. Also, I think you must see it in context of the fact that over the last few years, the expense have grown by 6% per annum. There is nothing sort of outside about it. It's just normal increase in your end composition.
And if I can add what Naozad has mentioned, market is strong and it is important for us to retain our talent. Our industry is really experiencing a strong growth. We are extremely excited about the prospects of our business, and there is no reason for us to not invest in our people.
Next question is from the line of Nidhesh from Investec.
A couple of questions. First is from a 3-to 5-year on perspective, how do you see this industry evolving? And how are we placed with those trends? Because there are multiple things which are happening, one is the share of [indiscernible] is gradually increasing. I don't know what recent trends, but the last year [indiscernible] over the next 5 years. And there is pressure on our fees. And probably the direct -- role of direct -- money coming directly AMC may also increase over a period of time. There has been quite sharp adoption in the last 5 years. So in this context, how are we placed? And how are we trying to benefit from these trends?
So how I think about our industry for like 3, 5 years. So probably from a growth perspective, think about it, we are a $3 trillion economy and one of the fastest growing economy in the world. So even today, the household savings, I mean if take, let's say, ballpark number of around 20%, they're talking about $600 billion of savings. And if you look at the percentage, which is coming into the mutual funds and within that into equity, I think it's very small, so a long way to go.
Other way to look at it, I mean if you look at overall household assets today of $9 trillion, $10 trillion, half of that would be in real estate, 15% or so would be in gold. A lot of that was actually in hard cash. And the overall equity assets within that is a little over 4%. In fact, that number was like half, 10 years back. It's grown, but is still a very low related to any other country in the world, whether you look at equity asset as a percentage of market cap, the equity assets of mutual fund as percentage of market cap, as a percentage GDP, as percentage of household savings [indiscernible] as percentage of overall assets, I think, a long way to go.
As you look at I mean 50 crore people who would have a bank card within that maybe 7 crores or 8 crores people who file income tax returns, what say the people who have invested in mutual funds, if you look at unique accounts are like less than INR 3.5 crores. So long way to go. And at HDFC AMC, we have set a mission for ourselves, which is to be the wealth creator for every Indian. We believe this INR 3 crores, INR 3.5 crores number can go up substantially over the next several years, and the acceptance of mutual fund as the preferred steady vehicle -- investment vehicle.
And within that, having more and more people accepting SIP, as the way to create wealth over a period of time against acceptance, and we want to lead from the front. I hope that answers your question. And there will be several other opportunities, right, that from the core mutual fund side. Within that, there are opportunities and other than that, I mean there are opportunities and managing money for family office [indiscernible] or the other institution investors on segregated accounts, which [indiscernible].
We are also looking at AI, building the platform on the alternative investment fund side and with a lot of opportunity there. As India grows over the next several years from $3 trillion to $5 trillion economy, we all talk about financialization of savings, we talk about digitalization of finance but even financialization of assets is also a very, very big trend. And there will be a possibility on the alternative side, even I think serving the large global institutions, who would have interest in investing in India in equity market and bond market and alternatives over the next several years. There will be another opportunity. So over the next 3, 5, 7, 10 years, we feel very excited about the opportunity in Indian asset manager with a category like us can have.
So I was just asking from these trends of assets going up, share of [indiscernible] I think very well appreciated, but looking at the current concerns that most of the investors have is how the revenue fuel of this industry will grow. You and I understand will grow at a pace -- rapid pace, how the revenue field will grow and they are concerned around disruption and, let's say, from direct mutual funds. Also, we are seeing that our [indiscernible] 75 basis points. So in that context, how are we placed with respect to the revenue pool or profit pool here for the industry and for us.
I can give the analogy of the broking industry. I mean, look at the way commissions have fallen over the years, a few years back, people were extremely concerned about the fall in commission rates there, they would have fallen by like what, 90% or so. But look at the revenue pool and the profit pool in the last couple of years. And something similar may happen here. And as I mentioned that as a company, we believe there is a huge opportunity in front of us, and we wouldn't like to miss on that opportunity.
Sure, sure. And second is that what we have seen is that there is a very high correlation of inflows with the last 12-month performance -- last 18-month performance. And because this actually the investor end up chasing the fast-performing funds during that period, but that not necessarily be the best strategy. The key -- and because of this, I think investor also loses out, companies also -- AMC also loses out. So is there a way to set up that to create more awareness in the investor community? Or how do you think about that?
So to an extent it's happening, which is reflecting in the stable flows into SIPs. And you are right, I mean, of course, the short-term performance does impact, but I think our people appreciate when institutions like us have a long-term track record, the pedigree, the process, the investment philosophy, all of that. I think a lot of investors and distributors appreciate that aspect and as an industry, as an institution, will continue to work harder than that.
Next question is from the line of Atul Mehra from Motilal Oswal Assest Management.
Sir, just 1 question with respect to the fund of fund GIFT City that we spoke about. So just -- I was just thinking about it conceptually, like for us, [indiscernible] oriented in terms of asset management offering. And we don't have our own distribution, like most of it is relied on through banks or IFAs or wealth managers. So for a fund of fund offering, wouldn't you see that a wealth manager carry out fund of fund offering by themselves or the HNI client through the LRs route. They'll go out and bypasses on any [indiscernible] or something. So -- so how do we see in terms of earnings for us here because it's a more HNI-oriented product and it is also something that the HNIs and the wealth manager can do themselves. So maybe if you could talk a little bit about this.
That market is very small today. And I think over the next several years, as the amount of wealth increases, people diversify, more people look at various opportunities across the world, across a set classes, across different markets. So we will create products, which would invest internationally in GIFT City. The idea here is to attract the LRs capital as well as capital from NRIs. But we broader -- as an idea on this, since you asked about the GIFT City, so the wholly owned subsidiary we have created in GIFT City will be our gateway to the global one. We will create products in GIFT, which would help us showcase our domestic investment management capabilities to global investment. And we see a lot of opportunity in this space over the next several years.
So it's more from -- both from an inbound perspective as well as outbound. So inbound is also [indiscernible].
Absolutely. Inbound is the larger ranges.
Next question is from the line of Hiral Desai from Anived Portfolio Manager.
Navneet, am I audible?
Yes, Hiral.
So Navneet just wanted to check of this INR 5,500 crores of investment book that we have, how much of that is blocked because of regulatory reasons. And on the remaining part, can you actively manage it? Like take a call on the rate cycle, et cetera?
No, very large part of that is invested into our own [indiscernible] fund. So we don't take aggressive calls on interest rates or duration or any such thing...
Mostly because of regulatory reasons or because of the call that you guys are facing?
That's -- I mean, that the call we have taken. Over a period of time, you will see -- we'll have to see our AR products. As we have mentioned earlier, we are launching a fund of fund in category 2. Over a period of time, we'll look at more funds in the AR category, and we'll have skin the game and then we'll be investing there. Otherwise, on the SEBI regulation perspective, I think there is a skin in the game, which like a certain percentage of our AUM across equity and fixed income funds get invested.
And so that number INR 388 crores is what we have to invest for the SEBI circular, INR 258 crores of that is in equity -- in any way it's part of the disclosure on the website. It's part of the SEBI mandatory [indiscernible].
Okay. Okay. Navneet, just conceptually to understand. So let's say you launched an NFO last year where obviously the pricing was very stiff. Now currently, we don't really have an upfront payout. So it would be based in form of trail, so is there like a lock-in period. So let's say, if you've launched an NFO you can change the dealer payout only after a year or you can change it, let's say, within that year also. Like how does that nuance work?
So Hiral basically, what we do is when we go and do a new product, we tend to commit commissions for a period of time. So it's not something that is changing every year. So we would have liked added different commission levels for a different set of distributors. So there would be certain places that we would have committed for 3 years, certain places committed for a year, so on and so forth. So -- but yes, obviously, we can't and just keep changing the number there. Most of the distributors do expect us to give them 3 years kind of committed trail commissions.
The next question is from the line of Abhijeet from Kotak Mahindra Bank.
So you made a comment that the market share on the active equities is broadly flat for the last few months. But given our earlier comment that there's been some improvement on the redemption and the gross flows. One would have thought that you have seen some improvement in the market share as well because the construct of the AUM for us is probably a little more on the balance side of things, right? Is that something that we are looking in this overall market?
No sir, not exactly. So what we said is the gross flows have improved from where they were and redemptions have gone down. But -- see for -- our market share is 11.5% so for new flows -- net new flows, our market share has to be above 11.5% for the share to improve, right? So what we are just gearing. If you look at the previous few quarters, we were kind of losing share quarter-on-quarter. That is not what has happened in the most recent quarter.
The next question is from the line of [indiscernible], Individual Investor.
Could you detail a little bit more about the AIF and the venture capital funds that we've launched about the investments that you've made and what you are looking at investing through the...
Sure, sir. So basically, we have yet to launch it. We have filed the PPM with SEBI. This is going to be a fund of funds, which is going to invest in the entire spectrum. More or less half of the fund would be invested into venture capital funds and the balance half would be invested into mid markets or growth funds. Some bit of it might also get into buyout funds. So we are awaiting approval for this product from SEBI. And once that happens, we get into a capital raise more. Post we raise the capital, we start committing capital to underlying set of funds.
We have started the process in terms of meeting of the underlying set of managers, started the screening process, and we are just trying to get our HDFC institutional overlay on this whole fund.
As there are no further questions, I will now hand the conference over to Mr. Navneet Munot for closing comments.
Thank you.
Yes, thank you very much. Thanks, everyone.
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.