Mr. Prashant Kakkad
AVP – Zonal Sales Head, NJ Group
Prashant is the Zonal Sales Head for North India & Gujarat(Ahmedabad, North Gujarat & Saurastra) and is based in Rajkot. One of the earliest in team NJ, he has a rich experience of over 15+ years in the financial services industry.
We at NJ have been predominantly working on wealth creation and have been utilizing Equity Mutual Funds as a vehicle in the process.
As we mature in our advisory business, you will realize a fact that advising just mutual funds for clients' every need will not suffice. And it is important that we understand other financial instruments available in the market.
On this outset I would like take the opportunity to talk about two very important products which are vital in the world of investments and subsequently in our clients' portfolios. And these products are: Equity PMS and Secondary Bond Market investments.
Let me start of by talking about Equity PMS.
Well to start of, there is a mental block of the minimum ticket size for investments of Rs.25 lacs, but as I said that this is just a mental block.
Let me start of with the total market capitalization which is around Rs. 100 lac crore, of which retail holding is around 11% to 12% i.e. 11 to 12 lac crore. Now when we meet clients with direct stocks portfolio, we find that they claim that their portfolio is performing well and here we insist to share a copy of their Demat holding statement and get it reviewed. The best sales pitch is that we have a tie up with best portfolio managers in the country, and such services are complimentary.
80% of the portfolios that come for review are underperforming their benchmarks. We then communicate the same to the client, and mostly he is taken aback after seeing not only the under performance but also the “DELISTED” stocks in his portfolio. This is a game changer in this product. Currently we have a conversion ratio of around 20% of the reviewed portfolios.
You must be wondering then why not get this component into Equity MF. The answer to this question is, many a times clients' love for DIRECT EQUITY is supreme and do not want to deviate from it. Clients then come up with their apprehensions like higher charges which indeed are at par with MF, under performance and portfolio churning, etc.
There are a lot of common mistakes that clients commit while building a portfolio of direct stocks. They buy low priced stocks because they perceive it as cheap, under researched investment decisions, hearsay investing, emotional approach, etc.
The current market size of discretionary Equity PMS in the country is around Rs.60,000 crores AUM wise and yearly net sales is in the range of Rs.8,000 to Rs.10,000 crores. So there is a huge scope for this product even from the business aspect.
Another product I want to talk about is Secondary Market Bonds (SMB).
India is a market place wherein the question “ Kitna deti hai” is on top of a customer's mind whether it is investment or automobiles. Having said that on a lighter note, we all know that clients' love for fixed return on investment with utmost safety is never ending. And this is where the Bond market fits in the bill perfectly. So let us understand it.
What exactly is SMB?
Every corporate whether PSU or Private, needs regular infusions of capital and this could be for short or long term. Options are either internal accruals or external sources of capital. Externally they could take a recourse to Equity or Debt or both. The capital raised by companies through debt instruments is broadly referred to as corporate debt. Corporate debt is broadly of two types – bank borrowings and bonds.
Bonds are issued instruments wherein the issuer is offering a fixed coupon (interest rate) and a fixed maturity. And every instrument (bond) that is issued comes with a Rating by a Rating agency like CRISIL, CARE, ICRA etc. Wherein AAA+ ratings are considered as safe instruments with regards to payment of interest and principal. Having said that there could be ratings which are AA, A, BBB, BB, B etc., depending on various parameters of the issuing entity.
That rings the bell “ this is what most clients want in a large part of their portfolio”. As mentioned earlier most Indian investors ask for two things while investing: Fixed returns and Secured returns. This product fulfills both requirements, returns are fixed and many a times the issuer is a PSU bank, and people trust PSUs.
Nowadays, spread between FD and Bond's Yield of same bank is around 250-300 bps which is reducing day by day. By investing in Secondary Bonds investor can lock a coupon of 10% to 11.50% for 10 years which is a big opportunity for fixed income investors. No TDS deductions, easy transferability and regular interest payments are added advantages of the same.
One question which pops in partners' mind often and holds them back from selling SMB is that, 'if I sell Debt fund instead of SMB I will get more income, since in bonds income is upfront only whereas we receive trail in debt funds.' I have different views here. SMB is not a substitute of debt fund, most of the traditional FD investors prefer fixed returns in writing which we can't do in case Debt funds but we can convert them into SMB clients. If we compare Accrual category debt funds AUM size with Fixed Deposit market size we will get the answer. Secondly, in SMB you can also generate regular income by advising investors to reinvest their interest income in other financial instruments.
These bonds are again quite liquid in nature as you can sell them in the secondary market and also mortgage them to borrow funds at a nominal rate.
So friends, when we move towards advising clients holistically, it is imperative that we understand and advise clients to park their wealth in various efficient instruments and advise them to follow the universally accepted and followed principle, “Don't put all your eggs in one basket”.
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