When you call up your fund house's toll free number to inquire about your mutual fund (MF) holdings, check unit balance, request an account statement or just to make a general inquiry, you assume the voice on the line is actually one from the fund house itself. In reality, you're talking to someone who is sitting in a call centre, probably, in Chennai or Hyderabad.
All information about you, including birth date, investment amount, current value and your permanent account number, appear on his computer screen. Meet Mr registrar & transfer agent (R&T), a firm that every single fund house operating in India needs to appoint, according to the Securities of Exchange Board of India's (Sebi) MF regulations.
Who is an R&T?
Your fund house appoints an R&T to handle its back-end activities, mainly servicing you. They even send your account statements. "These statements may be sent on your MF's letterhead, but in reality your MF's R&T has letterheads on which they print your account details," says the head of operations of one of the top five fund houses, who refused to be named as he is not the official spokesperson on the firm.
Because the R&T maintains investor records of fund houses, they are able to "provide access to information in a quick and timely manner", says Shridhar Iyer, CEO, Sundaram BNP Paribas Fund Services, the latest entrant in the Indian MF R&T business.
There are four major R&Ts in the Indian MF space. Computer Age Management Services (Cams) Ltd is the largest with close to 60% market share and Rs4.11 trillion worth of assets under management (AUM) across 17 fund houses. Karvy Computershare Ltd is the second-largest MF R&T managing a market share of 32.80% with Rs2.31 trillion worth of AUM across 25 fund houses. While Franklin Templeton International Services (India) Pvt. Ltd is the in-house R&T for Franklin Templeton AMC Ltd (Rs36,744.74 crore worth of assets and 5.23% market share), Deutsche Investor Services Ltd manages Rs11,624.97 crore or 1.66% of the market share.
Says V. Ganesh, chief executive officer, Karvy Computershare: "The R&T gives a 360-degrees solution to all the three stakeholders of MF business—investor, distributor and the AMC. It's all about front-end and back-end integration to ensure that you are fully serving the customer needs from all angles."
Mission investor
Getting closer to you: It is not just the back office of fund houses that R&Ts support. Over the years, they have come to act as the face of every fund house. For instance, you can walk into any of Cams' offices, present in 229 cities across India, with application forms of funds that it services. Ditto for other R&Ts.
"From the point of investors' convenience, it is easier to do business with an R&T as it is present in many cities. Besides, an investor can avail several services at an R&T," says the head of operations of one of the top five fund houses. Fund houses are only too willing to piggyback on an R&T's infrastructure. "It is not possible for us to open up branches across India because it is very costly," says the head of client servicing of one of the new fund houses launched last year.
Here's where your R&T plays an important role. Say you wish to invest across five fund houses. Instead of going to five fund houses to submit your application forms, you can give all your forms to your R&T's office, assuming it services all your chosen funds. Additionally, it helps you make any changes you want to make in your folio, such as change in address or bank mandate, and even helps you with redemption and switches from one fund to another. "R&Ts play a critical role in terms of customer experience as well as record keeping and data protection/integrity. They work in the background to ensure things move smoothly," says the operations head of an established foreign fund house.
Changing scenario: Over the past two years, game-changing rules imposed by Sebi on the Indian MF industry, such as abolishing entry loads, has forced MFs to cut costs. Subsequently, a reduction of new fund offers threatened to squeeze the margins of R&Ts. Most recently, in December 2009, Sebi allowed MF investments to be made through stock exchanges. The last move, particularly, threatened to make life tough for R&Ts.
Ever since trading in equity shares were compulsorily dematerialized, you started interacting more and more with your depository participant (DP). Although all listed companies have R&Ts, "most of the times you do not even know its name because for all your needs, such as an account statement or a change of bank mandate, you go to your DP", says the head of operations of a bank-sponsored fund house. If investors were to shift en-masse on the stock exchange platform, their interaction with the R&T would become almost zilch.
For instance, if you wish to buy a MF, all you need to do is call up the broker and place an order. The broker would place the order on the stock exchange which, in turn, alerts—and transfers the money to—the R&T. The R&T then credits the broker's pool account with the requisite number of units which are then transferred to the investor's demat account in demat form.
"Fortunately or unfortunately, investors did not warm up to the stock exchange and it wasn't made mandatory by Sebi. So in that sense, the threat for R&Ts has come down today, comparatively," says the operations head of a bank-sponsored fund house.
Mission distributor
Reinventing: The threat of investors moving to brokers was enough to wake up R&Ts from their slumber, reinvent themselves and start talking to one another. Apart from servicing investors, R&Ts turned their gaze on distributors.
In order to make life easier for distributors, Cams and Karvy joined hands to launch FinNet, an online web-based platform for distributors, to help them buy and sell funds on their client's behalf and also generate consolidated account statements across fund houses served by these two R&Ts. Investors can also get consolidated account statements across funds houses serviced by Cams, Karvy and Franklin Templeton, on the websites of both Cams and Karvy.
Also, FinNet enables distributors to submit application forms online (after making a scanned copy of it through a scanner installed in the agent's office); the agent no longer needs to physically reach the R&T's office by 3pm (cut-off time to submit application to be eligible for same day's net asset value or NAV). "FinNet was activated around January 2010, since then approximately 1,900 users (distributors) have signed up. The current count has exceeded 2,300," says a senior Cams official we spoke to.
R&Ts offer additional services to distributors. For instance, an agent can get a report of sales done by him between any two given dates. He can get this on any frequency he wants, such as monthly and quarterly. All the distributor needs to do is punch in his requirements on the R&T's website (typically R&T gives every agent a username and password) and he gets the report within hours. "R&Ts like Cams have moved from focusing on a fund house to making the distributor his client. It hooks distributors by giving him such cutting edge services that if the MF wants to shift his R&T, the distributor would resist (and make it tough for the MF to move) unless the new R&T would match the services offered," says the first chief of operations.
R&Ts have also started processing know-your-customer forms for investors and know-your-distributor forms for distributors. R&Ts such as Cams have branched out into servicing insurance companies too.
Mission AMC
Helping in cost reduction: As costs have dropped in the past two years, R&Ts have also helped fund houses to reduce costs. "To that effect, there is focus on electronic communication, be it account statements, newsletters or other communication from the AMC for investors and distributors. Electronic payouts are also encouraged to reduce cost and ensure better efficiency. Benefits of reduced costs have been sought to be passed to the investor," says the Cams official.
He claims that almost every year in the past five years, Cams has been investing about Rs12-13 crore to boost its technology. Inland letters are now largely being used to print account statements instead of A4-size papers.
Electronic statement is an area where R&Ts have made significant investments. Most fund houses that seek your email ID start sending you account statements on email; those who want to stick to physical copies are made to specifically choose the option. The Cams official says that almost 25% of the new folios are being set up with email IDs. "There is also an increase in the number of investors desiring email statements—at least 15% of investors when compared with 12% in the previous year. From about 15,000 statements a month in 2009, we process nearly 200,000 e–statements a month now," he adds.
Being present across so many locations across India means that fund houses don't need to open up branches in those cities. "If my R&T is present in, say, 250 cities, I would hesitate in opening up a branch in the 251st city," said the operations head of a foreign fund house. This is because, he says, the cheques and forms would need to travel to the city where the nearest R&T branch is present before the cut off time of 3pm on the same day, a near-impossible feat.
R&Ts have also helped AMCs in their online transacting engines. Online platforms of many fund houses, such as Reliance Capital AMC, are built upon their R&T's platform. In other words, traffic gets directed to the R&T's engine, though the front-end (the web page on your screen) looks as if you are still at Reliance AMC's site. Ganesh of Karvy says more than half of its clients' (fund houses) online investment platforms run on Karvy's infrastructure.
Did it pay off?
R&T services come at a cost to fund houses, which is eventually passed on to you, the investor, as part of the annual cost that MFs charge you. For equity funds, the cost is about 10 basis points or bps (1 bps is one-hundredth of a percentage point), for debt funds about 5-7 bps and for liquid funds about 3-4 bps.
But is this enough for R&Ts to cover their costs? "RTA profitability is impacted consequent to intermediation costs being entirely funded out of permitted expense ratios, which have impacted profitability of all constituents," says the Cams official. As the R&T's income is directly linked to an MF's AUM, if the AUM falls so does the R&T's income, though people like Iyer of Sundaram BNP Paribas Fund Services believe that "the market is large enough to accommodate two more firms".
As per filings with the Registrar of Companies, Cams' profit after tax grew (PAT) to Rs80.6 crore in FY10, up from Rs49.2 crore a year before, a growth of 64%. Karvy's PAT grew to Rs40.3 crore, up from Rs14.1 crore, or 186.4%, in the same period. An industry official told us on the condition of anonymity that both these R&Ts will most likely show a fall in their profits in FY11. "The era of supernormal profits has gone, but R&Ts still make pretty decent money. We have now reached a normal profit situation," the operations head of a bank-sponsored fund house.
Lastly, R&Ts are getting active on the social media. Karvy Computershare has plans to get on to Twitter and other social media to get investors' feedback. "Actively engaging social media is critical for a company to survive," says Ganesh. He adds that social media is also a good medium to send out communication such as a bonus declaration.
Source: http://www.livemint.com/2011/05/22221834/RampT-agents-make-inroads-in.html
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