HDFC Asset Management Company Limited (HDFCAMC) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 FY '25 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 with us, Mr. Navneet Munot, Mr. Naozad Sirwalla and Mr. Simal Kanuga. I now hand over this conference call 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, Simal.

Yes. Thanks, Nirav. And good evening, everyone, and thank you for joining us today. Firstly, on industry, it witnessed a 32% growth over December '23 and closed the calendar year with AUM of INR 66.9 trillion. Equity-oriented funds grew by 40% Y-o-Y with their AUM reaching INR 39.3 trillion. Calendar year 2024 witnessed net new flows of INR 5,420 billion in equity-oriented funds, clearly the highest ever. Additionally, INR 1,031 billion flew into debt-oriented funds, INR 429 billion into liquid funds and INR 1,461 billion into what we call it as other category, which includes ETF, arbitrage funds and fund of funds investing overseas. The numbers for the current financial year are INR 4,328 billion for equity-oriented funds, INR 1,256 billion in debt-oriented funds, INR 832 billion in liquid funds and INR 1,051 billion in other categories. NIFTY fell by 8% for quarter ended December 2024. During this quarter, industry for net new equity-oriented close of INR 1,573 billion, INR 191 billion coming in via actively managed equity-oriented NFOs and passive NFOs, both index and ETF collected about INR 39 billion. SIP monthly flows for December '24 surged to INR 265 billion, an increase of INR 176 billion -- an increase from INR 176 billion in December '23. The AUM through SIP is now at INR 13.6 trillion. We now move to us. Our quarterly average AUM for December was INR 7.9 trillion, a market share of 11.5% with equity-oriented funds comprising 65%, well above the industry average of 57%. We continue to be the most preferred choice for individual investors, maintaining a market share of 13.2% of individual monthly average AUM for December 2024. Our number of live individual accounts grew to 22 million, a growth of 49% year-on-year and our December monthly average AUM for individual investors grew by 38% year-on-year. Our unique investor account reached 12.6 million, a growth of 45% year-on-year. We continue to strengthen our position as the second largest player in B30 markets with a 12% market share of monthly average AUM in December. To further expand our presence in the cities, we opened 25 new offices, largely in B30 cities on 2nd of January 2025. Our systematic transactions contributed INR 38.2 billion in December 2024, a significant increase from INR 26.3 billion a year ago. A few more updates on the business front. Three of our funds are now live in our GIFT subsidiary with AUM exceeding USD 150 million. We aim to have 2 new products going live this quarter. Secondly, HDFC Flexi Cap fund has completed 30 years of its existence and continues to scale heights. Thirdly, we opened 25 new offices in first week of January taking the total count to 280 branches. Interestingly, 95% of our transactions are now getting processed digitally, a significant increase from 69% in FY '20. I'll now move to financials. Our revenue from operations for the quarter came in at INR 9,343 million, reflecting a 39% year-on-year growth, while other income amounted to INR 928 million. Other income this quarter did get impacted by fall in equity markets due to its resultant impact on our skin-in-the-game investments. Our operating profit for the quarter came in at INR 7,472 million, a growth of 51% year-on-year. Our operating margin for 9 months of the current fiscal came in at 36 basis points of AUM. And for the current quarter, it came at 37 basis points. It would be optimal to not extrapolate this 37 basis point number as it looks better due to sharp rise in AUM, material part of which is led... [Technical Difficulty]

Ladies and gentlemen, please stay connected. The line for the management dropped. Participants, please stay connected while we rejoin the management back to the call. Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected. Sir, you may go ahead.

Sure. Thanks, Nirav. I'm not sure where we got dropped. So I'll start again, background financials. Our revenue from operations for the quarter came in at INR 9,343 million, reflecting a 39% Y-o-Y growth, while other income amounted to INR 928 million. Other income this quarter did get impacted by a fall in equity markets due -- and its resultant impact on our skin-in-the-game investments. Our operating profit for the quarter came in at INR 7,472 million, a growth of 51% year-on-year. Our operating margin for 9 months of the current fiscal came in at 36 basis points. And for the current quarter, it was 37 basis points. It would be optimal to not extrapolate this 37 basis point number as it looks better due to sharp rise in AUM, material part of which is led by mark-to-market growth. In our experience, these things even out over time. Property after tax for the quarter grew by 31% year-on-year at INR 6,415 million. So thank you very much for patiently hearing. And Nirav, we can now start queuing up the questions.

[Operator Instructions] The first question is from the line of Prayesh Jain from Motilal Oswal.

Good set of numbers, congratulations. Firstly, the SIP data that has been coming from the AMFI, another closure to opening ratio has been kind of increasing in the last couple of months and probably the last -- for the past few months. Any feelers that you can share what you're getting from the ground? And how should we kind of look at this that is -- is this an indicator of slowing down in some form? While the gross numbers continue to look up in that sense, but whether the momentum seems to be slowing down? That would be my first question.

Thank you, Prayesh. So on the SIP number, I think, as AMFI has repeatedly mentioned, I think you need to look at, one, the gross flows and the redemption from the existing AUM. So one is the flow and another is from the stock. Let me try to clarify this with an example. So let's assume that I'm doing a monthly SIP of INR 10,000 for last 5 years. So by now, I would have invested INR 6 lakhs and say the market value is now INR 10 lakhs. So I decide to pull out INR 5 lakhs for any reasons and continue with my monthly contribution of INR 10,000. So for this 1 month, my net SIP will be negative INR 4.9 lakhs. So this is nothing but book versus the flow issue. Also, it's possible that I'm not putting money out, I'm just switching INR 5 lakhs from fund X to fund Y. This would again mean a negative SIP of INR 4.9 lakhs and a positive lumpsum of INR 5 lakhs. So in a nutshell what I'm trying to state is, when we speak of SIP, let's look at gross flows. As far as we are growing there, it is a good news. And now as you know that the SIP AUM is, if I remember correctly, is over INR 13 lakh crores. That number is very significant. So any movement from there would impact that net number. But my request would be to look at the number that AMFI discloses on the gross side.

My question is more on the number of SIPs rather than the gross and net. So the closures ratio has been increasing, terminated or the term getting over, I mean those -- that ratio is going higher to the opening. Is that -- is there any trend change that you've seen on the ground on that?

So the number that we disclosed at 26,000 plus -- I mean, INR 26,000 crores in the last month, is the money in the bank, that's a total money in the bank. That has been an increasing trend. Within that, of course, in the last 3 or 4 years, the overall number of accounts have gone up exponentially. I mean industry, if I remember correctly, 10, 12 years back, used to do around 1.5 lakh new accounts per month. Now that number is more than 50 lakhs. So you -- obviously, you would have maybe that gross and net number in terms of accounts, moving much more sharply than what we were used to. But most importantly -- again, I would repeat the same thing, most importantly, would be the gross number of flows that are coming to us.

Actually, Prayesh, also, we need to look at it on the denominator. So just we pulled out some data here. If you look at in April of '24, there were 8.7 crore transactions in SIP. Now that number has gone to 1,032 lakh, right, or 10 crore transactions. And if you look at it, so the cancellation now has gone from 33 to say 44.90. So that 4% is the cancellation ratio of the outstanding account, right? Looking at it in absolute sense, may not give you the right picture.

Got that. Got that. That's helpful. Secondly, on the yield front, we've again seen a marginal improvement in the yields front. I think what portion of our AUM is now kind of -- equity AUM is kind of linked to the new model that you were adopting from the commission getting linked to the TER. What portion of our AUM of equity is linked? And how do we see the yield is moving ahead from here on?

I think those -- okay. So what we did, right, I think Navneet sir explained this on the last call, between 2019 to '24, whatever AUM we mobilized on that, we have done rationalization. But that has honestly not changed the yields by a material number because, again, the AUMs have gone up over the last couple of quarters and that has kind of softened the TER. So I think some bit of rationalization has worked well for us. We haven't really kind of disclosed the number in terms of what percentage of AUM is where we have kind of changed the --changed some bit -- or done bit of rationalization.

Okay. Could you give us the yields that you have on the current book, equity, debt, liquid and others?

Yes. So the yields for equity for this quarter were around 58 basis points; for debt, 28 basis points; and for liquidity, it's between 12 and 13 basis points.

Next question is from the line of Devesh Agarwal from IIFL Securities.

Sir, just to clarify, there were no incremental changes made in this quarter in terms of distributor payouts. Is that right?

Distributor commission -- you're talking about passbook rationalization?

Yes, passbook rationalization or cutting down on the distributor payouts for any of these key liquidations.

That was effective from 1st of August, so we did a bit of rationalization. It was a onetime exercise 1st of August 2024 onwards.

Right, right. Okay. And sir, can you share some trend in terms of your market share in the net equity flows in this quarter versus the last quarter? Has it gone up, gone down?

I mean we don't -- I mean, as it is, there's so much of data available about our industry. So what we give is a combined number, which includes both mark-to-market as well as flows. But overall, I think across all channels, whether it's national distributors, whether it's our parent HDFC Bank, whether it's fintechs, whether it's MFDs, whether direct, I think we continue to see a very healthy share across all channels.

All right. And sir, what we've been noticing is that of the total net inflows that are coming into equities, a bulk of it is coming from thematics, nearly 30%, 35% is coming from thematic scheme, where we have been always a bit conservative on that category. So what would be our strategy for that category going forward?

While you can say we have been conservative, we always try to do what is the best for our investors as well as for our partners. Having said that, you would appreciate, we did probably the largest thematic fund so far in our industry, which was our manufacturing fund, which got over INR 9,000 crores of flow and then added a couple of thousand crores after that. We've got the full bouquet of sector and thematic funds now, which is managed by our wonderful analyst team who are sector experts. And several of them have seen decent flows over the last several quarters.

Right, sir. Sir, any more NFOs in the pipeline?

I think we have now best-in-class product bouquet across active and passive across equity, fixed income, money market. Within passive, we have products across ETFs and index funds both market cap-based indices as well as smart beta. So we have got a wonderful product bouquet in place. There will be a few products here and there that we would look forward to put in our product bouquet, but otherwise I think our product bouquet is best in class. What we need to do is keep looking at fair share in each of those categories. So while in some of the categories, we are clearly an industry leader in terms of AUM and the market share that we have, but there are several categories where we have a lot of scope to expand our market share in those categories.

Any particular category, sir, that you are targeting?

I mean you can see our market share. There have been a few products which have been around for long, and we have a very healthy market share. But some of the products that have been launched in the last couple of years, we believe there is still a lot of scope for us to expand our market share in those categories. And at the same time, I mean, we just celebrated 30 years of HDFC Flexi Cap fund. And the product has been an outstanding product, loved by our investors as well as distributors. There is a long way to go. It has a healthy share in that category, but it still has a long way to go. And at the same time, there are categories where we are not #1 or #2 or #3 in those respective categories in terms of AUM. We aspire to have leadership in each and every product.

And sir, any strategy that you're drawing to become top 3 in this category? Is it focusing on any particular distribution channel or geographical expansion? Any particular thing that you can highlight?

Ultimately, I mean what investors reward is the performance. I mean the consistency in terms of the performance track record, your investment thesis and clarity of the mandate. And of course, the other thing that we do in terms of providing the right content to our salespeople and the partners for them to enable or help investors understand that product and the relevance of that product in the investors basket. So we continue to focus on all of these things. How do we provide the best possible content on each of the product, and of course, it has to be backed by the best-in-class performance as well.

Right, sir. And sir, any clarity on the SEBI-approved new categories that they have allowed for the mutual funds? When can we launch new schemes under that category or you're waiting for more clarity before launching any new schemes in that?

We are awaiting final set of regulations. We will have products in this space as and when we get the final set of regulations. The team is working on creating right set of products, which will help us gain share in this phase, too. Not necessary that only highly complex products will succeed when it comes to this category, we are working on building products, which will withstand test of times, and we are confident that we'll be able to create a mark and track record that we have in our current set of products.

Any timeline, sir, by when we can expect the final regulations?

No, we really are waiting for the final set of regulations. I mean the way we look at Devesh is that we have large and diverse investor base and then the extensive distribution network. And on the other side, we have a very robust investment capability and risk management expertise, right? So both are in place. So we would be able to create and deliver products that align with the evolving needs of our clients.

Right, sir. And one last question, sir, from my side. In the past, we have spoken about the synergies with the HDFC Bank parentage right. So do you think that has now completely played out? Or there's still potential for that particular distribution channel to grow faster than other channels?

Devesh, I mean, the way we look at our end is banks would have more than 100 million customers. And the number of customers who would have done an SIP would have invested would be a very tiny fraction of that. I mean look at the distribution might of the bank, whether in terms of geographic reach of branches or the people servicing or the client base that they have got. So we have tremendous potential. I mean the bank became our parent just a year and half back. The journey for that has been very amazing. And this is not only in terms of distribution, but overall relationship now that we have with the bank as well as a subsidiary like HDFC Securities. We continue to deepen our engagement on all fronts at all levels and are clearly seeing some results of the same. I'm sure many of you speak to senior management at HDFC Bank, and we'll be getting the same feedback on us. They've been very supportive of what we do in our future plans. Bank strongly believes that mutual fund SIP product or a mutual fund product is -- I mean, a big need of almost every customer. Team is working harder than ever to take the distribution partnership with the bank to the next level. And not only the domestic distribution but even the synergies in our GIFT City operations, synergies in our alternative business. So we see tremendous potential for collaboration with the bank. I think Simal mentioned about our newer branches. So I'll repeat that my bank is growing as physical infrastructure at a rapid pace and we are also, I mean, ensuring that we have our presence to cater to their customer base. So we have set up 25 new offices this year. And this is on top of 24 new offices that we set up exactly a year back. So 50 new points of presence that we have created in just 1 year, we have mapped every cluster and branch. We have mapped -- of course, for our other distribution partners also will get serviced. So yes, we have a plan in place. And with the kind of support we are getting from not only the senior leadership but I think from every level, I feel very optimistic on how this can grow over the years.

Next question is from the line of Sahej Mittal from 3P Investment Managers.

Am I audible?

Yes.

First, if I look at your SIPs flow market share, right, so over the last 10, 12 quarters, consistently, the SIPs flow market share has improved, right? Obviously, in line with the performance which you have delivered. But in this quarter, immediately after we rationalized our commissions, so the SIPs flows have gone down by 50-odd where we were a year back. So, I mean, is this because of commission rationalization? Or is there anything beyond that?

Not at all. In fact -- by the way, I mean, I must clarify, we have mentioned it earlier also that what the number you see is systematic transaction, which includes both systematic transfer as well as the systematic investment plan, SIP plus STP. And sometimes, it could be some maybe a large ticket STP done by maybe an HNI customer or so that may have some impact on this number. The other thing I must mention that we stopped taking SIPs also in one of our products like Defense Fund, which was quite popular with some of the distributors, investors that may also have an impact, because, I mean, the -- one of the sector thematic fund which was getting a good amount of new SIP accounts because we were only taking SIPs in that fund. But at HDFC AMC for us, it's always about thinking of customers from a long-term perspective and not trying to maximize the SIP flows or AUM every month, every quarter. But otherwise, yes, and our share across all channels and across a couple of products has been pretty decent.

Also, I think, Sahej, one more point, if I may add. The largest contributor to SIPs have been some of these fintechs and they have no relation with commission. They put money in the direct plan.

Next question is from the line of Madhukar Ladha from Nuvama Wealth Management.

Congratulations on a good set of numbers. First, quickly on the equity market share. There's a very minor decline, but I would really appreciate if you could give some comments. Is it because of flows? Or is it more because of performance? And I know that it's too minor to actually make a big deal about, but just some sort of comment on that will be helpful. And whether we are sort of confident enough to maintain our market share going forward.

Sure, sure. I mean it is like a combination of both mark-to-market as well as the flows and it's too small a difference [indiscernible] quarter. Over the last several quarters, we have been seeing an uptick in the market share. There would always be one quarter where depending on a particular category of fund performing differently or have some bit of change in flows as well. We wouldn't read too much into it.

Yes. Got it. Second, when I look at your equity AUM channel split, I see that the share of direct has improved substantially. And even sequentially, year-over-year, almost 270 basis points improvement, sequentially 50 basis points, and we're seeing that, I wanted to get a sense of, is it more because more index passive products? Or is it also to do this changing behavior where distributors or people or retail people are still preferring to do the raising awareness resulting into this? Some color? And also platforms like Coin, Groww, those also probably would be helping. So some color on that.

No. Madhukar, I mean, if it is 25% and it has a lower TER. So by default, this channel will automatically grow higher than the other channels, right? I mean just the sheer difference in the TER will lead this to grow higher. By the way, I mean, the distribution by data providers should not be interpreted as an indicator of market share within the individual channel because it's entirely possible for one channel to grow at a faster pace than another, while our overall market share across both remain unchanged. So you are right. I mean, you noticed this right that over the last 12 months, the direct channel has grown from, I'm just seeing the pace, 24.3% to 27%. And then it's also, to a large extent, led by fintech and some of the RIAs, the registered investment advisers. So rather than indicating a loss in any channel, I would say this change reflects broader industry dynamics.

Industry dynamics. And do you think there's rising awareness towards retail HNI sort of investing in direct plans?

No, they have been doing very well. In fact, also, when you look at MFDs, the decline in MFD share came also one -- another dynamic in mind. So MFDs will expand their business geographically. They get recategorized. So some of these MFDs do more to platforms and hence, the transition happens from MFD channel to ND channel. So they were getting clubbed in MFD, and now they are part of ND channel. Put that also in mind, yes.

Understood. Understood. And just on the new asset class, are there -- is there a clarity on what sort of additional strategies you could do? Will it allow like shorting? Will you be able to replicate like what AIFs and PMSs are doing? And second, on the taxation of these products, will it be taxed like mutual funds only or will it be something else? So yes, that is the...

We are awaiting the final set of regulations I mentioned earlier. All I would like to state is that we have best-in-class investment capability, risk capability and product capability. And on the other side, we have a distribution network and an investor base. So, I mean, any opportunity on the product side, whether it's the standard mutual fund products, which have got the categorization, the product that we can launch and tomorrow, it gets more liberalized and we are allowed to launch a few other products with a different set of risk-rated framework. As an organization, we are fully ready to capture every opportunity. You also mentioned earlier that whether it's active, whether it's passive, whether it's alternatives, whether it's aggregate accounts, which is PMS, we want our presence across the board to ensure that we are a one-stop solution provider for every investment, need of every investor, be it institutional or individual and every kind of partner, the investment solutions that they would look up to from an asset manager like ours.

And any clarity also on the TER by any chance? Is there more flexibility on TER?

Not really, not really.

The same TER structure.

The scale of our industry -- I mean today INR 67 lakh crores, INR 68 lakh crores SIP book that has got built and still it's usually underpenetrated. So we wouldn't like to lose our focus from like this runway of growth. And any additional opportunity that comes to us, we would fully participate in that, yes.

Next question is from the line of...

Nirav, your voice is gone. We can't hear you.

Sir, can you hear me now?

There is a lot of crackling. Nirav, we still can't.

Am I audible now? The next question is from the line of Shreya Shivani from CLSA India.

Sir, I have 2 questions. First is on this regulation change, which happened in December. So SEBI said that in NFOs, when -- I mean when the switch transaction, the distributors would now get lower commission versus earlier the trend of them taking the higher bit. Sir, can you help us understand what exactly is going on there? And what is the impact on us in our NFOs what part of it was consistently coming through switch, et cetera? That's my first question. And sir, my second question is, sir, I just want to understand the tax rate a little better because last time was an anomaly and I understand that you had explained it very well. But going ahead, how should we look at it? What are the factors which moves it around, if you could help us understand why would it come at 23.6% this quarter versus year 25% in some other quarters? If you can help me understand, that would be useful.

Your first part of question, the brokerage on the NFO. We have always been very prudent, Shreya, on this front. We have been very particular about this. And in all our NFOs, we have -- if I move to all our NFOs, we have ensured that on this bit, we pay the lower of the two. And on the tech side?

I think, 25% is corporate tax rate. Only the issue is that for mark-to-market gains, there are long term, et cetera, you have a deferred tax at a different rate. So that well, that would mean that sometimes the 23%, 24%.

Got it. So it's basically the mark-to-market gains, which basically moves your taxes around that 25%, that's the anomaly that could come through, right?

Yes, depending on a very short term and it moves to long term. So those are the impact.

Got it. Sir, and on the NFOs, I just a little clarity that you were always paying the lower commission even before this regulation came out even before the SEBI documents that came in May '23. Was that always a trend? Or how is it? Sorry, I didn't understand it.

By and large, yes.

Next question is from the line of Dipanjan Ghosh from Citi.

Hope I'm audible.

Yes.

Two questions. One is on the other expense side. If I see there has been like a sharp decline sequentially? And also on a Y-o-Y basis, it's quite controlled despite the first half being quite high in terms of activity or engagement. I just wanted to get some sense of how should we see this going ahead in terms of trajectory on the other expense side, if there is any further headroom to control it. Or what sort of growth should we assume given that you've opened a few branches also here and there in January? And in line with that, also on the employee expense side, should we expect some amount of investment on the sales franchisee or the non-MF side, let's say, over the next 12 to 24 months? The second question is on, again, going back to the gross SIP flow market share. Now you -- if I just see the ticket size for HDFC AMC versus the industry, over the past, let's say, 12 months both for December and September, you -- I mean, HDFC AMC has witnessed a decline in ticket size for both this period end, whereas the industry has seen an accretion. So is it fair to assume that -- and anecdotally you also know that the ticket size tends to be relatively kind of lower in the fintech channels. So is it fair to assume that maybe there has been some moderation or customer churn or resilience of the customer during this market downturn is a little lower on those channels, you're kind of facing the heat of that. Just wanted to get some color on that.

Right. So Dipanjan, on expenses -- so for the quarter, I think, first of all, I would request that we look at from a 9-month to 9-month point of view where that's a more reasonable way of looking at expenses for the quarter. We have -- we didn't have so many NFOs this quarter. CSR expense was a bit lower. So that's why you see some decline in the December quarter. I think our request has always been that see on an annual basis, overall cost of employees as well as other expenses should grow between 12% to 13% or 15%, give or take, depending on how markets are. So that's the way I would urge you to look at it, not on every quarter basis. So that's broadly where it is. So the December quarter is slightly lower, as I said, due to certain costs being lower from CSI.

And on what the -- you asked about the tickets on average?

On average. By the way, I mean, again, I repeat the same point I made earlier as -- what we disclosed is systematic transactions, which include both STP and SIP. It's not strictly comparable when you see the industry number on that side. And it also depends on the money coming in from a particular channel or the kind of product. For example, we had a cap on our SIP amount per unique investor in our Defense Fund, which are like INR 10,000 that one could do. And also depending on the channel from which that money is coming in. But otherwise, I think they would be in line with the industry, if not better, yes.

Got it. Maybe just a follow-up. I mean would it be fair to assume that, let's say, the accretion that you would have seen in your SIP mix through direct and without going into specifics of fintechs, would be, let's say, better than the industry or like in line with the industry, some color on that, if you can give?

No. I've mentioned earlier that our share across channels has been very healthy, which includes MFDs, NDs, banks, the parent bank, HDFC Bank as a distributor and fintechs, RIAs. So our market share has been healthy across all channels. We focus on all channels. They all are important for us, and we continue to invest in all channels.

Next question is from the line of Raghvesh from JM Financial.

So I had a couple of questions. The first question is, when we look at our revenue yield, so essentially, our equity share in the AUM has come up, none of our funds have actually reduced in TER plan. And you have said that there's no incremental change in distributor payouts, but still the yields have increased by around 1 basis point Q-o-Q. So I mean, how do we -- I mean, what explains this increase in AUM?

So I think there are a couple of things, right? One is if you look at last quarter, we did some bit of distribution commission rationalization effective 1st of August. So if you compare this strictly with last quarter, it was -- last quarter was 2 months. This quarter, the impact of the entire 3 months come by, point number one. Point number two, the direct plan change that happens because of the rationalization of commission tends to get affected with a bit of a lag. So we have seen direct plan TER go up somewhere in middle of September and then again in the middle of October, so on and so forth. So these things have resulted in a marginal increase.

Okay. And broadly, this is a good base for looking at posture. The...

No, I think Naozad pointed that out right saying that we did the quarter number at 58 basis points. Now, it depends -- for example, if the market really kind of shoots up again from where it is, you might see a decline because of increase in AUM. So the telescopic pricing would work. But yes, otherwise, we start with a base of 58 basis points that Naozad touched upon.

And the second question on the distribution. So direct is now 37% of the business. So what portion of this would be through the direct online channel? And has that been the major driver of growth in the direct channel?

I mean what we disclosed -- for that, as I mentioned earlier, from a competitive perspective, we don't disclose further, but as I mentioned earlier, that we are fairly healthy share whether the investor is coming directly to us, investors coming through RIAs and investors coming through the fintech. Within fintech, also, you have various kinds. There are some who are distributors who take the ARN and are commission-based, and there are some who put money in the direct plan. There are some who are what we call EOP, the execution only platform who charge a small transaction fee. So there are different kinds, and we are trying to optimize our share everywhere.

Next question is from the line of Jayant from Jefferies India.

Sir, one question regarding the industry broader. We've seen that this quarter, there seem to be some moderation in broadening of the investor base whether you look at the Demat accounts or active investors on exchanges. And then you sort of marry that with addition that we've had to unique investor base for the mutual fund industry from this 1.1 million kind of number, we have done 800,000. And the industry also seem like a 20%, 22% drop in this quarter. What are you reading given that we're already 14 days into Jan? Is it a possibility we may have peaked out on the quantum of investor base addition or incremental investor addition for FY '25?

I don't know, it's a long way to go. Last year was outstanding for the industry. Industry added almost 1 crore new unique investors and almost 6 crores of folios. If you look at the SIP number, I mean the 1-year growth was like some INR 9,000 crores. This was the SIP book around 3 years back, right? I mean, what the entire book was 3 or 4 years back has got added in like 1 calendar year and the overall equity AUM has grown by like INR 10 lakh crore, INR 11 lakh crores. This is the total AUM of the industry a few years back. So it's been an outstanding year. Having said that, over the next several years, I think the efforts industry is making, efforts all of us are making, the work that regulator is doing to build more trust in the product, to bring more transparency in the product, we feel very positive about the long-term opportunity. I mean, while we can celebrate all the numbers that I talked about, but we need to keep in mind there are only a little over 5 crore unique investors in the industry. Can we say that we are feeding that 5 crore unique investors in the industry? No way. I mean, of course, you will know that better, I mean, if we compare ourselves with, I don't know, maybe the vehicle ownership or passport holders or the number of people who file income tax returns. Many numbers, I think we still have a long way to go.

Just a follow-up, sir. While the long-term trends we all agree...

Even if that -- sorry to interject you. Even if I look at the Demat accounts, which are like around 19-odd crore and I don't know how many unique investors in that, but I assume that number is substantially higher than what we have as an industry in terms of unique investors. The people who have already invested in capital markets but are yet to invest in mutual funds, that number is also like quite large. That would be like another, I would say, a cohort of investors that we would like to target as an industry.

Yes. So just following up, while the long-term trajectory we all agree on, could there be a sort of healthy consolidation in the near term where we see this large base of current year not being repeated at least for the next 3, 4 quarters?

Even healthy thing is to see is that I think the market turned volatile sometime in September, I remember, and last quarter was extremely volatile with so much of foreigner selling and some of the other -- I mean for other reasons that caused volatility in the market. And in this quarter, we have seen record flows in the mutual fund industry. I'm talking about the equity funds. And in terms of SIP addition and in terms of new account addition, it's been very, very pleasing for everyone in the industry. It shows a maturity of the investor. It shows that mutual funds are getting sold as a product where investors need to invest in a disciplined manner in a -- with a long-term orientation. Having said that, you are right, there will be some cyclical aspect. If let's say we remain in a bear market for an extended period, it may impact overall sentiment that may have impact on the -- whether the new investor addition or topping up of amount by the existing investors also, but I feel positive that this time a good part of our growth is structural in nature and not completely cyclical. Another interesting thing from our interaction with the distributors and investors, the one thing we notice is mutual funds have performed substantially better than what investors have witnessed in their own portfolios, where they've invested directly. And they can clearly see the comparison and the advantage of investing through the professional managers like us. I think this will also keep us in good stead and will help the industry in building more trust among the investors that this is a better vehicle than doing on your own.

Great. Sir, sorry to just -- one last question, if I could squeeze. For the December quarter investor addition, is it that the sort of this 20% drop was more in fintechs versus the NDs, anything qualitatively that you can call out?

I don't have that handy. But I mean, the industry, as I said, I mean, in 1 calendar year -- I mean the total number of unique investors, 4 years back -- 4.5 years back, I remember was 2 crore. And in 1 calendar year, we added more than 1 crore. As an AMC, we have added 40 lakh new customers in the last 12 months or so. I mean they are like phenomenal numbers. I also keep thinking that 1 investor addition [indiscernible] the 2, a big opportunity for us is also to ensure we get more allocation from the existing investors. Industry has done a very good job in spreading the word about Mutual Funds Sahi Hai investing through SIP. But have you invested the right amount? Do you need to invest more to meet your goals? I think there's a lot of potential for us. And as an organization, we are putting a lot of effort. As an industry, we are putting a lot of effort on that. I don't know if you have noticed, I mean, some of the media channels where our next, I would say, target for Mutual Funds Sahi Hai is that are you investing rightly and are you investing the right amount that you need to invest. So there's a lot of potential to get more money from existing investors also.

But Jayant, what number has dipped 20% because if the unique investors have grown from 5.01 crores to 5.26 crores year on -- sorry, quarter-on-quarter.

I was seeing that in September quarter, we added 3.2 million new unique customers in the industry. In December quarter, we added...

Growth has slowed down by 20%.

Incremental addition, yes. Incremental addition, yes.

Incremental addition, so you are talking about growth on growth is not happening. Growth on growth is happening at a slower pace. And at that pace, I think unique investors will beat Indian population.

Next question is from the line of Saurabh from JPMorgan.

Sir, just one question. Sir, basically, just on the SIP and the net new money in equity, given that NIFTY return is now in the mid-single digits. And now if this market continues like this, probably FD returns could start coming better than equity, at least in a 1-year view, do you think there's a case that the net new money accretion in the industry and the SIP accretion starts to tone down from here?

I mean, kind of what I answered before, but also that there's a lot of opportunity for us on the fixed-income side. I mean if you think that -- I mean, where the interest rates are, there could be investors who want to allocate some bit to fixed income also. Last 2, 3 years because equity markets have done so well, investors have allocated, I mean, a larger proportion of their money into equity funds, but there are hybrid funds. We have asset allocation products. We have fixed-income products. And I'm sure there is an opportunity for us to position ourselves for that allocation also.

Sir, the main point is basically...

Saurabh, I think if we have an extended bear market, that may have some impact. But what as an industry we have been trying over the last 5, 7 years, in particular, is to educate investors that you are investing for the long run. I just talked about 30 years of HDFC Flexi Cap fund and what we tried to showcase is that there have been many, many, many cycles, economic cycles, business cycles, profit cycles, political cycles. And across all of those periods, if we just stayed invested, what kind of returns you have got over a period of time? What kind of experience you had in terms of compounding your money with a disciplined investing? And I'm hoping that, I mean, as entire industry is making these efforts, I'm hoping that investors take a more longer-term view and don't get swayed by the volatility. But of course, I mean I take a point, there are a lot of investors who come in last 3, 4 years, they haven't seen a severe correction. First time they have seen some bit of correction in the market, and we have to wait and watch for their behavior in this cycle, yes.

Next question is from the line of Mohit Mangal from Centrum Broking.

Congratulations on a good set of numbers. Just one question. So I mean we have seen the SIP discontinuation rate to be high in the industry. So just to get a sense, say, for HDFC AMC, were the ticket size for SIPs still less than, say, INR 5,000 or was it -- or higher ticket size or more than INR 25,000? Any color on that would be very helpful.

Sorry, I didn't get that. You are asking for the ticket size of the SIPs?

Yes, SIP discontinuation rate, I mean, obviously, we would have seen something for the quarter, right, for the company. So just wanted to get a sense of the ticket size of those SIPs. Were they higher, say, greater than INR 25,000 or were they less than, say, INR 5,000? Just wanted to get a sense of that.

We mentioned earlier that you look at the total number of SIP accounts and then you look at a new addition and the cancellation. This is not really so material as you are making out to me. And also, as I mentioned, that we don't give the SIP number. We give systematic transactions, which include both SIP as well as the STP. STP is the systematic transfer plan.

Yes. I mean I just wanted to understand, as you know, I mean, we are seeing in the industry the discontinuation rates to be high. So I mean just wanted to get a sense as to why -- I mean, are the ticket sizes a concern or basically it's the market returns, I mean...

There are many factors. Somebody can start with, let's say, in 5 different funds. And then depending on the view, they may change -- I mean, they may add another 2 funds and stop SIP in the existing 2 funds, right? Now those 2 where they have stopped will go as cancellation, those 2 where they have started the SIP will go as new. It could be the same fund out, it could be a different fund out. So that there are many factors at play.

Next question is from the line of Priyanka from Trident Capital.

So my first question is that what is the strategy for the attracting passives, especially EPFO flows considering they are the biggest investor in this segment? There was an EPFO tender in 2023, which was open to private AMC players also, but I guess we did not win that. So is this tender up for renewal or can you talk on getting some share of this EPFO flow?

As and when that happens, we will consider that. It will surely be -- I mean we will surely consider that as and when it comes back for a tender.

So is there -- when will this kind of up for renewal? Is there any particular date or periodic tender or anything?

Everybody will come to know at the same time. So I don't think we have any prior information.

Okay. Next thing, just there was this question on employee expenses earlier also. So I'm just looking at the employee expenses for the last 9 months, okay? The employee expenses have gone up 9% compared to 9 months or the previous period. But our branches have increased by 25. So if there's the rate that we are looking at that the employee expenses goes up by 9% to 10% assuming a branch expansion? Or how is it exactly take into consideration for the employee expenses?

I'll just clarify on the employee expenses is the total expense you're looking at, that has a component of the non -- the ESOP cost as a noncash component of employee expenses. So for the previous 9-month period, that was INR 37 crores, the same number for this 9-month period currently is INR 17 crores. So if you take that off, then you will see a reasonable increase in employee expense.

So what is, on an annual basis, considering the 25 branch increases, what is the employee expenses increase that I should look at for my model purpose?

So we don't give out guidance specifically as a general matter. I think employee expenses across the board, as you know, this is the financial services sector, and we would do what is appropriate given the business cycle where we are in for employees when we look at costs for next year. We've always been very prudent and rational on our cost such as employee expenses or other costs. At the same time, if we have to invest in people and technology and network, et cetera, we'll do it at the right point. Again, to clarify, and we did mention this in our previous quarter's call that when these branches are while -- they are -- the offices as we call them, are still small offices, manned by a couple of people. It's not like a very material from a cost point of your people for view that it really changes it. Of course, you have to man the branches, et cetera. But it's not like a material increase in cost because of 25 new branches open.

Next question is from the line of Bhavin Pande from Athena Investments.

Am I audible?

Yes.

Congratulations on those set of numbers. So sir, how do we look at protecting fund performance in a downcycle, if we were to extrapolate the kind of scenario panning out maybe for a longer horizon? And secondly, again, not going too granular on flow side, have you seen any reorientation, both from direct and non-direct channels in terms of allocation towards funds where our belief is that certain sectors are overheated or maybe performance might not come, so they have reoriented to other strategies, which had not done for maybe last couple of years?

Yes. So we have seen some bit of change in terms of the categories that get more flows. While we try to educate as much as possible that I mean investors should not have a recency bias. Don't look at the returns of last 6 months, 12 months or so and then allocate your money accordingly, focus on the larger goal planning, asset allocation and then the fund selection. Having said that, the recent performance has some implications while industry tries very hard, as I mentioned earlier, to educate investors to ensure that they invest from a longer-term perspective. What was your other question on -- actually, I mentioned it earlier that -- in fact, in the presentation, Chirag was showing that when you look at number of stocks that have fallen from the 52-week high versus I think if you look at the fund performance or if you look at -- I mean, the alpha that has been generated by several funds. I think, fund managers have done a very good job in the -- during this period of drawdown.

Okay. And sir, on macro front, you've given the high-frequency indicators posting towards maybe an extended period of higher interest rates, so do we -- would we sort of ramp up our efforts towards scaling up the debt business as well, barring the fact that equity might not do well, again just purely from a debt perspective?

No. I mean, we have full bouquet of products to meet every need of the investor. Having said that, our message to investors has been that they need to think from a longer-term perspective. I don't think that they need to stop the allocation because equity markets have not been doing well over the last few months or may or may not do well in the next few months. I think it's about the allocation. I'm sure in several of the presentations, people from our industry show that if you missed out on a few good days or few weeks of, let's say, upcycle, you may miss out on a very large part of the market, and that's why it might sound like a cliche that it's the time in the market and not the timing that really adds to the wealth creation. And over the last couple of years, this is what I think industry has done very well in delivering this message that you need to invest in a very consistent and disciplined manner and don't get swayed by the volatility but actually take advantage of the volatility. Over the last few months, we feel very positive looking at the investor behavior, and I feel hopeful -- I mean I feel that investors should continue to invest with a long-term horizon.

Next question is from the line of Lakshminarayanan from Tunga Investments.

First is how -- what has been our market share growth in -- or how are we seeing growth in the hybrid and balanced advantage funds when compared to the market? Are we growing faster or -- do we have any product gaps there?

No, I think we have been a pioneer in that category. Our balance Advantage Fund is the largest actively managed equity-oriented fund in India, hybrid fund and dynamically managed. I mean currently it would be like in excess of INR 90,000 crores. And across the board, whether it's the hybrid equity, conservative debt product, set a look at our fund, multi-asset fund, there are like many products that we have got to meet various kinds of needs of investors and our partners. Historically, we always had a higher share in that segment, and we continue to build that portfolio. In terms of product gap, I don't see no equity -- I think almost all the products which are allowed as per SEBI categorization, we are already present.

The second question is related to the VWAP rule, some kind of sort of contours of some certain things that came up by either AMFI or SEBI, does it actually affect you? How you have actually taken up that because that, I understand the affects with cap and small cap in particular, and that we have a large, mid cap and small cap funds. So can I just tell you more about that? Is it actually becoming difficult for you to manage large sums of money in those schemes because of this rule?

No, I have not heard that from our fund managers. And by the way, I mean, we had AMFI and regulator, we work very closely. I mean SEBI has always talked about the co-creation of regulation and best practices. Everything that we do is to enhance transparency. Everything that we do is to build more trust in the product. And we work very, very closely with the regulator from AMFI side.

Next question is from the line of Kunal Thanvi from Banyan Tree Advisors.

I had 2 questions. One was on regulations like in 2023, there was a lot of talks about TER from scheme-based to fund-based. Anything that you've heard on that, like incrementally from the regulators in your sense of the same? Second question was in terms of, like last 2 years have been very good for the investors. We've been talking about in terms of growth, SIP -- growth in the unique investors. What are the key risks that you see from here on in the business, both medium term and long term? If you can talk about these 2 specifically?

Thank you, Kunal, and wish you, too, a very Happy New Year and wish everybody on the call a very, very Happy New Year. On the TER, in fact, I've been stating that the telescoping structure, especially in case of equity-oriented schemes does have an impact on the TER and the current formula incorporates this mechanism and its effects have been evident over the last couple of years. So in our opinion, further regulatory intervention may not be necessary to pass on the benefits of scale to the investors. The scale benefits have been passed on to the investors over the last couple of years. The risk to our business, of course, because, I mean, if you look at our AUM, it consists of 2 -- the growth consists of 2 things. One is the mark-to-market, the second is the flows. If markets, I mean, don't do well, which is the case, let's say, last couple of weeks, it impacts our AUM right. I mean if, let's say, this kind of market trend continues for an extended period, it may also have an impact on the flows, while we believe that good proportion is coming in the form of systematic transactions and that should continue. And it may offer like other opportunities to look at fixed income and some of the other categories. But yes, that would be one of the key risks given our business.

Next question is from the line of Lalit Deo from Equirus Securities.

Congratulations on a good set of numbers. Sir, just 2 questions. One was the noncash charge, which you're talking about in the employee expenses. Sir, right now, we have the existing plan which is going on and for like the next full year, do we have any new plans which are there in the pipeline, like in terms of outlook on the noncash charge?

We haven't discussed that so far, yes.

Okay. And sir, just lastly, like when you are talking about in the systematic transaction. So can you just give us a color like how much would be the SIP book and how much would be the STP book on a qualitative basis?

Lalit, we don't give that split, yes.

Next question is from the line of Ajay Jain, Individual Investor.

In fact, counting...

Ajay, sorry, we were able to hear you. Can I request you to repeat your question from the beginning, please?

This is regarding accounting entry. Can you explain other income, there has been a big difference in quarters 2 and quarter 3. What constitutes other income in your accounting?

Sir, largely, other income is what we earn on the investments we have made from our balance sheet. And the movement that you see between this September quarter, the December quarter is largely on account of the equity mark-to-market loss of the investments that we have to make. Those investments are largely due to the SEBI Skin in the Game circular, which requires AMC to push its own balance sheet capital into its own fund in a pre-prescribed formula. And since the markets were lower in the quarter, there is mark-to-market loss on the equity investment.

Fair. Can I conclude it what I've understood of it is that if the market increases, the value of the shares increases, then you have a better margin in other income and vice versa. Am I true, sir?

Yes, sir. Yes, sir. So we have to mark-to-market our investment.

Thank you very much. Ladies and gentlemen, that was the last question. I would now like to hand this call over to Mr. Navneet Munot for closing comments.

Well, thank you so much. I wish you all a very happy [indiscernible]. And of course, I wish you and your loved ones a very Happy New Year. Thank you so much.

Thank you very much. On behalf of HDFC Asset Management Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.