Nippon Life India Asset Management Limited (NAMINDIA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Nippon Life India Asset Management Limited Q3 FY '22 Earnings Conference Call hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sameer Bhise from JM Financial. Thank you, and over to you, sir.

Thank you, Nirav. Good evening, everyone, and thank you for joining this call today. From Nippon Life India Asset Management, we have the entire management team led by Mr. Sundeep Sikka. Without wasting time, I would want to hand over the call to Mr. Sikka. Over to you, sir.

Thanks. Good evening, everyone, and welcome to our Q3 FY '22 Earnings Call Conference. We have with us our Chief Financial Officer, Prateek Jain; Chief Business Officer, Saugata Chatterjee; Chief Business Officer, Aashwin Dugal; Chief Digital Officer, Arpan Saha; Head of Elite Partner Plan Group, Nitin Gupta; and Fujikake-san Nominee from Nippon Life Insurance Tokyo. Overall industry sets grew at an even pace in the quarter, driven by rise in equity and passive segments while fixed income saw muted growth. Despite high equity market volatility, industry's steady performance was a result of continued interest by retail and HNI segments. The industry's unique investor grew by 15% in Q3 and crossed the 30 million mark. The strong growth in the investor base and the overall assets indicate confidence by long-term investors in mutual funds. We expect the industry to grow -- to maintain its growth momentum in future also. At Nippon India Mutual Fund, our priority is to be future ready and capture the long-term opportunity. As stated earlier, we are confident of regaining our market positioning as well as recreating and reinventing but continuously innovating or disrupting ourselves. Towards these goals, I'm happy to share our overall market share rose by 22 basis points in 9 months -- the last 9 months to 7.34%. AUM increased by 32% to INR 2,806 billion. This is the third sequential quarter of market share gains, along with the improvement in other qualitative parameters. We increased our share of industry unique investors to 33% with a base of 10 million investors. Also, our share of investors in B30 folios grew from 10.4% as of December 2020 to 11.6% as on December 2021. The growth was driven by improved fund performance, comprehensive product portfolio, enviable track record in passive segment and robust risk management and granular distribution network. In line with our investor first philosophy, we keep expanding our product suite to cater to the investors various -- varied leads and diversified demands. In Q3, we launched India's first fund focused on dynamic and growth opportunities in Taiwanese market. The Taiwan equity fund raised 65,000 applications, including 6,000 HNIs and [indiscernible] In Jan '22, we completed the NFO of India's first Auto ETF and Silver ETF and Silver ETF fund of funds. Others such unique offerings in the pipeline include S&P EV Index Fund, the Innovation Fund and artificial intelligence fund of funds. In total, we have filed 11 schemes for regulatory approvals. These products will provide investors with more value accretive revenues to diversify risk and generate sustainable returns. Here, I would like to reiterate that even in future, we will focus on strong asset growth, but never at the expense of profitability. Driven by key retail focus, we have one of the largest retail AUMs in the industry at INR 776 billion. The contribution of retail AUM to total AUM is amongst the highest in the industry at 28% compared to 23% for the industry. We are amongst the market leaders Beyond 30 Cities categories. This category contributes an AUM of INR 488 billion. 18% of the total assets are sourced from these locations against the industry average of 17%. As on December 31, 2021, 70% of the individual assets have a vintage of more than 12 months. The annualized SIP transaction book is at INR 82 billion. On a gross basis, the systematic folios rose by 385,000 in Q3. Our systematic AUM rose by 38% to INR 507 billion. 45% of our SIP's AUM has contributed -- 45% of our SIP AUM has continued for more than 5 years vis-a-vis 20% for the industry. Also in the volatile markets, folios with no ticket size have demonstrated longer vintage and better stickiness. 12% of our SIP folios have continued for more than 5 years as against an industry average of 8%. Today's Nippon India Mutual Fund offers the industry's best suites in passive products. With strong growth in industry's passive assets, our ETF ecosystem is already in a place and far ahead of the peers in terms of investor base and mind share. In this segment, we managed AUM of INR 515 billion and have a market share of 13%. Excluding the EPFO allocation, which goes to 2 public sector mutual funds, we have -- we are the largest ETF player in the country. Our Gold ETF is the biggest fund in the category with having assets in excess of INR 63 billion. Nippon India's share in industry's ETF folio rose to 60%. In Q3, we added 1.6 million investors and accounted for 70% of the total ETF folio additions in the industry during this quarter. Nippon India Mutual Fund has 69% share of ETF volumes on both NSE and BSE. Our ETF average daily volume across key funds is far higher than the rest of the industry. As a well-diversified asset management company, we have begun to grow our non-mutual fund segments over years. Along with the government mandates, we managed assets of INR 677 billion in non-mutual fund segment. The offshore business has assets of INR 115 billion under management and advisory. Leveraging Nippon Life's global network, which continue to ramp up our international presence. As mentioned earlier, Taiwan equity fund and other products are in early -- Taiwan equity fund and other products and other products, which are in approval stage are a step in that direction. In our AIF business, we managed cat 2 and cat 3 AIFs across asset classes. As on December 21, Nippon India AIF has raised commitments of INR 42 billion across all funds. We have received IFSCA approval to carry out asset management operations in our GIFT City branch. By extending our reach to the unique locations, we expect to accelerate global allocation into India and add value to international investors and partners. Online and digital assets have become a strong source of investor's acquisition and communication. Our strong digital acquisition and engagement framework with targeted performance-oriented campaign is driven through cutting-edge tools like Adobe Campaign Management. These initiatives have helped fuel consistent growth on our own store front and various other conclaves. The focus is towards creating a digital experience that is friendly, futuristic and frictionless for all our partners and investors. In Q3, digital platform contributed 58% of our total new purchase transactions. Over 750,000 purchases were executed through digital assets, an increase of 83%. Nippon India Mutual Fund has a well-diversified nimble distribution base. As on December 2021, we have approximately 83,800 distributors impaneled with us. The MFD base grows by over 8,500 with an addition of 1,800 distributors during this quarter. Also, we have ongoing tie-ups with 20 prominent digital partners. Direct digital -- direct channel contributes 55% of the mutual fund AUMs. On the distributed assets, share of MFDs was 58%, 88% of the distributed assets are contributed by individual investors. Nippon India Mutual Fund has a wide presence across 270 locations across the country. We continue to review our existing branch operations and future expansion plans. In recent quarters, our marketing efforts have increasingly focused on digital channels, which are more cost-effective as against off-line advertising. Now on our financial performance. For the quarter ended December 31, 2021, profit after tax was INR 1.7 billion. Operating profit increased by 48% to INR 2.1 billion. Operating profit as the ratio of average assets under management rose from 26 basis points in Q3 to 29 basis points in Q3 FY '22. Our aim is to create sustainable value through growth across asset classes, cost optimization initiatives, resulting in expanding and favorable operating leverage. We continue to grow organically through our physical and online channels. Additionally, we remain open to evaluate investment in strategic opportunities that add to the profitability or complement our existing businesses. As a signatories to UN-PRI, world's largest voluntary sustainability initiative, we aim to create a sustainable future for our stakeholders by integrating ESG principles into our business operations, investment processes and stewardship. By introducing formal policies, including case of fund management, we intend to share a strong and clear message about the organization's purpose with our stakeholders. Also, as stewarts of our investors' capital, we continuously engage and evaluate all our investee companies on their performance on issues related to sustainability, governance and value creation for diverse stakeholders. To sum up, I would like to reiterate at NAM India, investor centricity remains the key theme. We strive to deliver a complete product suite customized to investor needs, superior fund performance, efficient client servicing based on comprehensive digital ecosystem. We are confident to continue our trend of profitable growth in coming quarters. With these comments, we are happy to take your questions. Thank you.

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

Three questions from my side. Firstly, if I look at your sequential AUM mix, there is a marginal improvement on the equity shares, but the yields have dropped. You can divide the revenue by the overall. So what is the reason for that? And could you give some understanding as to how the yields for the overall business could move going ahead? That would be my first question. Second, is the sharp fall in your other income. What is the reason for that? And what could be a sustainable long-term run rate [indiscernible] and lastly, on the other expenses because there has been a recent decline on other expenses, whether this is sustainable run rate?

I'll request Prateek to take your 3 questions, please. .

So in terms of the yields, what we have seen is that if you look at our average AUM compared to the last year, what has happened is that our average AUM is about 43% up. So obviously, one, because of the size issue, if you see most of this has been because of the mark-to-market impact, so the size issue, the TER goes down. That is one. . Two, there has been an increased competition in the NFOs, which is also has -- we have just to relook at some of the distribution tie-ups. So -- and the third part is that the change in the old asset getting replaced by the new assets. So these are the 3 key reasons wherein we have seen marginal decline in our equity realization. And the reason is that, look, if you see in the last 2 quarters, there have been a slew of NFOs. And each one of them and especially from the new players or rather the smaller players, which has gone and now given very high kind of a distribution commission, which has sort of created some kind of, I would say, a tilt towards the -- or rather people focusing more on the business growth rather than the profitability. However, we remain focused. We continue to focus on profitability, but on a tactical business, we'll keep reviewing the tie-ups. And while we'll keep growing the business, while our focus will remain on profitability. So that's on the yield part of it. On the other income side, you would recollect that last quarter and earlier also, we had mentioned that we have pared down our total exposure to equities, but yet, we have almost 10% of our total asset under management or rather the net worth into equities. So of the total assets that we have or the total cash we have, 90% of that is in our own mutual fund and fixed deposits. Of that 10% is in equity. So prior quarter saw almost 10% to 12% increase, this quarter was actually a decline by 2%. So those mark-to-market impact has led to the difference in the other income. There is no onetime or there is no, I would say, any aberration. This is all mark-to-market even. And that happens on the last date of the month. Even if you see on the fixed income side, there has been some yield elevation on the fag end of the quarter, which has also got mark-to-market. And for that reason, our other income is down as compared to the previous quarter. Coming to your other expenses part, we have always been maintaining that look close to about INR 45 crores to INR 50-odd crores would be a run rate expend. And we will be -- there are expends which are more towards discretionary part in terms of marketing and digital spend, which we keep monitoring and depending on the activity levels, those are semi-variable. So you will see this expense remain range bound. And there is, again, no one-off kind of expenses. There is just one thing that the transitions expenses, which -- transitionary expenses, which we were incurring because moving out of the old architecture environment from the previous parents have now completed, and therefore, some of the duplicacy of the expenses have come down.

Okay. Just on the EV part, again, while you mentioned that the 3 reasons for the fall in EV out of which, I think the NFOs continue to be very priced aggressively or distribution commissions are given aggressively out there, the TER movement with regards to size if the equity market come back to growth a bit, it will continue to be. And so in a way, that directionally, equity yields will continue to drop plus over and above [indiscernible] share of ETFs are a little higher. So in that sense, is it fair to assume that the yields which are -- will continue to decline from here as well in the next couple of years?

Yes. See, if you see the -- again, from our perspective, the assets have grown almost like 45%, 50%, then again, because of the size issue, because of the regulatory size issue, you will see some compression happening. And so to that effect, there will be a compression you will likely to see, but that will be offset by the absolute growth in terms of the overall fees.

[Operator Instructions] The next question is from the line of Mohit Surana from CLSA India. .

Sir, my first question is a continuation of previous question. You obviously said that as the size of the AUMs grow, there will be some kind of yield compression because of regulatory rules around that. But in terms of NFOs, do you expect the current situation of pricing, distributor commission very generously? Do you think that will have an impact in FY '23, '24 as well? Or do you see this as a transitionary kind of an impact? That's my first question. .

I think the way I see this is a transitionary thing. I think we have seen, I think some of the AMCs trying to [ filling ] up their portfolio by launching new schemes because there is also a constraint on how many, now you cannot launch multiple schemes. SEB has already had one scheme for category. And you have seen some new AMCs coming into play. So I think this is all transitionary, I think I'll take it more from a long-term point of view. I'm seeing more focus on profitability in this industry than ever before. So I think I feel -- my personal view, this is a transitionary thing and will settle down very soon. And even I have seen in this industry, it is all about volume, I think a drop in 1 basis point yield, 1 or 2 basis points can happen, cannot and never be ruled out. But I think more than that can be compensated by increase in volume, I think. And from our perspective, what we continue to focus on increasing volumes is by getting better quality assets, and as I mentioned in my opening comments, the stickiness of the assets, smaller ticket size, I think all these things are going to play an important role because markets will remain volatile, I think so, that I think as we play through these different market cycles, the stickiness of the assets is going to be more important than just the AUM. And I think our focus remains on that.

Got it. And sir, the second question is around ETFs and index fund. Obviously, you have a lot of index funds in pipeline. So I just wanted to understand in terms of your contribution to bottom line, how should we look at it in terms of your strategic plan to grow into ETFs and passives. How should it incrementally contribute to the bottom line?

I think from our perspective, I think I'll just give you a directional view how we see and then Prateek will answer about the P&L spend. I think from our perspective, I think we have always believed our philosophy is investor first. I think we clearly believe whatever is good for the investors is good for the AMC and the entire ecosystem, and we need to keep offering. I think we have clearly seen there has been a shift towards the ETFs and index. And I think we've been -- we were able to catch the trend early if you were to go to Slide #18 of our presentation, that will tell you our position, where we stand, where we have almost 70% to 80% of the volumes at the stock exchange. And unlike mutual funds, we have normally investors who like to diversify in the 4-5 different schemes. In ETF, there is no need for an investor to diversify into multiple ETFs because I think the underlying is the same. So I think there is going to be a first-mover advantage that we have and we will enjoy it. From our point of view, I think we have broadly met. We are having the realization of about 9 to 10 basis points. And I think on a total, our today ETF books, total book is about only INR 50,000 crores -- INR 50,000 crores, accordingly INR 50 crores was contributed to the bottom line because of that.

Okay. So are there no additional expenses related to ETFs and index fund?

Certainly, from our perspective, broadly, I think the ecosystem that we have built up, I think today, any new launch does not, I think, lead to any incremental cost for us. It is negligible.[indiscernible] talking.

[Operator Instructions] The next question is from the line of Amit Nanavati from Nomura. .

Question on OpEx again. Basically, if I look at just the quarterly run rate of non-employee, non-brokerage kind of expense, purely overheads, we've been clocking around INR 50 crores to INR 53 crores odd. This is roughly 10% lower than last year. And if I look at pre-COVID run rate, this used to be around INR 70 crores, right? So it's a decent improvement that we're seeing here in addition to cost rationalization on the employee cost as well. But if you can just qualitatively indicate towards which segments or what heads are seeing rationalization in cost? And how can this trajectory be maintained? Or these are like one-off cuts and which more or less have kind of bottomed out?

No, so Amit if you recollect, almost 12 quarter back, we had a lot of questions around our higher OpExes compared to some of our industry peers. And thereabout, we started deeply looking into all of the each individual line item expenses. And if you recall, 2 quarters back, I mentioned that, look, we have now reached to a steady state with 10% plus and minus, because most of these costs are broadly fixed in nature. Some of them are semi-variable and some are discretionary. So a large part of this cost of that INR 50 crore what we talked about, almost 70% is broadly considered as a fixed and semi-variable, where these costs will continue. There is still some discretionary cost, which we have, which we basis -- the transaction volume basis the activity, those expenses keep moving up or down. And also, again, as mentioned to be future ready, we keep engaging into expenses related to either digital or the marketing. So these are some discretionary expend which we'll keep depending on the market environment, depending on if we have come out with a new fund offering, et cetera. Obviously, there is -- there will be some elevated spend towards that. So that discretionary element will remain, but barring that, if you see, these expenses by far will remain in the range down -- around this number. And which--if you look at the last 8 quarters, this has been around this and these numbers only.

Yes. So basically would it be largely marketing spend cards that we would have done, rent may not go down as sharply, other heads would be smaller, right? So it's largely marketing and advertisement where we would have seen large cuts or will it be some other segment?

No. So it was -- if you see from the past, it was across -- we had a lot of these service providers, which we have gone and renegotiated costs with them. Some of them we have changed. And some of the other establishment costs which we were incurring, we have actually gone to -- like you take the example of our own head office. We have now moved to a smaller location. So -- and then we have got consolidated everything, our IT under one umbrella under IBM. So we have done quite a bit in terms of rationalization of our third-party spend -- on the spend which were related to, of course, travel, conveyance, and others have also come down because of the COVID, of course. And in terms of marketing also, earlier, we used to spend more on the off-line media. Now the online media is comparatively cheaper. So, as such, it is not just marketing, it is across board. We have looked at each and every spend and that we started almost 12 quarters back. And in the last 5 or 6 quarters, we have been into some kind of a steady-state expenses. You will see plus/minus 10% in the quarter-on-quarter. This was due to the discretionary spends.

Got it. Got it. Secondly, on the AUM side. One larger drag on the yield also is because your upfront plus trail AUM kind of getting replaced by a full trail model as well, right? Where are we in that process? It's already 2, 3 years now, right, since the regulations changed. So would it be fair to assume a large part of the AUM, which needs to get replaced is by and large replaced. Obviously, there will be some sticky AUM which will take longer to get replaced, but by and large?

Yes. So if you see, like, unfortunately, for us, for a large part of the last 2, 3 years post the regulatory changes, we have seen quite a fund outflow, which has happened earlier because of our transition issues and later on because of the performance issue. But now with the performance coming back and like the top 10 of our schemes now under the quartile 1, I think we believe that this outflow is more or less over and this is also getting replaced. Also there is a fatigue factor coming in from outflow because most of the money which was to go out has already gone out. So if you see -- therefore, if you see our market share is stabilizing now [indiscernible] and with the improved performance, we're likely to see more inflow coming in. And so the asset replacement, which is causing this drag, this is not likely to be there. But yes, though asset replacement drag may not be there, but the new asset, which is only the trail, definitely, that will keep pressure, putting pressure on the yields. Yes, which is fine. At least...

That will be only on the new and incremental one as compared to the yield -- the amount which gets outflow, it has a much larger impact because that was upfront plus trail and the new one, which is coming is only on trail.

Got it. Got it. Lastly, if you can just quantify the yield in the equity segment that you are making now?

So, we do not give specific yields asset-wise. But it's been -- it has declined over the last few quarters. And as I mentioned to you broadly, because of the 3 reasons. One, the increase in size from 80,000, if you see for the last quarter -- comparative quarter to 120,000. So that has been one. Second, of course, replacement of the old assets. And third, of course, because of the current new environment where a fund is coming through -- largely through the new NFOs, et cetera, where competition has been getting very high in distribution costs. So all 3 reasons have played out, and we have seen some compression on our equity yields.

Sorry to interrupt you, Amit. I'll request to come back in the question queue for a follow-up question. [Operator Instructions] The next question is from the line of Sahej Mittal from HDFC Securities.

So my first question was around our equity market share loss, which has still persisted even in Q3. So may be you could highlight what is causing this loss? Is it performance? Or is it flows? What is the problem we are facing? And the second one was around if you could quantify the NFO expense line item for Q3, Q2 to understand such a sharp decline, such a sharp improvement in our other expenses. And third was around if you could explain us what is the concentration of your IFA source into equity AUM to understand what these new IFA is bringing to the table in terms of AUM or the flows? [ Yes, those would be my questions.]

I will take the first question on the equity market share. I think our overall market share has stabilized. And as you can see in the last 3 quarters, overall, AMC market share has gone up by 22 basis points. Equity still continues the business is a minor debt. I think one of the reasons for that, while we have kind of started seeing new flows coming in, a lot of flows which are coming in the industry are also a function of the SIPs, which were started in the last 2, 3 years. The last 2, 3 years, as you are aware, we had a little bit challenge in equity performance. But performance has been very good now. The new flows have started. So -- and also, if you can see, over the last 3 quarters, our SIP numbers have started going up. So effectively, there will be a positive lag effect and a lot of new SIPs which are getting registered, I think that will help us to increase our market share. The present flow that is coming out of SIPs which are registered in last 2, 3 years, we did not get a market share. But directionally, I think we are happy. I think the new fields and the new SIPs have been increasing. So that is number one. I think the other question, Prateek, on the NFO?

Yes. So from the NFO perspective, there are no specific cost related to NFOs, I could not get your question. So there are no NFO costs these days, which we have to incur. The only thing one could be that, look, if some spend has been done on the advertisement basis. Otherwise, there are no specific NFO expenses, which were incurred in the previous quarter as compared to this quarter.

Yes. So my question was around the marketing expenses specific to the NFO which we have done. So those would be that material?

So overall, if you see the expense here -- as I mentioned to you that, look, this is -- this expense line item has been ranged bound plus or minus 10% here and there. And if you see -- of course, there is, in previous quarter, we had one large offering, which was there in terms of our Flexi Cap Fund so -- but -- so there could be some impact of that marketing spend, which you've done higher, but that is not very significant to talk about, because overall spend has not been changed dramatically. So as against the INR 42 crores this quarter, this was last year INR 45 crores.

I think on your final question on the mix, through the IFAs and distributors, that's on Slide #57 of the investor presentation, the detailed breakup is still there.

And just to follow-up, so against this INR 42 crores, you say that for the last quarter, this number would look like INR 45 crores. Is that right?

So Q3 other expense, let's see, if you go to the detail of the consolidated numbers that we have presented. So if you see the other expenses, which account for INR 42 crores in Q3 was INR 45 crores last quarter Y-o-Y. And INR 49 crores -- sorry, INR 49 crores last quarter and INR 45 crores in Q3 '21.

And some color around our fund performance, whether there has been some change in the strategy? Or how are earliest strategy spanning out for us? Some color around that?

No, I think it's -- we have had a new risk framework that we have implemented. So I think leveraging on our research and a new risk framework that has been implemented working closely with the Nippon Life on Japan also, I think a lot of things have been -- so it's a proprietary tool from Nippon that we are trying to use. So it has helped us. So it's both mix of art and science and trying to have a better risk framework. So I think we'll not be able to go too much in the details of that. But I think ever since it's been implemented, and along with a strong research capability, fund performance has stabilized.

The next question is from the line of [ Akshay Jogani ] [indiscernible] from [ Exponentia ].

For the [indiscernible] question. If you kind of take you just back and think about how the industry structure has evolved, would you talk about the power balance within the distribution companies in manufacturing, right? How has that changed over the last 5 years according to [indiscernible]. One of the reasons that I asked this question is that you spoke about how the current spike in commissions that the distribution companies are getting is transitory. And from the way I see it, it will not be -- because on the manufacturing side, there's just a far more number of companies that are entering and they seem to have a different positioning and all will likely building the same distribution channels, right? So it's a gate to sort of get your thoughts on how it has more than value to equate?

I think it's very difficult to answer this question. I think all stakeholders, I think, are jointly working towards the growth of the industry. And your question on power, I do not know what do you meaning of the power equation. But I think broadly, I think it is anybody, whether it's a distributor adviser, MFD or a manufacturer, everybody has to do -- add value to the investor. And secondly, it will all depend on the -- coming back to the question on manufacturers. This will depend on different manufacturers. What is the strategy? Is somebody who's working for a growth and top line could have a very different strategy. I think as we have articulated in past also in my earlier comments, I think we will be focusing broadly, our focus will remain on profitable growth, and we will not mind walking away from business that does not leave anything on the table.

Sure. Sure. Only if I may, kind of followup, what I meant is that if you see the realizations of the asset margin companies are sort of getting compressed, right? It is not -- the compression is not of the same level among the companies that are actually distributing the products, which -- so that kind of seem to suggest that they seem to be able to price -- get a better pricing over daybook. Is that a fair assessment?

I don't think so because there are not -- that data may or may not be available as transparently. But I think the way I see it, I think we have very clearly, I think, mentioned in the past, they can definitely and Prateek also mentioned, there can definitely be a compression analyzation, that could be whether the competition, whether it could be what you call distributor power or whether it could be because of the investor or could be because of the regulator, I think what we have to see is how are we building up our ecosystem to do the same business at a lower cost, how are we building up reach to go deep into [ Bharath ]. And I think your question on I think where every manufacturer who come will go to the same distributor that necessarily may not be true. It depends basically, I think if you have a long-term vision today, I think we are one of the few banks -- non-bank based that asset management companies, the kind of level we reached that we have built up and we commented on our B30 strategy. So I think we -- I think it's about building up a granular business, I think working closely with distributor and keeping investors in mind in the center, and that is the key. I think it is not about sharing or our fees or what we are sharing, I think as long as we keep adding value, all of us keep adding value to the investor. I think we clearly see there's enough juice available for everybody.

Definitely. I think actually comment on ETF economics. So just correct me if I was not wrong, I heard that utilization at the revenue level was about 9 to 10 basis points. Is that correct?

Sorry?

ETF economics, you said that you make realization of about 10 basis points. Is that correct?

Yes. We make net, including the government mandates, we make about 10 basis points. If we remove the government, the CPSE part of it, our realization is about 13 to 14 basis points net of all expenses.

Okay. And these are operating earnings realizations?

Sorry?

Is it a profitable -- profit realization?

[indiscernible] Beside that there is just the employee-related cost, the small team of what we have to, which runs the ETF because we have a common distribution team -- and we have few employees which are dedicated to ETF, which is on the fund management and the product side. And then, of course, we have a separate dealer. So those small team, that is a separate cost which is for running the ETF, rest all is the same.

Sure. So is it fair to assume that, let's say, the INR 50,000 crores goes to INR 100,000 crores? Then the whole incremental that is 12-13% yield to be slowed down to operating earnings?

Yes. So entirely, see, whatever expenses, all our expenses, what we charge to ETF are available. Of that, if you remove the 2-basis point and another 1 or 2 basis points on terms of other expenses that becomes our net deal and which is directly adding up to our profitability because obviously, we would -- if this amount becomes INR 50,000 crores to INR 1,00,000 crores or INR 1,00,000 crores to 2,00,000 crores, we would not need more number of people. So there is no incremental fixed infrastructure or employee costs associated with it.

This is on ETF, I would also like to add, I think unlike other assets with the LIFO funds and all because air expense is not more than the expense the traded volume is more important. Because if the volume is not there, the impact cost leads to a negative carry for the investor. So I think -- and the fact that we have the highest volume in the stock exchange actually puts us in a very comfortable position.

I'm sorry to interrupt, [ Akshay, ] I'd request you to come back in the question queue. [Operator Instructions] The next question is from the line of Dipanjan Ghosh from Kotak Mutual Fund.

Two questions from my side. One is looking into your individual equity market share are broken up into channels, direct and regular. And it seems that in B30 cities, your market share or equity portion for the individual segment, has almost -- in the direct channel has almost declined by 600, 550, 600 basis points much higher than declining across other channels or overall for the company on the equity side. Just wanted to get some color on that. And on the second question, if you can shed some light on how the customers, do you have any changes between, let's say, 10 years back when they used to go through the direct -- through the broker channel or even today versus when they come through some of the newer fintechs sort of channels or the direct channel? And does that indicate that performance as a parameter gradually becomes more and more important to track? That's all from my side.

So I'll take the second question first. I think we'll come back to the data. I think the customer, I think whether it's coming through a conventional distributor, IFA bank or a fintech, I think performance has and remains as an important parameter. I think having said that, but performance neither was and either will be the only sole parameter because I think ultimately it's going to be the brand is going to be the overall customer service. And also, there is a realization today that I think its performance. I think consistency of performance is more important rather than performance for that 1 year -- at that point of time. So I think we have seen, I think, to your question, over the last 10 years, investors irrespective of which channel they are coming they are evolving. Investors are deciding which 5, 6 funds they want to invest, they pick up the funds, and it is not necessarily based on the fund, only one parameter that is last 12-month performance. But as the more consistency of performance along with the brand, service, local servicing, multiple things. And that's exactly the reason, I think if you see from our perspective, we continue having a very strong network of 270 branches, 85,000 distributors and at the same time, keep investing in our digital ecosystem where we are doing almost 58% of our new purchases are coming through that. So I think our performance remains -- was and remains important, but I think it's a complete ecosystem around it. But the one big change is people like to see consistency in performance rather than a flash in the pan.

Sure. That's elaborate. Maybe on the first question, your sharp decline in market shares or individual equity segment through the direct channel in B30?

Yes. So see, again, the B30 more has been towards the equity flow. And as I mentioned in the past that I made conversations that look, we have been lagging in terms of our overall equity sales, which will come with a lag effect because obviously, last 2, 3 years have not been so good because of the transition as well as the fund performance. But if you look at the last 6 to 9 months, the performance has come back sharply. And most of our funds are now doing good. And so the flows will come with a lag effect. So that's how you'll see that whatever we have seen the decline over a period of time, we'll likely to recover this. But still, I would say that, look, our contribution from B30 locations still remain at 17.5% as compared to 16.6% of the industry.

So just to interrupt, I think I was asking more from the differential between direct and regular in B30. So the market share losses seems to be more profound in the direct channel. So I think that's what I was kind of trying to understand.

So again, that is see -- directive is even more profound because of the performance. You know that, look, a guy who is -- like because there is no -- they are looking at a very near term performances when they are investing especially for last 2 years, if you look at in the COVID, people who have been investing direct are more because of the fact that where the performance have been, they've been investing into those schemes through various partner websites. And there are probably our schemes are not featuring. We understand that. But now if you look at most of the partners, RIAs, et cetera, our performance have been featuring in any of the competition matrices, our schemes are featuring there. So obviously, we see that look, we'll be able to recoup much of the market share loss over there.

I think the way we are seeing the change in trend in overall AUM, I think we are confident, I think, over the next few quarters, equity will also, market share -- we'll be able to regain the market share.

The next question is from the line of Abhishek Saraf from Jefferies India.

Several of my questions have been answered, sir. Just a few of them remain. So if you can just help me understand on the NFO part. That means how much money did we raise in this quarter in NFOs, if possible to break out across different launches? And secondly, if I see on the industry NFO traction, so clearly, there has been a sharp debt. So Q2 was very -- means high on NFO mobilization and 3Q kind of came down. So are you expecting or are you seeing some kind of NFO fatigue which is setting in? Or do we still expect that the kind of NFO momentum we have seen across industry that is going to persist for at least next few quarters? So that was on NFO. And also, if you can help me understand, is there any product gap in the full equity offering that we used to do apart from the ETS data lined up? So this is my question, sir. And one more that I'll follow up later.

Okay. As far as the NFOs are concerned, as we mentioned, I think, in our presentation, we did on one fund which was again a unique product offering. And before this, we had done the Flexi Cap. I think from our perspective, we do not see any major NFOs coming up from our side. We will continue filling up our product suite by coming out with unique products. And I think a lot of these products that will come, we will not like to go for mega NFOs for 2 reasons, which I'll try to address after this. But I think one of the key thing is going to be we'll continue completing our product suite and let the investors -- and the rises aside as and when they need. So for example, in Q2, we launched our IT ETF, now I think auto ETF, silver as our Fund of Fund, electric vehicle fund is coming. Europe fund is coming. I mean, there are a couple of things and we'll keep launching. And our objective will not be to come up with one mega fund. The reason why I say this, I think we clearly believe, I think we do not want too many invest. First, I think go aggressive in pricing and try to raise a lot of money. I think we believe, I think, I mean, like I mentioned earlier, it has to be profitable for us. And we -- I think, we'll prefer seeing investors coming over a longer period of time rather than getting some risk management point of view getting $0.5 million from investors in 10 days and all these investors ride the same cycle. So I think from our perspective, as a better risk management, we like to see investors coming over a longer period of time rather than just in a NFO. So -- while from the industry point of view, I will not be able to comment too much whether the fatigue is there or not. But from our side, you will not see any mega NFOs. I think we'd like to go with a steady growth going forward.

And also, if you can just touch upon how much were we able to raise in this quarter through NFO route?

So as mentioned by Sundeep, that look, we are not going to raising too many NFOs. We just did one NFO last quarter, which was the Taiwan fund, and we raised about INR 620-odd crores. So last quarter was only one NFO, which was Taiwan fund. And prior to that, that quarter, we had 2 funds. One was on the ETF side and one was the Flexi Cap Fund. So there, the previous quarter, we raised about INR 3,800-odd crores. The last quarter, we raised about INR 620 crores. But see, the important point which Sundeep did mention that, look, we do not want to grow too much of assets unless there is a unique product which we want to offer to our investor as an investor-first philosophy. It is not that we go for a me-too kind of product and launching large NFOs.

Thanks, Prateek. That's quite helpful. Lastly on just one bit on the interest rate side. So given that interest rates are expected to go up across the board is what effect do we see for the debt funds? So debt funds had a very good inflows in FY '21, but after that, it's kind of petered out for the whole sector. And can we expect that this year, and so what is your outlook if debt fund flows given that interest rates will be on a rise? And secondly, what that could mean for our other income pool, which has been a bit volatile. So going ahead, the mark-to-market impact that you also referred to it during the early part of the presentation. So could we kind of be building in that kind of impact further in FY '23?

I'll request Aashwin Dugal, our Co-Chief Business Officer, to take the first part, which is our portfolio for the investors. Aashwin?

Thanks, Sundeep. And this is Aashwin here. Just to answer the first part of the question relating to the likely interest rate scenario, which is panning out for the market. I think we -- our portfolios, as Sundeep and Prateek have mentioned, we have now a full suite of products, both on fixed income and in equity. And as we go along for the next quarter at least, we see most of these flows coming in at the shorter end of the curve, okay? And that has been the case over the last, I would say, about 2 quarters where the expectation had been that the Central Bank action, et cetera, would lead to eventual hike in interest rates and withdrawal of liquidity. Hence, we've already seen over the last 2 quarters, a bulk of these flows coming into the liquid and ultra short-term categories. However, there is another segment of funds, which is largely rolled down products, which are in that 3- to 5-year bucket, both on ETF as well as some of the actively managed funds, which have been repositioned in that space. So therein, we are seeing some money which is coming in purely because it provides the investor visibility of returns for the period that they are invested in -- invested for. So from that point of view, I would say that we are fairly well positioned to capture any cycle on the fixed income side and be it at the longer end or at the shorter end, and we have the full suite of products. On the realization, thereof, how it could impact, I'd ask Prateek to shed some light.

I think obviously, we have seen that in many of our funds, given that how our performance has been and how the portfolio construct has been, we have been marginally improve our realization. And also, we expect that while there could be from -- because most of our portfolio was constructed in the recent times and they were at a lower yield. And hence, we do not see any compression coming in. But once the net yields for the investor keeps going up, there will be a propensity for us to charge more. So obviously, it will be interesting to see from second quarter, Q, FY '23. We may see because right now, the debt yields are at one of the lowest. And if it goes up, then probably from our perspective, we will be able to charge slightly higher expenses from third quarter FY '23.

The next question is from the line of Prayesh Jain from Motilal Oswal Financial Service.

Thank you for that color, again. Firstly, on the fintechs, the kind of scale up you've seen in these fintechs in terms of distribution. What is the size that Nippon would have been to dequantize? And secondly, in order of non-MF business, what is the revenue contribution EBITDA and tax contribution on the non-MF business?

I think regarding the fintechs, Arpan, our Chief Digital Officer, and a question to take this question, and then we will come back to Prateek.

Thank you, Sundeep. See, on the -- can you repeat what on the fintechs -- exact point on the fintechs please?

So the size of the fintech has been growing in terms of distribution. So where are we in terms of market share? What kind of tie-ups do we have with fintechs who are distributing and further scale up possibilities on that side?

Sure. Thank you. So what we do with the fintechs is what we have done with the fintechs is where we have been able to system our complete digital ecosystem, they have been able to integrate with us. I think what really matters in this digital architecture is on how quickly and efficiently can you build a very agile ecosystem, which can be permeable, as per the various users of journeys that various fintechs might add for their customer journeys. I think Nippon beats in that. We are always the first point of contact for any potential fintech in this country, where they would want us to help them handhold in getting into this entire scenario. Once we are into business with them, we have seen that we always feature in the top 5 of being able to attract investors. And that has been because of our exciting digital chassis. And of course, our low product performance and other factors, which my colleagues were talking about. So yes, on the fintech piece, Nippon is probably one of the top picks for any existing and new fintech who wants to get into the mutual fund space.

Okay. And any numbers you want to quote out there as to what kind of size is the fintech industry? And how much -- what would be the market share of Nippon there?

If you look at the fintech industry right now, the entire AUM is 1% of the overall industry event. So on the AUM piece, it is negligible. But what it is doing is it is opening up the market and helping a lot of millennial customers coming into the mutual fund industry board, which itself is very, very welcome. As I said, on our share piece, we are on the top 5 across any fintechs in this country.

So just to add to it, if we were to look at it, a lot of fintechs like in mutual fund right now, still fintechs have been small. But I think you've seen, especially in the broking side, fintechs have done a great job. I think they've been able to get a lot of new investors, new demat accounts. And if now you were to marry that with the increase in our own ETF investors that tells you the story. So I think we've a well-integrated ETF ecosystem are being integrated with majority of the fintechs, which is not only related to the ones into wealth management and mutual funds but also into the Indian capital markets. So I would attribute a lot of increase in our investor base, which has happened in the last 18 months in ETF due to the fintech integration.

And on my second question on the non-mutual fund revenue, EBITDA and PAT contribution?

Yes. So we make almost about INR 100-odd crores on the non-mutual fund businesses. And almost 50% would be the net profit on that.

Okay. Great. Great. And lastly, just slipping in one more. What is the plan for utilization of the cash, any further developments that you can talk about?

I think we continue exploring options, both, as I mentioned in my earlier address, organic and inorganic opportunities. That is number one. But I think for us, the key thing is that this will be accretive to the shareholders, number one. I think and we are not only talking of acquisition of another asset management company or something. I think we remain open to invest into companies which can help us increase our ROE in our entire operations. If you were to look at it, we are doing almost $50 million in the transactions per annum. There are a lot of things where I think we can -- we see opportunities of investing, which can help us increase our ROE. So whether it's asset management company or anything else, any other company, which can help us increase ROE, that is our approach. And I think we continue to keep evaluating and whenever there is something concrete, I think one of the calls, we will come and share with you.

Thank you very much. As there are no further questions, I will now hand the conference over to Mr. Sameer Bhise for closing comments.

Thank you, everyone, for joining this call today, and thank you for the team of Nippon Life India Asset Management for giving us this opportunity to host the call. Thank you, and goodbye.

Thank you very much. On behalf of JM Financial, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.