UTI Asset Management Company Limited (UTIAMC) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the UTI Asset Management Company Limited Q2 and H1 FY '24 Earnings Conference Call. From the management, we have with us Mr. Imtaiyazur Rahman, Managing Director and Chief Executive Officer; Mr. Vinay Lakhotia, Chief Financial Officer and Head, Corporate Strategy; Mr. Surojit Saha, Group Financial Adviser; and Mr. Sandeep Samsi, Head, Investor Relations, Marketing and Corporate Communications. We also have the Investor Relations team from Adfactors PR. [Operator Instructions] Please note that this conference is being recorded. Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Please note the disclaimer mentioning these risks and uncertainties are on the disclaimer slide of the investor presentation that has been shared earlier. I will now hand the conference over to Mr. Imtaiyazur Rahman for his opening remarks. Thank you. Over to you, sir.

Thank you, Dobbin. Good evening, everyone. Thank you for joining us today to discuss our operational and financial performance for the second quarter and the first half ended September 30, 2023. It is my privilege to welcome you all. You might have gone through our press release and investor presentation available on our website as well as on the website of the stock exchanges. The world economy is yet to reach the pre-pandemic level of growth and still witnessing inflationary pressure. But this has paved way for emerging markets like India to have a prominent contribution towards the global economic growth. The economic scenario in India is optimistic, continuing the momentum of last couple of quarters. For the current fiscal, IMF has raised the GDP growth forecast to 6.3% for India. Friends, during the quarter there was another milestone achievement for the Indian capital market. JPMorgan announced inclusion of Indian sovereign bonds into the -- into its emerging market index. According to industry experts, this inclusion is likely to result into inflows of around USD 30 billion in investment into Indian debt market, which have traditionally been held primarily by bank and financial institutions. Inclusion of Indian bonds with affect from the next fiscal with maximum weightage of 10% is a testimony of India's emerging significance in the global financial market. Coming to the equity market, the Indian indices have well captured this optimism as is evident from the new all-time hiatus by both benchmark indices during the quarter. This has also led to an increased participation in the Indian mutual fund industry. I'm happy to share with you that the September 22, 2023 data from Amfi reveals that the industry now have 40 million unique mutual fund investors in India. Coming to UTI, I'm happy to share with you that on 29th September 2023, we successfully inaugurated 29 new offices across the country, taking the total number of UTI financial centers to 195. We continue to be committed to growing our presence in the beyond 30 locations and make mutual fund more acceptable to the people in the Tier 2 and Tier 3 cities in India. Friends, 134 of our UFCs are now present in these locations, staying committed to guide more and more people about mutual funds. UTI conducted 82 investor awareness programs pan-India covering 4,600 participants in the first half of financial year '23-'24. While the geographical reach has increased, we are also working on our digital strategy and reach. We relaunched our mobile app for our investors and distributor -- distribution partners with a better user interface and have also adopted a state-of-the-art technology for our contact centers. On the HR front, we have now new CFO, Mr. Vinay Lakhotia, who is guiding the UTI agents and is also handling the corporate strategy function of UTI AMC. We have also elevated Mr. Anurag Mittal to be the Head of Fixed Income of UTI Mutual Fund. Now sharing numbers for UTI Group, the total assets under management for UTI Group registered a growth of about 17% over the corresponding quarter of the previous year and it stood at INR 16.9 lakh crore as on 30th September 2023. The domestic mutual fund business witnessed a growth of 14.22% year-on-year with a quarterly average AUM as of 30th September 2023 at INR 2.67 lakh crores. We launched 4 successful NFOs during the first half of this fiscal: UTI Nifty, Equal Weight Index Fund, UTI S&P, BSE Housing Index Fund, UTI Balanced Advantage Fund and UTI Innovation Fund during this half year. Now I hand over to Mr. Sandeep Samsi, Head Marketing and Investor Relations, who will update all of you with UTI AMC performance in a greater detail. Over to you, Sandeep, and thank you.

Thank you, sir. I will first take you through UTI Mutual Fund performance during the second quarter and the first -- half year ended September 30, 2023. UTI Mutual Fund performance for this period, UTI was able to capture a market share of 7.8% of the gross sales of the industry during this quarter. Our equity quarterly average AUM for the quarter ended September 2023 stood at INR 78,291 crores, rising by approximately 9.2% as compared to the quarter ended September 2022. With passive investment gaining traction, we have witnessed a growth of about 35.82% in the quarterly average AUM for index and ETF, taking it to INR 98,421 crores for the second quarter. ETF and index fund net flows stood at INR 2,364 crores. UTI added 1.03 lakh folios, taking the number of live folios to 1.22 crores as on September 30, 2023. Our SIP AUM witnessed a growth of 29% over the corresponding quarter of last year, reaching to INR 26,541 crores as of September 2023 from INR 20,565 crores as of September 2022. The SIP inflows for the quarter stood at INR 1,648 crores. The SIP gross inflows for UTI Mutual Fund witnessed a year-on-year growth of 1.11% with an average ticket size being INR 3,140 for September 2023. Coming to the contribution from B30 cities, 23% of our monthly average AUM for September '23 came from B30 cities, while the industry average stood at 17% in terms of its B30 monthly average AUM. Coming to UTI AMC financials. During the second quarter, the company posted a consolidated net profit of INR 183 crores. The consolidated revenue from operations for the second quarter stood at INR 404 crores. For the first half, the consolidated net profit was INR 417 crores, higher by 43% year-on-year. The consolidated revenue from operations for the first half stood at INR 872 crores, up by 27% year-on-year. On a standalone basis, the PAT of UTI AMC Limited for Q2 FY '24 is INR 134 crores, reflecting a growth of 14% on a year-on-year basis. The PAT of UTI AMC Limited for the half -- first half of FY '24 is INR 299 crores, higher by 38% year-on-year. We are happy to inform that our 100% subsidiary, UTI Retirement Solutions Limited, has recorded a growth of 24% year-on-year in this period, reaching to INR 2.7 lakh crores in Q2 FY '24 and currently manages 26.4% of the NPS AUM. The PAT of UTI Retirement Solutions for the first year -- first half of FY '24 is INR 25.2 crores, an increase of 11.5% year-on-year. UTI International, which represents our international business interest, has an AUM INR 24,207 crores as of 30th September 2023. Our international clients are across more than 35 countries, and these are primarily institutional centers, insurance banks and asset managers. One of our flagship fund, the India Dynamic Equity Fund, IDEF, that we started in Ireland has an AUM of USD 961 million. UTI International, J. Safra Sarasin Responsible India Fund, an ESG-compliant India fund, has an AUM of INR 78.4 million. UTI Innovation Fund, which was launched last year, has an AUM of INR 25.6 million. UTI Alternative -- coming to our UTI Alternatives Private Limited, it has an AUM of INR 1,799 crores and has a very different ESG policy and strategy. It currently manages the following active debt fund. UTI Structured Debt Opportunities Fund, SDOF I, launched in August 2017 and closed in May 2019. It has an AUM of INR 132 crores. Currently, the fund is in exit mode and has returned 1.1x the capital invested. UTI SDOF II launched in September 2020 has an AUM of INR 507 crores as the fund is currently in investing stage. UTI Multi Opportunities Fund I, launched in March 2022 has an AUM of INR 763 crores and currently, the fund is in the investing stage. UTI SDOF III launched in September '22 has an AUM of INR 398 crores, and the fund is currently in fundraising as well as investing stage. UTI Real Estate Opportunities Fund I is currently in fundraising stage and with a precommitment of INR 110 crores and net commitment of INR 30 crores. UTI Alternatives has also received the regulator's approval for 2 more funds, UTI Credit Opportunities Fund I and UTI Asset Reconstruction Opportunities Fund I. We will be launching these funds soon. UTI Alternatives has the regulator's to -- for providing 4 investor portfolio management services. We have onboarded 7 clients and 4 investors till September 30, 2023. I would now request the Managing Director and CEO, for his concluding remarks. Sir?

Thank you, Sandeep, for sharing operational and financial highlights for the second quarter and half year of fiscal -- financial year 2023-'24. I also would like to share with you that we are -- we have got a permission from SEBI to start our U.S. operations. With this, I would like to open the forum for Q&A.

[Operator Instructions] The first question is from the line of Swarnabha Mukherjee from B&K Securities.

I have a couple of questions on the yield side. So first of all, the yield compression that we have seen in this quarter, just wanted to understand, is it only a factor of the mix sales that's coming from the ETFs or within the equity category also, there has been some compression as fund size has increased? If you could call out also the yields for individual product categories, that would be very helpful. So that is one on the mutual for business. And as well as on the international business, if I try to calculate the yield, I see some softening on that front as well. So what has happened there and how to think about it? So that is on the yields. And on the cost side, there has been some increase on a sequential basis on the employee benefits expense in the mutual fund business. So if you could highlight the reason and how should we think about for the rest of the year? And also related to the U.S. operations that you have mentioned, whether we should expect any kind of additional costs and what would be the quantum of that in this year and next year in our P&L? These are my questions.

Vinay?

Swarna, I'll take the question on the yield part and the employee cost. Let me first give you the breakup on the yield part. On equity fund, the yield for the quarter 2 is around 72 basis points; on the hybrid fund, 84 basis points. ETF and index fund is 4 basis points. Cash and arbitrage around 8 basis points. And income fund 22 basis points. During the quarter, while the equity yields are more or less stabilized at around 72 and 73 basis points, we have seen some headwinds as far as the other scheme categories are concerned. On the hybrid fund, since we launched an NFO, which is UTI Balanced Advantage Fund, there we are seeing some yield compression from 90 basis points to around 84 basis points, mainly because of the mobilization of the new fund, these are slightly at a higher cost and the yield on the new NFOs is close to around 30 to 35 basis points. Also, we have reduced the expense ratios and the management fees under the ETF categories of the fund from overall expense ratio from 7 to 4 basis points. Because of that, there have been some yield compression under the ETF category of the fund during this particular quarter. On the income fund, we are witnessing both at the industry level as well as in UTI, the significant inflows are actually coming into a shorter duration product, where the yields are generally lower. So we have mobilized a significant amount of inflows under the income category during this particular quarter, which have been toward the shorter duration of the product, on which the management fee is actually lower as compared to a longer duration product. Because of that the yield on the income category has also fallen from 26 to around 22 basis points. Because of that, the overall yield compression is there of around 2 basis points. However, the equity fund yield remains stabilized at around 72 to 73 basis points. On the international business, I don't think there is any yield compressions. There have been some marginal decline in the overall AUM because of some redemption under the IDEF categories of the fund. And because of that, you might see some reduction in the management fee. Coming to your second question on the employee cost, overall employee cost on the stand-alone basis has gone up by around INR 6 crores to INR 7 crores. There are 2 to 3 factors: first is the normal wage increase, which is in spite of reduction of the retiral benefits, the increase is around 2% to 3%. Plus there have been a -- amortization cost, which has gone up as compared to the previous financial year of around INR 2 crores. And also, there has been an actuarial valuation increase of leave encashment this is a onetime figure until and unless the interest rate goes down, that impacted around INR 3 crores. On the U.S. subsidiary, as of now, we don't have any approval from SEBI but...

No, we have the approval.

I mean the operations hasn't started. But as and when, yes, we opened the offices, we expect the overall cost actually to increase.

This year, there will not be any cost because it will -- we will -- by the time we get a license, it will be March of 2024. We will see some costs next year, right? So this year, there will not be any cost.

Okay, sir, understood. Just...

Other than the legal expenses to the extent of INR 1 crore for the...

Okay, got it. Got it, sir. Just a couple of follow-ups. So if you could highlight why the expense ratios on the ETF side was rationalized? And I mean, 4 basis points, I think generally, what I understand is lower than most of the industry expense -- I mean, yield should be on the ETF side. So some color on that would be very helpful.

So we have submitted a revised bid for the EPFO mandate. And there are competitor whose expense ratios are even lower than 4 basis points. But basis the revised bid that we submitted for EPFO, because of that, the expense ratios and the management fees are actually come down.

But our yields are best in the industry. In EPFO, our yield is the best in the industry.

Right, sir. And since a new -- I mean, a new player has also come in the EPFO flow. What would be our share in the incremental flow going ahead? Any color on that, sir?

23.5%.

We have the next question from the line of Mohit from BOB Capital.

So 2, 3 questions. First is you said you opened 29 new offices. So what would be the impact on OpEx for that?

So OpEx for this particular financial year, we are seeing maybe an OpEx can increase around INR 60 lakhs to INR 70 lakhs, especially on the rental side. Employee cost, there won't be any increase because we'll be leveraging on our existing employee spend. But for this particular financial year, INR 60 lakhs to INR 70 lakhs will be an OpEx on the rental and other costs.

All right. And okay, so INR 60 lakhs to INR 70 lakh increase, right. My second question is that, I mean, we did see equity having -- equity segment having net inflows, which is good. But if I look at equity market share, it declined around 22 basis points Q-on-Q and 75 basis points Y-o-Y. So any particular strategy to redeem the market share on the equity side?

So yes, we have seen some pressure on the equity side, and we are working towards it. So as we had mentioned earlier also that some of the funds because of the performance issues and because of the strategies that we had developed, we were following the growth strategies while the market was towards the value strategy. So that has been impacting. However, as we have mentioned earlier also, we are on the course correction, and it will be in other categories. The income categories, we have seen a good net inflow. And similarly, in the hybrid category also, we have said we have seen inflows. So we believe that the strategies that we are employing will work and will help us to clawback the market share.

We are repositioning some of our equity schemes, which are performing very well. So we have a very detailed strategy in place and that will help us to recapture our market share in the other category of equity scheme other than the flexi cap fund. So we are repositioning our other equity schemes which is well performing, like hybrid equity scheme, focused equity fund, et cetera, et cetera.

All right. All right. Now this is helpful. Lastly on, if I look at the SIP gross sales, it declined this quarter. And if I look at the industry, it has increased. So what could be the reason for that?

Yes. So what we have done is we provide the data only for live SIPs. And during that, what we mean is that SIPs which has live and not paused. So if there are any inflows which are not coming for the last 4 months, then we call it as a paused SIP and we don't show it in our numbers. This last 6 months and this quarter, specifically, we have done a lot of exercise of deduce. So we saw, whichever SIPs were paused even from earlier, we were looking solely which were direct. But we have also seen which are the paused SIPs from distributors, and we have not shared those numbers. That is why there is a marginal decline in the numbers of SIPs for us.

Okay. Fine. So you mean to say that had you been disclosed those numbers, that number would have looked a lot better?

Yes, it would have looked better. But since we don't want to show paused SIPs, we only want to showcase our live SIPs, that number has come down.

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

Actually, frankly, most of my questions have been answered. Just on the wage increase, what would be your guidance for the year? Because frankly, we would -- had expected some sort of moderation. But still on a Q-o-Q basis, salary costs are up at -- up by 5%. So we expected some sort of operating leverage to play out of here.

Yes. Overall number, I don't see, Madhukar, increasing by more than 4% to 5% as compared to the previous year. We have some slight higher employee cost on the international business front, where opening of Paris UFCs and U.S. operation also, there could be some additional increase in salary expenses. On the stand-alone number of UTI AMC, the salary increase will not be more than 2% to 3%. At a consolidated level, it could be max to max 4% to 5% increase.

Right. Got it. Sir, and the other thing, while you explained the yield decline not being that related to sort of equity. But also, we are seeing net outflows from equity. Isn't that hurting our back book? And would -- will that have also sort of resulted in lower equity yields, equity and hybrid yields?

Well, I think equity yields are more or less flat at around 72 to 73 basis points. But yes, the stock AUM redeemed and is being replenished by a fresh inflows definitely it is going to impact the yield. So that has been the trend in the earlier quarter, fortunately not in this particular quarter. But yes, going forward, if these kind of scenarios happen, if the stock AUM replenished at a faster rate, yes, the yield compression might be there.

And final thing, sir. Any sort of sense of what is our stock AUM right now in equity and hybrid?

No, very difficult to give any exact number, Madhukar. Because within the stock AUM itself, there are many banks and the distributors, who for the last 7 to 8 years had been working on the same commission. So it's not actually a correct number to provide that.

[Operator Instructions] We have the next question from the line of Lalit Deo from Equirus Securities.

So like I have a couple of questions. So first one was on our investment book. So like in this quarter's investment book, you could see there's a change -- there is a shift of investments from mutual fund to G-Secs and bonds. So any particular reason for the same? And like -- and also, we see that there's a dip in the equity MF investment book. So what could be the reason for this?

No that's more -- maybe we have got a better yield in some of the bond and the G-Sec securities. Otherwise, if you see the normal allocations, around 60% of our book is into a mutual fund unit. And yes, the allocation to bonds and G-Sec have slightly increased. But nothing -- no specific reason the -- only the incremental allocations have gone to bonds and G-Sec fund.

Sure, sir. Okay. And so, sir, second one was on your -- the net outflows in the core equity scheme. So like this was the second quarter, where we have experienced net outflows. So just to understand this better. Like in which of the channels we are experiencing the more pain in the outflows because like for the industry this quarter has been a good quarter for -- on the equity net sales.

So the outflows have been across. It's not specific to any channel. But if we have to pinpoint a channel, maybe banking where there is a higher churn. But otherwise, it's been across. And as Mr. Rahman mentioned, that we are now positioning our clanking products there, and those products will be able to get back our share in equity.

Sure, sir. And sir, just could you also give us the gross equity sales which you have done during the quarter?

Gross, you are asking for this particular quarter?

Yes, sir. Yes.

Close to around INR 2,000 crores.

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

Sir, firstly, on -- if I look at your market share, it's been falling across. It's been weak across segments, not just equity even in hybrid, in spite of the product launch that we had, we just have a flattish market share sequentially. On income funds, we have an improved market share. But the major categories still seems to have, on the cash and EBITDAs also as we have a decline. So what is the strategy that we would do to improve the market share. One, I think you mentioned on the equity side. But the overall strategy, what would be the steps that you would be taking?

See, we -- the market share is because of the 2 reasons: one, I will tell you the appreciation. Since the equity market gone up significantly. And as a result of this, the various fund houses, which is a high equity AUM, the market -- they got an advantage of the improvement in the market share. Our strategy is to -- but however, in the fixed income, we have done better, far better. We are in a position to -- now we have relaunched -- we have launched a balanced advantage fund. So we will be in a position to address the loss of market share in the hybrid. In the equity front, there are 5 or 6 schemes, which we are working. We are repositioning in the market, and that will help us to regain our market share in equity, and they are highly equity scheme -- equity saving scheme, core equity scheme they well performing fund, including arbitrage. The arbitrage there's -- arbitrage is not a very like -- and the multi-asset funds, these are the few funds, which we are repositioning and hopefully, we could be in a position to recapture our market share. Equity stake. Vinay?

So just to add, I think hybrid and income category of fund, both on the quarterly average as well as closing average, we have actually increased our market share. Yes, under the cash and arbitrage, it's a seasonal kind of a product. In some quarter -- you increase market share in some quarters. But we are quite optimistic considering the kind of performance that we have, especially on the fixed income side, the market share should actually improve in next few quarters.

Any measures on the distribution side where you plan to increase commissions or something?

No, no, no, no. I think commission, the payout structure is more or less standard. There is no thought per se of increasing payout to increase any market share. That's not the case.

Just extending that point the yield on the balanced advantage fund that was launched was much lower. And so -- and we've been hearing from your competitors that the environment in the NFO market has been better than what we had seen in the last couple of years. But still our yields were much lower on that. So is that a challenge to get new funds and that's the reason you had to bring in at that rate? Or what was the thought behind keeping it at such low rate?

No, even normally, if you see historically also, the yields on the new NFO is lower as compared to yields on the fresh ongoing scheme sales under the equity and the hybrid category. That has been the trend in the industry for the last few years, and we don't see any reversal of that particular trend.

Okay. Okay. Got that. And last question was, so you have seed investments in the international funds, what is the quantum of that? And you had earlier highlighted about reducing that. So where -- how would that kind of -- where we are in that? And how should we think about it?

Yes. We have plans to reduce it. But this particular financial -- these 6 months, we have not reduced it. So we have plans. We are waiting for the opportune moment with the sales increasing in IDEF, which has -- which is a flagships team, as you all know, IDEF, and we are constantly expanding our footprint. So we are now going deeper into the Europe. But we are -- not only Europe, we are also expanding our reach in the Asia as well as Australia. So once we improve upon the overall AUM, then we'll think of further reducing the stake in the seed capital.

What is the current stake?

Yes, current this is around $18,000 million...

$18 million.

How much?

$18,000 million.

So $18 billion?

How much seed capital you have? $18 million.

$18 million, okay.

On the group.

[Operator Instructions] The next question is from the line of Abhijeet Sakhare from Kotak Securities.

Sorry, I missed the numbers on equity yields. So if you could just reiterate the numbers in terms of the stock and the flow?

No flow, there's no disclosure as such. The stock AUM yield on the equity is close to around 72, 73 basis points.

72, 73 basis points. And would you have the numbers, let's say, a year back on the similar basis?

Year back, it could be roughly in the range of 80 basis points, yes.

Okay. All right. Got it. And the second one is that the 4% to 5% expense growth guidance, is that on an overall basis or only on the staff cost?

On overall basis.

We have the next question from the line of Dipanjan Ghosh from Citi.

Just a few questions. First on the international business. I mean all of the expenses are you needed to incur for the French -- for the Paris and the U.S. facility, have they been incurred? Or when can we see some lump sum expenses coming in the second half?

Yes, some legal expenses that Mr. Rahman told will come in the second half. But any major expenses, including the hiring of the employees and other establishment costs, that may come in the first quarter of the next financial year.

Got it. Second, on the stand-alone business, in the last 2 or 3 quarters, you have kind of increased your employee base quite significantly even while -- even in a situation where probably AUM growth has been relatively -- at least on the flow side has been relatively weak. So just wanted to get some sense of where you are adding the employees and are these reckoning your sales distribution? Or where are you adding them in a way?

So mostly will be -- are in the distribution space. As you are aware, we opened 29 new UFCs. We also are planning to open roughly around 8 to 10 resident offices across the length and breadth of the country. So any employee increase will be mostly to our sales and distribution guys because...

And we are also planning to go for the direct and therefore -- and there are a lot of sales team senior people are retired in order to keep the base ready, we have appointed additional management trainees from the campus.

Got it, sir. Sir, 2 more questions. One, on your product pipeline for the second half of the next let's say 6 to 9 months on the equity or hybrid side?

Yes. So we have approval from SEBI for 3 funds as of now: one is UTI Nifty IT ETF; one is UTI Nifty 10 years benchmark G-Sec ETF; and one is UTI Nifty 5 years benchmark G-Sec ETF. So as and when there is an opportune time to launch these funds, we will be launching these funds.

So just so I get it -- got it correct, there is no active equity sort of funds or sectoral funds that you are planning to launch in the next...?

No. Mostly on the -- all are on the passive side, passive.

ETF.

Last question, in some of your schemes where you have seen weakness in performance or at least -- on performance at least in the -- now maybe the 1-year category was in rebate, maybe gradually get reflected in a 3 or 5 year bucket. Are you taking any steps out there? And if so, can you just elaborate on that?

And I don't think I should be in a position to give any color on -- we -- our fund management team is true to its philosophy and they are fully committed. They are -- we are very competitive team led by Mr. Vetri Subramaniam and Ajay Tyagi. They continuously review their portfolios. But I don't have any idea to give you any color about this one. These are led by our fund management team, and they have the complete authority and autonomy to decide. We do every bit in the best interest of the investors. But we are true to our philosophy, both for growth and the value opportunity philosophy.

[Operator Instructions] The next question is from the line of Gaurav Jani from Prabhudas Lilladher.

A question for Vinay sir. Sorry that I missed the comments on the yields. So I believe equity yields were 72 to 73 bps on a stock basis for the quarter, so what would they have been in the last quarter?

It was similar in the -- equity yields are almost flat at 72 to 73 basis points. There has been marginal decline in the yields under the hybrid category, where, as I stated earlier, because of this NFO, the yields have actually dropped down.

Okay. And sir, debt you would have seen some decline in yields?

Yes, yes. Debt also as I stated earlier, in the debt scheme, the significant inflows are coming into a shorter duration product where the yields are lower. Because of that also, there has been a 4 basis point decline in -- on the fixed income yield on a quarter-on-quarter basis.

Understood. And ETF would have been about 1 or 2 basis points, right?

Yes. Almost around 3 basis points on the ETF. As I stated, that's because of the revised expense ratio that we submitted to EPFO.

Sir, the 3 bps decline would be on the stock?

Yes. It's on the stock as well as on the fresh inflows.

Understood. Sir, second question on the tax rate. So this quarter, again, we saw lower tax rates. So what is the reason for that? And secondly, drawing parallel to the last year, generally, we -- after a couple of quarters of low tax rate, we see a bump up in the tax rate. So should we see similar sort of numbers in the second half? Or how should we look at the overall tax rate for the year?

I think overall tax rate should be in the range of around 20% to 21%...

Yes, we don't go by the effective tax rates of any particular quarter. For the overall annual the effective tax rate will be in the range of 20% to 21% as Vinay is telling. Because quarter-wise, you don't get into that because it depends on lot of...

Investment income and...

Investment income and our deferred tax reason. So annually, the effective rate will be in the range of 20% to 21%.

[Operator Instructions] The next question is from the line of Bhuvnesh Garg from Investec Capital.

Sir, I just want to understand the structure of our trail commission for NFOs, recently launched NFOs. Whether it is a fixed percentage throughout the tenure of the fund? Or is it a step-down structure? For example, a higher commission in earlier 1, 2 years and then later commission -- lower commission later on. And how the structure has changed in the last 2, 3 years? Just your thoughts on that.

Yes. Normally, the first year payout is slightly higher. And second and third year onwards, the trail commissions get reduced. So that had been the this thing, trend over the last 2 to 3 years.

Okay. Okay. And sir, is there any particular limit as such that how much higher commission you can pay in the first year? And how much lowest commission you can pay in the subsequent years? Is there any limit on that?

No, there is no limit sir, means SEBI doesn't allow -- the commission cannot exceed the distribution -- distributable expense ratio. And when I say distributable expense ratio, it's the scheme expense ratio minus the operating cost. That's the limit being defined at the SEBI guidelines.

The next question is from the line of Sunil Shah from SRE PMS.

Sir, my question -- in fact, sorry, I joined in late, but my question is more on the -- from the industry perspective. Sir, the wage regulator is addressing the expense ratio. And so the industry's volume will certainly go up over a period of time. But in between, maybe for the near term, will we see pressure for most of the AMC companies because of this regulatory thing which is there? Second being competition will increase and technology also plays a big role. So all those factors will result in the NAV charge that we actually take from the customers, will that see a -- will that number see a shrinkage overall from an industry perspective? Is not company-specific, but overall for the industry. Could you help me understand that? That is one part. And second is more and more passive funds are being launched rather than active ones. There also the charge to the customer would be at a lower rate versus the direct active fund management. So would those things be right in my assumption that overall the income for the industry overall could see some kind of correction before the volumes really come in over the long term and then the market really explodes, that's the second situation. But could you help me understand this better? Is my thought on the right direction?

I think industry thought process, I can say is very, very clear, if any TER reduction comes, that will be passed on to the intermediaries. So AMC margin, I think most of the AMCs will try to protect the margin and the TER cut will be passed on to the intermediaries on long term. And yes, there will be some pressure as far as the margin is concerned. But we believe that the volume growth itself will compensate with the overall revenue growth. So margin may contract a little bit because of the reduction in the TER. But overall, the AMC margin should get protected and the volume will actually play a much, much important role going forward. And as you rightly said, with the growth of the ETF and the passive funds, the overall number of the management fees is actually coming down. So volume is one where we need to look at it. And the overall revenue number, we believe, should be improving on a year-on-year basis. And obviously, operating leverage play a -- is playing a part, so the costs are not going to increase substantially. The PAT margin should improve from here onwards.

And it is important to say we should not -- we -- this is a business opportunity. Industry is growing. Industry is growing with a great speed. And therefore, regulation is there to help the investor. Regulation is not there to harm the investor. So we should not see from the regulation perspective, we should see the opportunity perspective. And I believe there's tremendous opportunity for the entire industry to grow. And as Vinay has rightly pointed out, the OpEx so far as the passive is concerned, is not going to increase. It is only the volume is going to increase. And therefore, the absolute yield, absolute yield will be far, far superior for the entire industry. We are quite confident.

Sure. Sir, if I can dwell up on 1 more point. Sir, given the rate at which the country itself is growing and lot of things which are very positive, which are happening right now at India per se versus the world. So can we try to look at global investors looking at AMC as a platform through which they can get Indian exposure. Can we work towards getting money from the international market because getting money in India, is perhaps, I'm sorry to use this word, has become a commodity. Whereas 1 AMC differentiates from something and the other AMC tries to replicate it overnight. But try to -- if we try to get money from the international market and have some presence there, is there any thought that we have within the organization on such a point?

Yes. No, no, no. I don't feel these are the always all commoditized products. We will not be in a position to give you any color about that. India is a great destination, right? India is the only company -- country, which is now talked globally. And in every conference room, India is spoken about and discussed. I was there in London 4 weeks back, and I see the huge amount of optimism about India. So whether the product will commoditized is all about -- but the performance there will -- differentiation will be building from the performance of the fund house and the fund managers. And that's how we will be in a position to differentiate. But India will continue to be a destination despite the fact that the products are commoditized.

And we are focusing on in the international business and the testimony to the fact is, we have opened an office in Paris, and we are also opening an office in U.S.A. So yes, the international business focus is very much there, and we expect volume growth from that business as well.

The next question is from the line of Dipanjan Ghosh from Citi.

Just 2 small questions. One, could you just repeat your point on the ETF yields and why they declined in the quarter? And second, from a fundamental perspective, when it look like slab change in your equity AUMs, I would presume that the gross expense ratio gets reset immediately. But do you have any flexibility on the payouts on the back book? Or is it like is just a pass-through to your net TERs, which also declined by almost a similar magnitude? I'm just talking about back book.

So I couldn't get your second question, but let me answer for the first question. The ETF yield drop has been because we have submitted a revised proposal to EPFO. And because of that, the expense ratios and the management fees have actually come down by around 2 to 3 basis points. And could you -- and that got effective on 29th of June...

The EPFO came out with a revised RFP. And 4 of us were selected: SBI, UTI, ICICI and Nippon. And everybody put this revised score. Amongst all of them, we are getting a location of almost 23.5%. But amongst 4, our fee is the highest amongst all 4. This you please take a note of this one. Vinay, over to you.

Could you repeat your second question, please?

Yes. Sir, before that just a follow-up to the question. Can you quantify your EPFO AUM 18 years ETF base, if that's possible?

No, no, we don't -- we can't share with you the -- those data, right?

Okay, sure. And the second question, sir. Let's say when your AUM growth on the equity side or even on the hybrid side, and you see a change in slab for the TER structure. I would assume that your gross TER resets immediately. But do you have any flexibility on the distributed payout on the back book? Or do they continue to remain at whatever levels they are?

Yes. Normally, we don't -- you are telling on the stock AUM?

On the stock, yes.

So on the stock AUM, the commission structure remain as it is. And maybe in due course of time, we will correct that. But on the fresh inflows, the commission structure gets adjusted immediately.

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Imtaiyazur Rahman for his closing comments. Over to you, sir.

Thank you, and thank you, I would like to sincere -- our sincere thanks -- I would like to express our sincere thanks to all of you for your participation. Thank you, and good night. Have a nice weekend whenever it comes to.

Thank you.

Thank you. Ladies and gentlemen, thank you for joining the call. In case of any queries, feel free to connect with Adfactors Investor Relations team. You may now disconnect your lines.