Career Insights: Fixed Income Fund Management in India

Speaker: Dwijendra Srivastava, CFA, CIO, Debt, Sundaram Asset Management Co Ltd

Moderator: Biharilal Deora, CFA, Director, CFA Society India

Contributed By: Khyati Mehta, CFA, Member, Membership Committee, CFA Society India

MF Industry Trends

The formative years of Mutual fund industry in India saw a paltry growth in assets under management (AUM) of 5% p.a., as compared to the growth witnessed post 2003, clocking close to 24% CAGR. The outlook for this industry seems bright, as the current penetration levels are close to 4% of GDP, as compared to penetration in other countries where it ranges from 8% to 18% of GDP. Current market orientation of assets broadly is 42.5% of assets under equity oriented schemes, 22.7% under liquid/money market, 28.4% under debt oriented schemes and the balance 1-2% in exchange traded funds (ETFs) and fund of funds (FoFs).  As visible from these numbers, mainly two asset classes drive the mutual fund engagement in India, namely Debt and Equities. And similar trend is noted in the job market as well. The liquid/ money market mutual fund segment is heavily dominated by institutions and quite the reverse is noted in case of equity oriented schemes, where the retail/individual investors dominate the pie. Liquid funds are used by institutions as a cash management tool, and hence approx. 42% of institutional money is invested in liquid/money market scheme. The equity asset class has seen an increase in its share in the pie from 23% in FY 2014 to 45% in FY 19, which has predominantly been due to the increased interest from individual investors through SIP mode of investing. What started at around Rs. 2,000 Crores a month, has now grown to around Rs. 8,000 Crores of SIP investment in a month.

MF Set Up in India

There is a Sponsor, who appoints Trustees, and who in turn appoint the Asset management Company (AMC). The AMC floats the MF schemes and appoints custodian, auditors and registrar and transfer agents. MF schemes can be divided by structure and by investment objective.

The earnings of the AMC is in the form of management fees charged from the clients, wherein clients invest money at the particular scheme’s net asset value (NAV). NAV is computed net of all expenses like taxes, brokerage, management fees and the like. Typically, an AMC in initial years undergoes losses, because of smaller AUM, as compared to a vintage AMC, which can spread across its cost to a larger base.

Competitive forces driving the industry have been consolidation, technological innovation, pricing, globalisation and regulations. The regulator has brought about various regulations and risk management frameworks to protect the MF investors.

Typical Organisation Structure

The MD/CEO leads the AMC and reports to the board. The 3 broad functions within an AMC are Sales, Investments and Operations, where Sales and Investments resemble heart and lungs of the body, and the Operations function is more about back office operations.

Under Investments function, there are a number of analysts, who keep a track of various companies, macros and sectors, and report to the Head of research/Credit Head. The Head of Research/Credit Head typically interacts with Portfolio manager/s, who in turn takes decision regarding the addition/deletion in the portfolio based on inputs from research team. The Portfolio manager and Research/Credit head report to CIO Debt/Equity. There is also a position of Dealer/Trader whose main role is deal execution in the market. Under Sales function, there is head of Sales and Chief marketing officer who report to the MD/CEO. Their respective roles are to manage the advertisement spends and bring about sales for the AMC. Under the operations function, the COO and CFO report to the MD/CEO. The risk head, who ensures risk management for the enterprise and the Fund accounting team overlooks valuation of securities and deriving day end values for various schemes, and both report to the COO. The CFO and the banking team look into banking relationships and borrowing requirement as and when needed by the AMC.

Indicative number of employees in a large company is around 800-1000 employees, with approx. 35-40 deployed in Investment team. Based on needs and requirements of an AMC, major roles available in the Investment function range from Junior research analyst, to a dealer, Fund manager and CIO.

Skills

Financial modelling and valuation skills are one of the most important skills in fund management. An aspirant should be well versed with all asset classes and should be aware of the cause and effect relationship among asset classes. An eye for detail and risk management skills also form a part of core skill set along with the most important habit of reading extensively and keeping oneself abreast with not only the spectrums of the market but also all the happenings in the world which might impact financial markets.

CFA program curriculum lays a strong foundation of hard skills of financial modelling, valuation and other analysis techniques. The curriculum ensures a certain level of rigour before a candidate can obtain the CFA Charter and there is a huge level of respect for the ones who have successfully done so.

As regards to soft skills, an aspirant is expected to possess excellent communication, negotiation and listening skills. Fixed income market in India, being an over the counter (OTC) market to a great extent, negotiation skills come in handy while dealing in OTC market. Apart from these, attention to detail, strong work ethics, integrity and co-ordination skills are extremely paramount.

The skill sets are varied across various roles, and evolve as and when one progresses from being an entrant to being an expert. Adaptability is taken into consideration and experience suggests that individuals with adaptability traits progress faster.

Hiring Pool

The industry mostly prefers lateral hiring of talent, however quick and upcoming technological changes necessitate hiring of fresh talent. Also, in order to maintain average age of the organisation and to infuse fresh blood in the teams, the AMCs seek to hire freshers. Specialised hiring is undertaken for special roles in legal, compliance, risk or operations role. Often consultants are hired to scout for talent and industry reference and employee reference is also resorted to. Hiring from prominent B- Schools has also been a common practice to hire freshers.

The interviewer will focus on identifying hard and soft skills of the candidate. Hard skills are also evident from the courses/degrees pursued, whereas soft skills are evaluated through questioning the candidate on ethics, thought process and passion. Also, a solution oriented candidate is preferred and sought for by most employers.

Typical compensation may range from Rs 10 lakhs to Rs 2 crores p.a. depending on the seniority, skill sets and the role performed in the organisation.