Ladies and gentlemen, good day, and welcome to HDFC Asset Management Company Limited Q3 FY '24 earnings conference call. From the management team, we have with us Mr. Navneet Munot, Mr. Naozad Sirwalla, and Mr. Simal Kanuga. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Simal Kanuga. Thank you, and over to you, sir.
Thanks, Nerav. Good evening, and thank you everyone for joining in today. Just as a first line, kindly note that all the necessary industry data for December is not available as of today. So in instances where December data is not available, we have substituted the same with November end data. We'll of course update our presentation once the data for December is released and will be made available on stock exchanges as well as our website. So as usual, we'll start with industry-level information. As of December 31, 2023, the closing AUM has surpassed a significant milestone of INR 50 trillion, a notable 27% YOY increase. Nifty 50 index exhibited a return of 20%+ over the last one year, whereas the AUM of actively managed equity-oriented funds grew by 29%.
Equity and equity-oriented funds now constitute over 50% of the industry AUM, reaching QAUM of INR 25.9 trillion. The upward momentum of systematic investment plans continued, witnessing inflows of INR 176 billion in December 2023, compared to INR 136 billion in December 2022. The notable thing is AUM through SIPs has reached a number of INR 10 trillion. This means that nearly 40% of the equity and equity-oriented AUM is now contributed through SIPs. Debt funds reported a QAUM for December 2023 of INR 10.2 trillion, as against INR 8.6 trillion in December 2022, growth of 19%.
The B30 MA AUM category remains robust and the growth continued, with its share in the overall MA AUM for November rising to 18% and increased from 17% as compared to December 2022. This growth, observed on an expanding base, underscores the significance of acceptance of mutual funds even in B30 markets. The contribution of B30 markets to equity-oriented AUM is even higher. 27% of equity-oriented AUM comes from B30 markets. Now, we move to our company. Firstly, we are definitely most excited to announce that we inaugurated 24 new branches on second of January 2024. Of these 24, 22 are in B30 cities. This takes our branch network to 253, 173 in B30 and balance 18 in T30. We continue to look for opportunities to further our physical infrastructure.
For the quarter ended December 2023, our QAUM marked a milestone, reaching INR 5.5 trillion, representing a growth of 24% YOY, with a market share of 11.2% on overall basis and 12.5% if one excludes ETFs. Our closing actively managed equity-oriented funds AUM reached INR 3.47 trillion, an increase of 50% as against industry growth of 39%, resulting in increased market share of 12.7%. Our systematic transactions continued to grow, and in December 2023, we processed 6.81 million transactions amounting to INR 26.3 billion. The corresponding amount for December 2022 was INR 15.7 billion, signifying an increase of INR 10.6 billion for a single month. As a reminder, our systematic transactions include both SIPs and STPs. STPs are systematic transfer plans.
Our closing AUM for net funds, which includes net index funds, saw a modest uptick Q1Q, reaching INR 1.34 trillion. Our quarterly average asset mix reflects a continued tilt towards equity, with equity-oriented funds comprising 61% of our AUM. This figure is notably higher than the industry average of 53%. Additionally, our customer profile leans towards individual investors with a contribution of 70%, showcasing a notable variance from the industry, which stands at 59%. Our penetration in the unique investor universe stands at 21%, signifying that over one in every five investors has chosen HDFC Mutual Fund as one of their investment choice. Moving to financials.
Revenue from operations came in to INR 6.71 billion, reflecting a 20% year-on-year growth, while other income amounted to INR 1.42 billion, aided by healthy mark-to-market growth, resulting in total revenue growth of 23% YOY. Operating profit for the quarter came in at INR 4.96 billion, a growth of 25% YOY, with a stable operating profit margin of 35 basis points. The effective tax rate is lower, primarily due to a decrease in deferred tax charge for the current quarter, mainly attributed to the holding period of certain investments transitioning from short to the long term. Lastly, before I close, I would request all of you to give our yearbook a quick read. This is a plethora of data and information in regards to both economy as well as markets.
Our investment team puts in serious effort, and I can definitely tell you that this will be worth your while. So thank you very much for patient hearing. Navneet and Naozad are very much here, so we can open up for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Devesh Agarwal from IIFL Securities. Please go ahead.
Yeah, good evening, everyone. Firstly, congratulations on a good set of numbers. I think this has been one of the-
Devesh, sorry to interrupt you. You're sounding a little distant. Can you please speak through the handset?
Is it better?
Yes.
Yeah, hi. Firstly, I would congratulate the management for another strong quarter. I think this has been a very good quarter for the industry as well as for the company. So a couple of points. First, if we see your debt and liquid funds, that is where we've been losing market share to some extent. Although it may not be very important from a revenue perspective, but still, on an overall basis, we don't see the market share gains that we see on the equity front. So any reason why we are kind of losing space on the liquid side, this market share?
Thank you, Devesh, for the compliments, and I take that on behalf of all the 1,500 people in HDFC AMC who've been working with a deep sense of purpose to be the wealth creator for every Indian. I also take this opportunity, before I answer your specific question on debt and liquid market share, to celebrate the achievement of INR 5,000,000 crore AUM of mutual fund industry. I think this is a testament to the trust that investors place in the Indian mutual fund industry. This is a momentous achievement for us. And to put this number in perspective, I'm sure everybody knows that the total size of mutual fund industry in India was INR 1,000,000 crore 10 years back, and in one single calendar year, we have grown by INR 1,000,000 crore.
So we take this opportunity to thank and congratulate our regulator, SEBI, for their continuing guidance and encouragement, all our distributors and investment advisors for their support, all other AMF industry stakeholders for their untiring, efforts, of course, all our peer AMCs and their employees, and above all, the mutual fund investors. So it's a great moment for all of us, but we all look forward to, a lot of growth over the next several years, several decades. Now, coming to your specific, question on debt and liquid market share. So Devesh, it's been, in a range. First, I mean, let me talk about the debt side. So I think I've mentioned it in some of the previous calls that we were little late in debt index funds, we were awaiting certain regulatory clarifications, before diving in.
Our investment and risk team was very apprehensive of signing it off. If you ignore the debt index fund, then our market share has been more or less flat. The liquid market share has also been in range in recent past. There was time when our market share was higher. In fact, during those quarters, we would have mentioned that, whenever there's a bit of stress in the market, you see money moving to some of the fund houses like ours, and then it gets distributed to a wider set of AMCs. I think despite the fact that we don't get allocation from certain set of institutional clients, wherever the group limit exposure might have got hit, as we being part of the HDFC group, but certain institutional clients may have an overall group limit.
But we see healthy allocations from all the other institutional clients. These things, I think, on a quarter-on-quarter basis, don't worry as much. They get evened out over a period of time. You would have noticed over a longer time frame. What I can say is that we are top-tier products and very deep relationship across client categories. Over the last... I also take this opportunity to mention this point that over the last couple of years, almost all the growth in the industry has come from equity funds. The fixed income and the liquid category haven't really grown much. I think as an industry, as well as at HDFC AMC, we think over the next few years, we need to work a little more on growing that segment of the market also.
Whenever that grows, we remain confident of remaining a lead player.
Right, sir. So basically, sir, there's been no change in the strategy, right? To, towards pushing more of equity products and not focusing on debt and liquid.
No, Devesh. For us, I mean, all money is welcome. I think we have mentioned time and again, we have products for all kinds of investors. We want to serve the needs of all kinds of investors across our product range, and happy to catch money in all asset classes where we are present.
Right. And then moving on to the equity side, we have seen a very good performance over the last 12 months. I can see that almost 100 basis point market share gain. So any strategy which you can share, which will give us comfort in terms of this market share gain can continue? We see that the fund performance is strong, but probably in the sense of, there are some products like, just to mention, sector and thematics, where our market share is relatively low. And we have seen that even in last three months, there have been a large number of NFOs happening in that segment. So any focus on that segment which can drive market share for us?
So first, I think on the product launches, you have seen over the last couple of years, we have also done a couple of product launches wherever we find the need to fill the product bouquet. But I must say that, I mean, at our end, the product launches are driven by the views that we have from our investment team, the capability that we have. We don't want products for the sake of it or just because they are currently part of the season or they are selling.
We remain quite confident that the product range that we have, the long-term performance track record that we have, very well laid out philosophy and processes we have, and the relationship that we enjoy with our distributors and all the other efforts we have made, have a significant growth potential in several categories. While, I mean, I talked about the sector and thematic, but, I think there are several categories, if I look at the tax saver, if I look at large and mid-cap funds, in a multi-cap fund, in our focus fund, there are several categories where I think there's significant scope for growth in market share, apart from some of the other NFOs that we have done in recent past, where I think over a period of time they will, they will continue to grow.
Right. But any specific strategy that you're targeting in terms of either, more number of NFOs in a particular category or higher incentive to the distributors to promote those categories?
No, not really. I think we have been gaining market share, as I mentioned, that across categories, and, we have products where we think that there is a lot of scope for us to grow and, and, and build a respectable size, relating to where we are today and the, and the capability that we have in those products. In fact, interestingly, if you have seen the flows this year, the large cap category hasn't, grown much. And whatever I hear from our investment team and a lot of other people, in the market, we would vouch for it that, given the relative valuations, I think there's a lot of potential for that category to attract, money. And, and we have an absolutely, best-in-class product there in HDFC Top 100.
I think we can get substantially larger than where we are today in that product.
Right. And so one last question on distribution. We've been seeing that HDFC Bank share in your total equity AUM have been declining. It has come down from 8.4% last year to 7.7% now. So clearly, the growth in the equity assets from the bank is lagging the growth that we are seeing on the overall assets. So any sense by when can we increase our share in the HDFC Bank AUM wallet? And what and probably what can drive that?
So first, let me clarify. HDFC Bank is not selling less of us. In fact, we have large number of products which are approved on its merit. We are working very hard with the bank and all parts of the bank. It is that other channels are growing faster. So you should look at this data differently. Firstly, this is the pie of overall distribution, so it is possible that HDFC Bank has sold more of us, but other channels have sold even more. So the big data is also, you know, coming from direct plan. We have mentioned in past that the direct plan is around 24% or so of our book. It is in late 20s in terms of flows. Secondly, the Mark-to-Market effect because of lower TER in the direct.
So, for example, if there is no flow and no market change in, say, one year, just to make the point clear, if there is no flow and no market change in, say, one year, at 23% direct AUM, which would have, let's say, 100 basis point lower TER, by default will gain 20 basis point of share due to differential fee. So because of these reasons, you are seeing, slightly less number, against HDFC Bank. But I must say that our flow share is higher than the share in stock, that we have with HDFC Bank as a distributor.
Understood. And so, so if we flip the question, if I am right, I think we used to have 32, 33% share in the HDFC AUM. Has that number increased up?
So I can say that, whatever number that we have in the stock today, our flow share is higher than that.
Understood. Perfect, sir. Perfect. And one last, uh, bookkeeping question. If you can share, asset-wise yield for the quarter, that will be helpful. That will be all from my side.
So the blended yields required are 48 basis points.
So I think, Devesh, asset-wise, basically, I think it will be-- what will be more relevant, Devesh, would be what, what are the yields at the end of the quarter, right? And I think those are why don't you just-
Yeah. So, for the quarter, the equity is around 63 basis points. Debt remains steady at 20.29. Liquid is not changed again, historically.
Understood. Perfect. Thank you so much.
Thank you. The next question is from the line of Saurabh Kumar from J.P. Morgan. Please go ahead.
Sir, just two questions. One is, what would explain, you know, this, high growth in, individual investors that you're seeing in almost 10% QOQ versus industry at like 4%? You're almost nearly 50% of the incremental additions in the industry. So what would be explaining that? Is this a, is this a scheme performance or anything else you've done? And secondly, just on the yields, your mix is better, but the yield is down. How do we explain that?
So, first on the higher share from individuals, and as you know, I mean, the overall growth in the industry has been in equity as an asset class, rather than in fixed income and liquid, where you see more institutional money. Within that, we have done well for a variety of reasons, including superior performance. I think the focus that we have on better distributor engagement, the marketing efforts we are putting in place and brand infrastructure, it's a combination of many reasons. And of course, we've always mentioned that at HDFC AMC, what has won wonderfully for us over years or decades is continual focus on the systematic transactions. So, if you have noticed, the systematic transaction books-
Yeah.
-have grown by over INR 10 billion a month in last 1 year or so, and then this continues to grow. The second question was on,
Margin.
On the margin. So let me explain this by citing a very specific example, and I think that will make it clear. We might have mentioned this in previous call, but it's better we explain that again, which explains the dilution in margin, particularly in our equity book. So in December of 2022, our largest fund, that is HDFC Balanced Advantage Fund, BAF, had an AUM of INR 51,000 crore. The AUM now is INR 73,000 crore or so. The TER as of December 2022 end was 1.52%, which is now at 1.42%. This is a drop of ten basis points on AUM of INR 73,000 crore. And INR 73,000 crore is approximately 18-20% or so of our equity oriented AUM.
Now, this is nothing but purely computation of TER based on SEBI formula. This is sliding scale structure or telescopic pricing, as it is known as. And this is not the only scheme where we have seen this. So if I give you example of another fund, HDFC Midcap Opportunities Fund, that has come down from 1.63 to 1.47. That's a drop of 16 basis points, and the AUM here is INR 56,000 crore. So say 16 basis point on INR 56,000 crore. And this would be the case with many other strategies, HDFC Small Cap, Flexi Cap, or so, where AUM would have increased by a couple of thousand INR crore. Now, good thing here is that economies of scale are being passed on to the investor or to the customer.
So the customer in HDFC Balanced Advantage Fund is getting the same fund now, 10 basis points cheaper as compared to last year, which in turn makes the product even more attractive. In fact, if I take the April 2019 as a base, as you would remember, that was when new TER formula came into effect. TER of HDFC BAF that time was 1.78%, and this is now at 1.42, that I told you earlier. That's a drop of 36 basis points. So the same product, I mean, if you compare 1.78 with 1.42, this is like 20% cheaper in terms of TER. Is it best for us? Will I take higher TER with lower AUM or higher AUM with lower TER? I think the answer is obvious.
So let's continue with the example of HDFC Balanced Advantage Fund, HDFC BAF. If one multiplies AUM by TER, the total expense, including distribution commission, will be approx INR 720 crore on AUM in April 2019, when the size was INR 40,700 crore. The number now would be over INR 1,040 crore, that is 73,000 crore at 1.42%. So net-net it's a win-win for everyone. Customer is getting the same product cheaper, AMC makes healthy incremental revenues, and, on a lighter note, our fund managers are happy a lot, too, because a 36 basis point drop in cost means 36 basis point of extra alpha to their performance.
So of course, the dilution of margin due to increased AUM in normal scheme of things would happen at slow pace and over a period of time. The pace can change when you have a rapidly rising market, something that we saw in the last quarter or maybe throughout this financial year, where the large part of AUM gain is due to mark-to-market. So if I'm not wrong, our equity-oriented AUM has seen a mark-to-market increase of over 11% in this quarter. When this happens, you will see I think a number of schemes jumping couple of laps and pace of dilution picks up. So I mean, of course, we all know that markets can't deliver 10, 11% every quarter. This does not happen every quarter.
You know, interestingly, regulator's skin-in-the-game mandate for AMCs has helped in some manner. We have been mandated to invest a few basis points of our AUM in all our schemes. So this has resulted in over INR 4 billion of investments in our equity-oriented fund. So sudden spurt in market would result in increased other income, of course, vice versa on the way down. But that point in time, our equity-oriented AUM will fall and may see some revenue-margin increase, so it won't really set things off, but it does balance to an extent. Needless to state, higher AUM is more preferred an option as against higher margin. I think the same point we would have made earlier, but I thought maybe we give you a more detailed color on that.
Thank you, sir. Just one additional follow-up on this. So basically, so your TERs are going down, but your EBIT margins are broadly sustaining at that 35-36%. So because you seem to have some operating leverage as well. So fair to say, I mean, you can be broadly sustain this margin structure going ahead as well? The 35 basis point out. Okay.
Yeah.
Great. Thank you. Thank you.
Thank you. Next question is from the line of Lalit Deo from Kotak Securities. Please go ahead.
Yeah, good evening, sir, and congratulations on a [inaudible]. So, one clarification. So, so like in, you mentioned that, the market share in other channels, the direct channel in [inaudible] is in the late twenties. Is it in late twenties or is, was it something else?
Sorry, I can't hear you well.
Sir, so in one of the earlier questions which have been asked, in the equity AUM channel mix, so the direct channel has been increasing at a much higher pace. So, what would be your like, qualitatively, what would be our market share in that direct channel, in the equity space itself? Or any comments around that?
No, no, no. I think, I think what Navneet mentioned then was saying that the flow... So today, for example, out of 100 INR on the book, 23 INR is coming from direct plans. That is on the book. In terms of flows, that number is late twenties.
Okay. Okay. And so any comments around the market share in that specific channel?
We don't make that comment.
Sure, sir. Secondly, sir, on the product side and on the alternative side, like for how is that shaping up in going forward for the FY 25 and FY 26?
So as we have mentioned in past, we have taken a couple of steps to build our AIF and PMS business. The fund of fund that we launched sometime back has seen decent traction. We have commitments to the tune of INR 8 billion from over 300 clients, which include institutions, family offices, HNIs. In that fund of fund, we have shortlisted nine funds and have committed capital to these funds. We hope to raise some more capital in this fund during the current quarter. Now, as a further step to build newer lines of business within the AIF, we have added two senior resources on private credit side. We do see that category as an opportunity over the next several years.
The product launch here should be in later half of the current calendar year. On the PMS front, we have launched two strategies. We are seeing interest building up. We have also introduced an NDPMS offering for larger customers and seeing some good traction already.
Sure, sir. I think last month. So, like, in SIPs, we have seen a strong growth. So, like, could you quantify, like, how many new SIP accounts we have acquired during the, we have added during the quarter?
We have that in the presentation. So we've given, the last, so you'll have to... We can, we can get back to you, Lalit, on this one. I'll just send the numbers post the call.
Sure, sir.
So we just have said 6.81. We have not added the number of accounts last quarter. We have not made a mention. But yeah, I think I will send that across to you.
Sure. Thank you.
Thank you. The next question is from the line of Abhijit from Kotak Securities. Please go ahead.
Hello, hi. Good evening, everyone. So my first question was that, in terms of flow market share across channels, so what... You can't give that number, but just qualitatively, would it be fair to say that, you know, the, the, the lowest hanging fruit in terms of, you know, getting the funds included in the recommendation list, at least that part is now already played out, or is there still some scope to, you know, gain out of that?
I think, Abhijit, we are there everywhere, I think.
We are there across channels.
All, yeah, yeah. Across all channels in terms of fund approval. I think the performance has been absolutely best in class, and engagement has been very, very deep, so I think between investment team, product team, sales team, everybody working together to make the most of it, yeah.
Got it. And just looking at the strong, you know, SIP numbers, is there like a channel-wise skew there, or broadly representative of the overall numbers, especially direct, if you can give some color?
No, I think it's across all channels, be it MFDs, be it national distributors, be it banks, RIAs, Fintech, direct. I think across all channels, we have seen continuing increase in our market share.
Okay, and then, you know, just an industry-level question, in terms of, you know, passive, the risk of passive, substitution. So in your experience, do you see customers, you know, buying into passive as their first choice of product? I mean, is that a big, trend that you see out there or not really the passive? Maybe it's the second or the third fund, that, the person buys. Any sense on that?
So, so I will repeat what I may have stated many times before, that India, unlike some parts of the West, will be active and passive market against active versus passive. You know, I mean, there have been many comments from various circles that majority of active managers underperform. Data is available. Please check out what percentage of AUM is outperforming the benchmark and not number of schemes. The results are empty-
Right.
And in favor of active funds. And, and also the pertinent point to note is index fund performance is not equal to index performance. I mean, there is cost of running the fund plus impact cost, et cetera. So alpha versus passive funds gets further fueled up by 20-40 basis points or so, depending on the product you are looking at. So please don't get me wrong, I'm not saying that this will be future, too. What I'm trying to state is that in 2017 or so, alpha was a given. In 2020, narrative was that active cannot outperform. The truth is somewhere in between. The big difference also we see versus the West is that how the fees have been managed by the Indian regulator.
In U.S., they had very high fees, and of course, a lot of other allied charges that investors had to bear, and that led to alpha challenges. India, anyways, from day one in 1996, has a cap on fees, and that has been further managed by eliminating the entry load in 2009, then revision in TER in 2019. So I think today you can get a top-tier performing, actively managed fund for anywhere between 60-70 basis points or so, in some cases, even lower. So lower TER leads to higher probability of alpha, right? So based on alpha potential, I would strongly state that active management in India is here to stay, for a very, very long time. We strongly believe in it.
As an AMC, we have probably one of the longest track record to exhibit that. Now, coming to passive, there are many investors and advisors who have preference for just meeting the market. They may not necessarily have the aspiration to beat the market, and for them, we have the full product portfolio available. In fact, we are second largest when it comes to equity index funds in India, in terms of AUM. In terms of product range, we have 20 index funds and 18 ETFs. The size of equity index fund is small. I think that's approx around INR 85,000-INR 90,000 crore, but that's growing fast, and we remain one of the top leaders there.
I think broadly, I would say that Indians are grossly underinvested in equities, and in my opinion, both active and passive will grow at a healthy pace. And we are fully geared to have a leadership position in both. Abhi-Abhijit, you need to reread your report.
No, I just I was just curious to know, in terms of, you know, passive-
Uh, absolutely.
-looking to become like a first choice, but I guess that's still playing out on the margin, not a mainstream just thing yet. There's a last question-
Oh, but, Abhijit, I mean, sincere compliments on your, on your report. That's the one I also got to read, and sincere compliments. Yeah, you're doing good work on, on that.
Absolutely.
I mean, it's a point we have always been making. And interestingly, you know, I talked about the alpha generation across the industry, and, you know, you keep hearing whether large caps can generate alpha, because these, those are the top hundred most researched companies. And look at the returns of HDFC Top 100, I mean, over the last year or over the last couple of years, and, and you'll be positive. I'm sure you have seen that, but the others who haven't would be positively surprised.
Sure. And the last question was, you know, coming back to the expense ratio, TER bit, I mean, at one level, the pricing is inflexible, because of our agreements with the distributors, at least on the back book. But incrementally, you know, is there a thought process of, you know, making it more flexible, in line with, you know, how the individual distributors are doing as far as, you know, redemptions are going, or making it more, let's say, quote-unquote "Performance linked," in a way?
Historically, we have seen that, the distributors, I think, who have kept the money for long, I think have really benefited in many ways. In fact, you know, in our analysis, one interesting thing we found was that some of the most successful distributors in India are the ones who kept the money with us for the longest time. And as you know, some of our AUMs have multiplied so much over the last 25 years. I think for their business expansion, I think it has really helped them. And, the pace at which the compounding has happened in India, particularly in fund houses like ours, they have really benefited, and we continue to engage deeply with them to encourage more, I would say, longer term holdings.
Got it. Thank you so much.
Thank you. Next question is from the line of Lakshmi Narayanan from Tunga Investments. Please go ahead.
Thank you. Am I audible? Yeah, first question.
Breaking little bit.
In fact, when in your direct flows, you mentioned that on the book it is 25%, but on the incremental flow, it's 20%. So is direct growing slower than the other channels, or is it growing as fast as other channels?
Look, sir, what we mentioned was on the book, if you look at it, direct is 24% when it comes to equity-oriented AUM. On the flows, the number is higher, it is in late 20s.
Got it. Got it. The second question is that in terms of the total distributable TER, right? What is the added change?
Sorry, we didn't get your question.
Lakshmi Sir, sorry, but then we are losing your audio. Lakshmi Sir, can you hear us? The line for the participant dropped. We'll move on to the next participant. Next question is from the line of Bhavin Pande from Athena Investments. Please go ahead.
Hi, good evening, sir. So, our mix of assets in equity has been around 63% of closing AUM. So in the long run, I mean, what sort of number are we looking at in terms of asset mix?
As I said, I mean, we have products for all investors across equity, fixed income, hybrid, liquid, money market, and money is welcome in, in, in all products we make. I mean, the, money is made in all those products. But, over a period of time, given the higher mark-to-market gain on the equity side and also the, higher, you know, the, the systematic transactions, both bulk profit and equity, logically, equity proportion should grow higher than, than the other asset classes. But as I mentioned in the beginning, we don't have a specific target in, in, in mind for that. For us, I think whatever product sells, that, that brings, bottom line to us.
Oh, okay. And so in terms of channels, we have seen a pretty decent traction from digital and fintech players. But simultaneously, we also have witnessed sort of a dream run in the Indian equity market. So do you think, this contribution from digital channels is sustainable in the long run, when markets do not deliver the way they have delivered recently?
A large part of that growth, thankfully, has come through the systematic transactions, and that gives us confidence that it's a lot more structural rather than cyclical. Of course, we have always mentioned that flows have two parts. One is the structural that comes in the form of systematic transactions, and there could be, like, cyclical part of it, which depends on the overall market momentum, the relative attractiveness of equity versus other asset classes, so on and so forth. But given that through the digital channel, bulk of the money is coming through systematic transactions, we think it's a lot more sustainable.
Okay. Just one bookkeeping question on employee expenses. Do we think they should keep going up for us to sort of continue retaining talent vis-a-vis industry competition?
A couple of people in this room, and they are all smiling. Why should not go up? I mean, on a very serious note, I think in India, all of us are very excited about the India macro story, about the under-penetration of mutual funds and the growth potential that our industry has. We are a people organization, and I'm sure we'll have to ensure that we are able to attract and retain the best quality talent, and we have to compensate well.
Okay. Okay. Wonderful. Wonderful. Thank you so much, sir.
Thank you.
Thank you. Next question is from Sagar Doshi from Finroute Investments. Please go ahead.
So I have a couple of questions. First one being, can you give me a split between what has-
Sorry, you are not sounding clear. Can you please speak through the handset?
Is it better now?
Yes.
Okay. So the first one is, can you give me a split between what has been an organic growth and the market-driven growth? So let's say, if we compare our AUM to last year and the growth that, the great growth that we had had, till December 2020. So what has been the market growth and what would be the net inflows growth, if that could be cleared off, of the total AUM?
We do not, we do not publish the net flow growth numbers.
Okay. If, just if you can give a rough percentage idea, if that's possible.
No, there is no rough percentage idea.
Okay. Okay. The second one would be like, can you let me know, like, what are your plans for entering any other adjacencies or maybe getting our AIF book more in number, so that it contributes significantly to the revenue? A long-term plan apart from our core business, anything else that you are looking at?
So our major focus remains on continue to build our core business. We think there is huge runway of growth there. At the same time, I mentioned earlier that we are focused on building our alternative and PMS business in a slow and steady manner. Over a period of time, that will continue to grow. But if you look at our overall size of the mutual fund revenues, I mean, in next several quarters or even years, I don't think that will become so significant relative to the mutual fund revenues that we have.
Got it, got it. Okay, thank you, and all the best for the future.
Thank you.
Thank you. Next question is from the line of Dipanjan Ghosh from Citi. Please go ahead.
Hi, and good evening, sir. So, first one, bookkeeping question which you answered earlier. If I heard correctly, on the equity yield of 63 basis points, was it, the exit load or for the quarter? Second, on the OpEx side, if you see and, you know, you correctly mentioned that you have been investing in kind of growing the franchise and the potential in India. But just wanted to get some sense, let's say, you know, over the next, let's say next 12-24 months, if markets were to kind of remain relatively lull. In that sort of a situation, what sort of flexibility would you have on the expense side, be it on the overheads or, fixed versus variable on the employee side? If you can give some color, on that. Those are my two questions.
So Naozad can add more, but all I would say is that, like, we run a very, very tight ship. I think if you compare us with any large global asset manager who manage $60-$70 billion of AUM, serving more than 8 million customers, serving more than 80,000 distributors, offices over 250 cities, and then best-in-class capabilities, and if you look at the total expense, I think we run a very, very tight ship. And you would have seen, like, the growth that has come from because of the mark-to-market as well as the flows. It's not that expense also have to grow in that line. If there is a bad year, I mean, if let's say market fall next year, I think a large part of the cost would be, like, fixed.
I don't think there could be much to do on that. But Naozad, you can add more.
No, I think it, it summarized very well by Navneet. So, as you know, most, most of the costs are people and, and, you know, OpEx, office lease, so very little variability there, frankly. So costs will be pretty much what they are. On your first question, on the 60 basis point, it's for the quarter, margins for the quarter.
Got it. Just to follow up, if you can kindly mention the exit trend, if that's possible.
No, it is not. Sorry, you want the exit, sorry?
The equity yield, let's say maybe for December or exit funded, whatever.
It doesn't change, like, every-
It is, it is actually the same.
Got it. Got it. Okay, thank you and all the best.
Thanks.
Thank you. Next question is from the line of Gaurav Jani from Prabhudas Lilladher. Please go ahead.
Thank you, sir, for taking my question. Firstly, you know, just an extension to the OpEx bit. We've added about 24 branches in Q4, right? So I assume the cost would come in Q4, right? So the point being, from the base of Q3, should we expect 11, 12% in tandem growth in our OpEx, or should we lower considering it will be present? How should we look at it, and actually I think of paying that?
Yes, I'll, I'll answer that. So basically, we have a well-established process when it comes to the acquisitions for opening new branches, essentially. The inputs that go into are the industry AUM, distribution channel spread in that region, acceptance of the HDFC brand in the market, et cetera. So we don't rush into opening branches. You know, and when we build a business in a city or a town, so branches in neighboring cities, and then decide to open a branch, is only post the desired optimal AUM. So yes, you know, we did mention that, of the 24 branches, 22 are in these 30 locations. The overall costs of these branches tend to be much lower. Our rental, et cetera, are very low.
If you add up, you know, cost of all these branches, it won't really move the needle in terms of, you know, on an overall quarterly cost basis. Again, we will sort of be prudent as we open branches as we go along. So yeah, I don't think it's, I don't think it's a material movement in that sense. It's small branches with couple of people at each branch.
The last 12 months, other OpEx totals to... I mean, the OpEx per branch totals to about INR 1 crore. So what you are alluding to is this number, per branch, for the new branches would be much lower.
I think-
You cannot...
No, no, I think he's looking at the total OpEx divided by-
No, no, that's not-
No, you cannot look at that.
That doesn't work that way.
No, no, see, OpEx includes travel, OpEx includes everything else. Like, every time we launch a product, we have to pay SEBI fees, everything. So OpEx is not divisible by branch.
And I won't do that math in that sense.
Understood. Understood. Fair enough. Fair enough. Thanks a lot. The last question from my end is, so, Sumit, you mentioned 63 basis points, right? So, you know, when do we stagnate in terms of, yield bottoming out, right? So, you know, from when, I mean, what I mean is, post whatever AUM growth that comes in over the next two, three years, at what level do you see yield actually stagnating and then, you know, operating leverage paying out, consistently?
You are saying when the dilution would stop, that's what you are asking, right?
Correct. Correct, correct, correct.
I'll tell you, the way we look at it is that the entire book will never be repriced, right? As such, unless all the existing AUM goes out. The impact of lower cost or higher margin AUM will definitely get diluted further and further as new AUM keeps coming in. Also, we do see some existing lower cost AUM also growing due to mark-to-market. So multitude of factors would play a role here. The good thing is that the distribution commissions are now much more in acceptable range.
If you recall on the last call, Navneet had pointed out that the direct plan TERs of all recently launched or most of the recently launched NFOs are in more acceptable range, right? That gives you a good indication of where market is. Lastly, what has worked well is the AUM denominator, right? Because that also plays a very big role. So if you look at our equity-oriented AUM now at whatever INR 340,000 crore-INR 350,000 crore, the impact of new sales with lower margin would be felt lesser, right? As compared to a year back when it was like 2.5 odd lakh crores. So these are the things. So if you are saying that when would this 63 keep kind of get to 63? A difficult one to kind of make a guess on.
And this, I think, as Navneet kind of earlier on the margin question explained that very well, saying that this particular quarter we saw rapid dilution, not because of anything to do with market commission, but because of AUM growing and the tiered formula kind of playing in, coming into play.
Understood, understood. I'll, I'll probably take it up with him. Thanks, thanks so much.
Sure. Thanks.
Thank you. Next question is from the line of Kunal Thanvi from Banyan Tree Advisors. Please go ahead.
Hi, thanks for the opportunity. So I had three questions. The first was on, you know, if you look at the unique customer addition, both for the industry and HDFC AMC, it has been growing at a very, you know, fast rate for now almost 3-4 years. But last year, what I remember is, you know, large, large part of this addition was on the passive side of, you know, things. Now, with, you know, active doing well, not only for HDFC AMC, but as a, you know, category itself, it has been doing reasonably well. Is the, you know... Can you throw some light on the new unique client addition towards active versus passive?
Is there any change or is still, you know, the large growth in the number of unique customers is coming from the passive side of the things?
No, for us, the larger part of growth has come from the active side, and a larger part of the growth has come through the systematic transactions.
Sure. And again, that would largely be towards the direct plan, because as you said, the flow is like, you know, late 20s and the book is 24%.
It's a mix of both, direct as well as across all distribution channels.
Sure. So that's helpful. The second question was on, you know, on the distribution channel. Like, you know, one of the early participants asked about, you know, this, falling share of HDFC Bank in the distribution YOY, where, in the equity book. Whereas when I look at the overall, you know, AUM, the share seems to have, you know, jumped up YOY as well. Wanted to understand, you know, apart from equity, like, like, debt and deposits are also being, you know... Like, is there any change in the distribution with the bank in terms of, you know, ex of equity products? If you can throw some light on that. And second, like, we've done this branch expansion and there is, you know, much possibility of our higher engagement with the HDFC Bank post the merger.
Can you take us through the thought process on, you know, physical presence of HDFC AMC? Because one would think that with HDFC Bank, you know, distributing more of our products because of both change in parentage and the performance improvement, you know, we would naturally get, you know, geographical expansion because of HDFC Bank. So if you can, you know, throw some light on that.
Actually, Kunal, I think, Navneet will expand on the whole bank relationship, but just I'll address the first part of your question. See, what has happened is this is a period-end data, right? This is end of December. So if some large client of HDFC Bank has come through, into our liquid fund also, that would change the dynamic. So I would not honestly read much into that 5.8 becoming 6% on the overall AUM basis. So, so that was the first part of your question, but I think the bigger picture on, on HDFC Bank as a parent and the distribution, Navneet will take that.
I mean, we have been mentioning over the last couple of quarters that there's definitely much more engagement at every level post the merger. I also mentioned earlier that the flow market share in bank's book is higher than the book market share. We have not set a target for ourselves, but we, we believe we have a huge opportunity in our hand and will most definitely capitalize on the same. Management team in the bank has been extremely supportive of all the initiatives that we take. They are, of course, also very happy with the, with the new branches that we have set up. Of course, those branches will serve all our partners and investors. We have a dedicated senior resource looking at this relationship. We have mapped our branches and clusters of banks with our branches and clusters.
So to sum it up, I think we do understand the potential and the opportunity, and we'll go all out to capitalize on the same, over the next several years.
Sure. Thanks. The last thing was on, you know, so we saw notification on Mr. Rangan coming on the board of HDFC AMC representing HDFC Bank. Can you talk about the current board structure after the, you know, change in the ownership? You know, how many people will be representing from HDFC Bank?
So the new addition to the board is Mr. Rangan, who is also the Executive Director on the bank's board. Renu Karnad is on bank's board. She has already been there on the board. And then, of course, we have five independent directors. Board is chaired by Mr. Deepak Parekh, and I'm on the board.
Sure. And both Mr. Rangan and Renu were part of, you know, well, HDFC Limited. So those, So from HDFC Bank core board, we will not be having anyone else, right?
... Mr. Rangan is- Mr. Rangan, both are on HDFC Bank Board.
Sure. Got it. Got it. Thanks. That's all from us. I'll leave it at that.
Thanks.
Thank you. Next question is on the line of Sandeep from Bandhan Tree Advisors. Please go ahead.
Yeah, hi. Can you hear me?
Yes, Sandeep.
Yeah, you, so you know, if I look at the total number of unique investors in the industry, I think it's about 4.1 or 4.2 crores.
4.2, yeah.
While the number of taxpayers, people who actually pay tax, is about 2.2 or 2.3 crores. So do you not see a headwind in terms of number of unique investors?
I think the way we look at the number of people who file income tax, the number of people who have passport, the number of people who do foreign travel, if you look at... I mean, whichever way you look at, we think the target addressable market in the near term is significantly bigger than what we have in mutual fund industry. In fact, you should, the other number you should look at is the Demat accounts. The accounts are 14 crores, but even at the, if we look at the unique PAN level related to mutual fund industry, that number would be almost double or so. So the people who are investing in equity market directly versus the people who have come through a mutual fund route, I think there's tremendous potential for us to grow.
I think in the SEBI chairperson has talked about making SIPs viable for the industry at INR 250. I mean, if I look at Indian households, the number of Indian households who need to invest INR 250, I mean, who have potential to invest INR 250 rupee SIPs, this number should be manifold over the next several years. We are hugely under-penetrated, and we are very, very strongly on that.
No, I agree with you that the number of people who file taxes is 8 crore, but people above 5 lakh of income paying taxes is only 2.3 crore. So anybody who's earning less than 5 lakh-
Actually, Sandeep-
How much you pay?
Sandeep, not necessary. So we have tons of clients, right? Who are large investors in equities, and they don't pay tax till they redeem money. So there are 50 crore PAN cards in India. So people have taken PAN card with some level of intent, right? So this would include even companies. What you are registering as of now is people who have paid tax. Now, we know of many people whose portfolios are very large. They don't churn for whatever reason, and they kind of have managed taxes through family offices, companies, everything. So we don't want to get there, but what we are trying to state is there are 4.2 crore unique investors identified by their permanent account number in mutual fund industry as a whole.
Point number one, 50 crore people plus in India have taken PAN cards, so we are relying on that data. I think Navneet pointed out about even Demat accounts, and I think that data is also publicly available. So we are definitely going to use that. Sorry?
Demat accounts, Demat accounts, unique number is also about 4 crores.
Perfect. Okay.
They're probably the same people.
Sure. I think we can... I don't know. So maybe some other day for demographics.
Anyway, thank you. Okay, thanks.
Thank you. Next question is from the line of Dr. Sakar from Equityway. Please go ahead.
Hello.
Yes, sir.
Thanks for the opportunity and congratulations for the such a set of numbers. Can you please put a light on penetration of-
Your audio is not coming clear.
One minute. Hello, is it clear, sir?
Yes, thank you.
Can you put a light on the penetration of our company regarding rural population and urban population? What will be the opportunity size within next three years for our company?
So I think, in the beginning, we mentioned about our branch expansion. I mean, in the mutual fund industry, the term that we all use is T30, the top 30 cities and beyond 30 cities. In our total number of branches that we have, 253 branches, 173 are in B30 cities, beyond top 30 cities. We serve customers across 99% of all PIN codes in India. Thanks to the digitization in the industry, I think money can come from any part of the country. I mean, we have seen significant digitization of finance in India over the last several years.
The last eight or nine years, I think, the story of financial inclusion in India has been fascinating, and our industry has benefited a bit, but I think will benefit immensely over the next several years from that.
My point is particularly that, regarding rural demography, where is my company in rural demography?
As I mentioned that we look at... I mean, the data that we get for the industry is for top 30 cities and beyond the 30 cities. I mean, India, of course, is a large country with 600,000 villages. Over the next several years, as the industry's efforts to make mutual funds more accessible and increase the awareness about the product, I'm sure there will be interest from all kinds of investors. But if you have heard the previous question, where we were discussing about so far, only 4.2 crore unique investors have invested in mutual funds. I think relative to the population of India, we think there is significant scope for us to grow continually.
Thank you, sir. Thank you.
Thank you. I now hand the conference over to Mr. Navneet Munot for closing comments.
No, thank you so much, and wish you all a very happy 2024. Thank you.
Thank you very much. On behalf of HDFC Asset Management Company, Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.