Ladies and gentlemen, good day and welcome to Q3 FY25 earnings conference call of HDFC Asset Management Company Limited. 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 touch-tone phone. Please note that this conference is being recorded. From the management team, we have with us Mr. Navneet Munot, Mr. Naozad Sirwalla, and Mr. Simal Kanuga. I now hand over this conference call to Mr. Simal Kanuga, who will give us a brief, following which we will proceed with the Q&A session. Thank you, and over to you, Simal.
Yeah, thanks, Niral. And good evening, everyone, and thank you for joining us today. Firstly, on industry, it witnessed a 32% growth through December 2023 and closed the calendar year with AUM of INR 66.9 trillion. Equity-oriented funds grew by 40% YOY, with their AUM reaching INR 39.3 trillion. Calendar year 2024 witnessed net new flows of INR 5,420 billion in equity-oriented funds, clearly the highest ever. Additionally, INR 1,031 billion flew into debt-oriented funds, INR 429 billion into liquid funds, and INR 1,461 billion into what we call as other category, which includes ETF, arbitrage funds, and fund of funds investing overseas. The numbers for the current financial year are INR 4,382 billion for equity-oriented funds, INR 1,256 billion in debt-oriented funds, INR 832 billion in liquid funds, and INR 1,051 billion in other category. Nifty fell by 8% for quarter-ended December 2024.
During this quarter, industry saw net new equity-oriented flows of INR 1,573 billion, INR 191 billion coming in via actively managed equity-oriented NFOs, and passive NFOs, both index and ETF, collected about INR 39 billion. SIP monthly flows for December 2024 surged to INR 265 billion, an increase of INR 176 billion, an increase from INR 176 billion in December 2023. The AUM through SIP is now at INR 13.6 trillion. We now move to us. Our quarterly average AUM for December was INR 7.9 trillion, a market share of 11.5%, with equity-oriented funds comprising 65%, well above the industry average of 57%. We continue to be the most preferred choice for individual investors, maintaining a market share of 13.2% of individual monthly average AUM for December 2024. Our number of live individual accounts grew to 22 million, a growth of 49% year-on-year, and our December monthly average AUM for individual investors grew by 38% year-on-year.
Our unique investor count reached 12.6 million, a growth of 45% year-on-year. We continue to strengthen our position as the second-largest player in B30 markets, with a 12% market share of monthly average AUM in December. To further expand our presence in these cities, we opened 25 new offices, largely in B30 cities, on 2nd of January 2025. Our systematic transactions contributed INR 38.2 billion in December 2024, a significant increase from INR 26.3 billion a year ago. A few more updates on the business front. Three of our funds are now live in our GIFT City subsidiary, with AUM exceeding $150 million. We aim to have two new products going live this quarter. Secondly, HDFC FlexiCap Fund has completed 30 years of its existence and continues to scale heights. Thirdly, we opened 25 new offices in the first week of January, taking the total count to 280 branches.
Interestingly, 95% of our transactions are now getting processed digitally, a significant increase from 69% in FY20. I'll now move to financials. Our revenue from operations for the quarter came in at INR 9343 million, reflecting a 39% year-on-year growth, while other income amounted to INR 928 million. Other income this quarter did get impacted by fall in equity markets due to its resultant impact on our skin-in-the-game investments. Our operating profit for the quarter came in at INR 7472 million, a growth of 51% year-on-year. Our operating margin for nine months of the current fiscal came in at 36 bp s of AUM, and for the current quarter, it came at 37 bp s. It would be optimal to not extrapolate this 37 bp number, as it looks better due to a sharp rise in AUM, the material part of which is less.
Ladies and gentlemen, please stay connected. The line for the management dropped. Participants, please stay connected while we rejoin the management back to the call. Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected, so you may go ahead.
Sure, I think thanks, Niral. I'm not sure where we got dropped, so I'll start again back from financials. Our revenue from operations for the quarter came in at INR 9343 million, reflecting a 39% YOY growth, while other income amounted to INR 928 million. Other income this quarter did get impacted by fall in equity markets and its resultant impact on our skin-in-the-game investments. Our operating profit for the quarter came in at INR 7472 million, a growth of 51% year-on-year. Our operating margin for nine months of the current fiscal came in at 36 bp s, and for the current quarter, it was 37 bp s. It would be optimal to not extrapolate this 37 bp number, as it looks better due to a sharp rise in AUM, the material part of which is led by mark-to-market growth. In our experience, these things even out over time.
Profit after tax for the quarter grew by 31% year-on-year at INR 6415 million. So thank you very much for patient hearing, and Niral, we can now start queuing up the questions.
Thank you very much. We will now begin with the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone 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. The first question is from the line of Prayesh Jain from Motilal Oswal. Please go ahead.
Yeah, hi. Good evening, everyone. Good set of numbers. Congratulations. Firstly, the SIP data that has been coming from the AMFI, the close-to-open ratio, has been kind of increasing in the last couple of months and probably last for the past few months. Any color that you can share what you're getting from the ground, and how should we kind of look at this? Is this an indicator of slowing down in some form? While the gross numbers continue to look up in that sense, but whether the momentum seems to be slowing down, that would be my first question.
Thank you, Prayesh. So on that SIP number, I think, as AMFI has repeatedly mentioned, I think we need to look at, one, the gross flows and the redemption from the existing AUM. So one is a flow, and another is from the stock. Let me try to clarify this with an example. So let's assume that I'm doing a monthly SIP of INR 10,000 for the last five years. So by now, I would have invested INR 6,000,000, and say the market value is now INR 10,000,000. Now, I decide to pull out INR 5,000,000 for any reason and continue with my monthly contribution of INR 10,000. So for this one month, my net SIP will be negative INR 4,900,000. So this is nothing but book versus the flow issue. Also, it's possible that I'm not pulling money out. I'm just switching INR 5,000,000 from Fund X to Fund Y.
This would, again, mean a negative SIP of INR 4,900,000 and a positive lump sum of INR 5,000,000. So the nutshell of what I'm trying to state is, when we speak of SIP, let's look at gross flows. As far as we are growing there, it is good news. And now, as you know, the SIP AUM, if I remember correctly, is over 13 lakh crores. Yeah, that number is very significant. So any movement from there would impact that net number. But my request would be to look at the number that AMFI discloses on the gross side. Yeah.
My question was more on the number of SIPs rather than the gross and net. So the closures ratio has been increasing, terminated, or the term getting over. I think that ratio is going higher to the opening. So is there any trend change that you're seeing on the ground on that?
The number that we disclosed at 26,000 plus, I mean, INR 26,000 crores in the last month is the money in the bank. That's the total money. That has been an increasing trend. Within that, of course, in the last three or four years, the overall number of accounts have gone up exponentially. I mean, industry, if I remember correctly, 10, 12 years back, used to do around one and a half lakh new accounts per month. Now that number is more than 50 lakhs. Obviously, you would have maybe that gross and net number in terms of accounts moving much more sharply than what we were used to. But most importantly, again, I would repeat the same thing. Most importantly would be the gross number of flows that are coming to us.
Actually, Prayesh, also, we need to look at it on the denominator. So just we pulled out some data here. If you look at in April of 2024, there were 8.7 crore transactions in SIP. Now that number has gone to 1032 lakhs, right? So 10 crore transactions. And if you look at it, so the cancellation now has gone from 33 to, say, 44.90. So that 4% is the cancellation ratio of the outstanding account, right? Looking at it in absolute sense may not give you the right picture.
Got that. Got that. That's helpful. Secondly, on the yields front, we've again seen a marginal improvement in the yields front. I think what portion of our AUM is now kind of equity AUM is kind of linked to the new model that you were adopting from the commission is getting linked to the TER. What portion of our AUM of equity is linked, and how do we see the yields moving ahead from here on?
I think those are okay. So what we did, right, I think Navneet had explained this on the last call. Between 2019 to 2024, whatever AUM we mobilized, on that, we have done rationalization. But that has honestly not changed the yields by a material number because, again, the AUMs have gone up over the last couple of quarters, and that has kind of softened the TER. So I think some bit of rationalization has worked well for us. We haven't really kind of disclosed the number in terms of what percentage of AUM is where we have kind of changed some bit or done a bit of rationalization.
Okay. Do you have the yields that you have on the current book, equity, debt, liquid, and others?
Yes. So the yields for equity for this quarter were around 58 bp s. For debt, 28 bp s, and for liquid, it's between 12 bps and 13 bp s.
Got that. That's helpful. Thank you so much. I'll come back and get you.
Thank you. Next question is from the line of Devesh Agarwal from IIFL Securities. Please go ahead.
Yeah. Good afternoon, everyone, and thank you for the opportunity. Sir, just to clarify, there were no incremental changes made in this quarter in terms of distributor payouts. Is that right?
Distributor in sense commission? You're talking about past book rationalization?
Yes. Back book rationalization or cutting down on the distributor payouts for any of these things in liquidation.
From 1st of August. So we did a bit of rationalization. It was a one-time exercise, 1st of August 2024 onwards.
Right. Okay. And sir, can you share some trend in terms of your market share in the net equity flows in this quarter versus the last quarter? Has it gone up, gone down?
I mean, as it is, there's so much of data available about our industry. So what we give is a combined number which includes both mark-to-market as well as flows. But overall, I think across all channels, whether it's national distributors, whether it's our parent HDFC Bank, whether it's fintechs, whether it's MFDs, whether it's direct, I think we continue to see a very healthy share across all channels.
All right. And sir, what we've been noticing is that of the total net inflows that are coming into equities, a bulk of it is coming from thematics. Nearly 30% to 35% is coming from thematic scheme, where we have always been a bit conservative on that category. So what would be our strategy for that category going forward?
So I mean, while you can say we have been conservative, we always try to do what is the best for our investors as well as for our partners. Having said that, you would appreciate we did probably the largest thematic fund so far in our industry, which was our manufacturing fund, which got over INR 9,000 crores of flows and then added a couple of thousand crores after that. We've got the full bouquet of sector and thematic funds now, which is managed by our wonderful analyst team who are sector experts. And several of them have seen decent flows over the last several quarters.
Right. Sir, any more NFOs in the pipeline?
I think we have now best-in-class product bouquet across active and passive, across equity, fixed income, money market. Within passive, we have products across ETFs and index funds, both market cap-based indices as well as smart betas. So we have got a wonderful product bouquet in place. There would be a few products here and there that we would look forward to put in our product bouquet. But otherwise, I think our product bouquet is best in class. What we need to do is keep looking at fair share in each of those categories. So while in some of the categories, we are clearly an industry leader in terms of AUM and the market share that we have, but there are several categories where we have a lot of scope to expand our market share in those categories.
Any particular categories, sir, that you are targeting?
I mean, you can see our market share. There have been few products which have been around for long, and we have a very healthy market share. But some of the products that have been launched in the last couple of years, we believe there is still a lot of scope for us to expand our market share in those categories. And at the same time, I mean, we just celebrated 30 years of HDFC Flexi Cap Fund, and the product has been an outstanding product loved by our investors as well as distributors. There is a long way to go. It has a healthy share in that category, but it still has a long way to go. And at the same time, there are categories where we are not number one or number two or number three in those respective categories in terms of AUM.
We aspire to have leadership in each and every product.
Sir, any strategy that you're drawing to become top three in these categories? Is it focusing on any particular distribution channel or geographical expansion? Any particular thing that you can highlight?
Ultimately, I mean, what investors reward is the performance. I mean, the consistency in terms of your performance track record, your investment thesis, and clarity of the mandate, and of course, the other thing that we do in terms of providing the right content to our salespeople and the partners for them to enable or help investors understand their product and the relevance of their product in the investor's basket, so we continue to focus on all of these things. How do we provide the best possible content on each of the products, and of course, it has to be backed by the best-in-class performance as well.
Right. And sir, any clarity on the SEBI-approved new categories that they have allowed for the mutual funds? When can we launch new schemes under that category? Or you are waiting for more clarity before launching any new schemes in that?
So we are awaiting final set of regulations. We will have products in this space as and when we get the final set of regulations. The team is working on creating the right set of products which will help us gain share in this space too. Not necessary that only highly complex products will succeed when it comes to this category. We are working on building products which will stand the test of time, and we are confident that we'll be able to create a mark and track record that we have in our current set of products.
Any timelines, sir, by when we can expect the final regulations?
No. We are all waiting for the final set of regulations. I mean, the way we look at this is that we have a large and diverse investor base and an extensive distribution network, and on the other side, we have a very robust investment capability and risk management expertise, right? So both are in place, so we would be able to create and deliver products that align with the evolving needs of our clients.
Right. And one last question, sir, from my side. In the past, we have spoken about the synergies with the HDFC Bank parentage, right? So do you think that has now completely played out, or there is still potential for that particular distribution channel to grow faster than other channels?
That would vary. I mean, the way we look at it, our Indian bank would have more than, what, 100 million customers. And the number of customers who would have done an SIP or who would have invested would be a very tiny fraction of that. I mean, look at the distribution might of the bank, whether in terms of geographic reach of branches or the people servicing or the client base that they have got. So we have tremendous potential. I mean, the bank became our parent just a year and a half back. The journey post that has been very amazing. And this is not only in terms of distribution, but overall relationship now that we have with the bank and as well as its subsidiary like HDFC Securities.
We continue to deepen our engagement on all fronts at all levels and are clearly seeing some results of the same. I'm sure many of you speak to senior management at HDFC Bank and will be getting the same feedback on us. They've been very supportive of what we do and our future plans. The bank strongly believes that a mutual fund SIP product or a mutual fund product is, I mean, a big need of almost every customer. The team is working harder than ever to take the distribution partnership with the bank to the next level, and not only the domestic distribution, but even the synergies in our GIFT City operations, synergies in our alternative business, so we see tremendous potential for collaboration with the bank. I think Simal mentioned about our newer branches. So I'll repeat that.
While the bank is growing its physical infrastructure at a rapid pace, and we are also, I mean, ensuring that we have our presence to cater to their customer base. So we have set up 25 new offices this year. This is on top of 24 new offices that we set up exactly a year back. We have created 15 new points of presence in just one year. We have mapped every cluster and branch. We have mapped, of course, for our other distribution partners also, we get service. Yes, we have a plan in place. With the kind of support we are getting from not only the senior leadership, but I think from every level, I feel very optimistic on how this can grow over the years.
Right. Great. And all the very best. Thank you.
Thank you so much.
Thank you very much. Next question is from the line of Sahej Mittal from 3P Investment Managers. Please go ahead.
Hi. Am I audible?
Yes. Yes.
Hi. Thanks for the opportunity. Sir, so if I look at your SIP flow market share, right, so over the last 10-12 quarters, consistently, the SIP flow market share has improved, right? And obviously, with the performance which we have available. But in this quarter, immediately after we rationalized our commission, SIP flows have gone down by 50%, right, where we were a year back. So I mean, is this because of commission rationalization, or is there anything beyond that?
Not at all. In fact, by the way, I mean, I must clarify. We mentioned it earlier also that what the number you see is systematic transaction, which includes both systematic transfer as well as a systematic investment plan, SIP plus STP. And sometimes it could be some maybe escalating STP done by maybe an HNI customer or so that may have some impact on this number. The other thing I must mention is that we stopped taking SIPs also in one of our products like Defence Fund, which was quite popular with some of the distributor investors that may also have an impact because, I mean, one of the sector thematic funds which was getting a good amount of new SIP accounts because we were only taking SIPs in that fund.
But at HDFC AMC, for us, it's always about the thinking of customers from a long-term perspective and not trying to maximize the SIP flows or AUM every month, every quarter. But otherwise, yeah, our share across all channels and across a couple of products has been pretty decent. Also, I think, say, one more point, if I may add. The largest contributor to SIPs have been some of these fintechs. And they have no relation with commission. They put money in the direct plan.
Got you. Got you. Perfect. Thanks a lot, Anantharaj.
Thank you.
Thank you. Next question is from the line of Madhukar Ladda from Nuvama Wealth Management. Please go ahead.
Hi. Thank you. And congratulations on a good set of numbers. First, quickly on the equity market share, there's a very minor decline, but I would really appreciate if you could give some comments. Is it because of flows, or is it more because of performance? And I know that it's too minor to actually make a big deal about, but just some sort of comment on that would be helpful and whether we are sort of confident enough to maintain our market share going forward.
Sure, sure. I mean, as you know, it's a combination of both mark-to-market as well as the flows. And it's too small a difference, I mean, in the quarter. Over the last several quarters, we have been seeing an uptake in the market share. There would always be one quarter where, depending on a particular category of fund, performing differently or maybe some bit of change in flows as well. We wouldn't read too much into it.
Yeah. Got it. Second, when I look at your equity AUM channel split, I see that the share of direct has improved substantially. And even sequentially, year over year, almost 270 bp s improvement, sequentially 50 bp s. And we're seeing that. I want to get a sense of, is it more because more index passive products, or is it also to do with changing behavior where distributors are or people are retail people are still preferring to do the rising awareness is resulting into this. So some color and also platforms like Coin, Groww, those also probably would be helping. So some color in that.
Look, I mean, if it is 25% and it has a lower TER, so by default, this channel will automatically grow higher than the other channels, right? I mean, just the sheer difference in the TER will lead this to grow higher. By the way, I mean, the distribution pie data provided should not be interpreted as an indicator of market share within the individual channel because it's entirely possible for one channel to grow at a faster pace than another while our overall market share across both remains unchanged. So you are right. I mean, you notice it's right that over the last 12 months, the direct channel has grown from, I'm just seeing the pace, 24.3%-27%. And then it's also to a large extent led by fintechs and some of the RIAs, the registered investment advisors.
Rather than indicating a loss in any channel, I would say this change reflects broader industry.
Industry dynamics. And do you think there's rising awareness toward retail HNI sort of investing in direct plans?
I would say MFDs have been doing very well. In fact, also when you look at MFDs, the decline in MFD share, also another dynamic in mind. So MFDs who expand their business geographically, they get recategorized. So some of these MFDs do move to platforms, and hence the transition happens from MFD channel to ND channel. So they were getting clubbed in MFD, and now they are part of ND channel.
ND. Yeah.
So keep that also in mind, yeah.
Understood. Understood. And just on the new asset class, is there clarity on what sort of additional strategies you could do? Will it allow shorting? Will you be able to replicate what AIFs and PMSs are doing? And second, on the taxation of these products, will it be taxed like mutual funds only, or will it be something else? So yeah, that could be discussed.
I mean, awaiting the final set of regulations I mentioned earlier, all I would like to state is that we have best-in-class investment capability, risk capability, and product capability, and on the other side, we have the distribution network and an investor base, so I mean, any opportunity on the product side, whether it's the standard mutual fund products which have got the categorization, the products that we can launch, and tomorrow it gets more liberalized and we are allowed to launch a few other products with a different set of risk-ridden framework, as an organization, we are fully ready to capture every opportunity.
And also mentioned earlier that whether it's active, whether it's passive, whether it's alternatives, whether it's segregated accounts, which is PMS, we want our presence across the board to ensure that we are a one-stop solution provider for every investment need of every investor, be it institutional or individual, and every kind of partner, the investment solutions that they would look up to from an asset manager like ours.
Any clarity also on the TER by any chance? Is there more flexibility on TER?
Not really. Not really.
No. The same TER structure.
Still, for our industry, I mean, today, 67 to 68 lakh crores SIP book that has got built, and still, it's hugely underpenetrated. So we wouldn't like to lose our focus from this runway of growth, and any additional opportunity that comes to us, we would fully participate in that, yeah.
Sure. Sure. Understood. Thank you. Thanks a lot, sir. And all the best.
Thank you.
Thank you. Next question is from the line of Shreya Shivani.
Niral, Niral, suddenly your voice has gone. We can't hear you.
Sir, can you hear me now?
There is a lot of crackling.
Sorry, sir.
Niral, we still can't.
Am I audible now?
There is someone. Niral, I think suddenly, I think some maybe what you can just call us back, please?
Yes, sir.
Yeah. Just disconnect and call us back, please.
Sure, sir.
Thanks.
Thank you. The next question is from the line of Shreya Shivani from CLSA India. Please go ahead.
Hi. Thank you for the opportunity. So I have two questions. First is on this regulation change which happened in December. So SEBI said that in NFOs, when I mean, in the switch transaction, the distributors would now get lower commission versus earlier the trend of them taking the higher bit. So can you help us understand what exactly is going on there and what is the impact on us? In our NFOs, what part of it was just simply coming through switch, etc.? That's my first question. And so my second question is, Sadhbhi, I just want to understand the tax rate a little better because last time was an anomaly, and I understand that you had explained it very well. But going ahead, how should we look at it? What are the factors which move it around?
If you could help us understand, why would it come at 23.6% this quarter versus 25% in some other quarters? You can help me understand that. That would be useful. Thank you.
So your first part of question, the brokerage on the NFO, we have always been very prudent, Shreya Shivani, on this front. We have been very particular about this. And in all our NFOs, we have if I look at the AMFI portal and NFOs, we have ensured that on the switch, we pay the lower of the two. And on the tax side , Sadhbhi, I think 25% is the corporate tax rate. Only the issue is that for mark-to-market gains, there are long-term, etc. You have a different tax at a different rate, right? So that would mean that sometimes it comes at 23%, 24%, or 25%.
Got it. So it's basically the mark-to-market gains which basically move your tax rate around that 25%. That's the anomaly that could come through, right?
Yeah. Depending on if it is short-term, then it moves to long-term. So those are the impacts.
Got it. So then on the NFOs, just wanted clarity that you were always paying the lower commission even before this regulation came or even before the SEBI document that came in May 2023. Was that always the trend, or how is it? Sorry. I didn't understand.
By and large, yes.
Okay. By and large. This is useful. Thank you. Thank you so much, sir.
Thank you.
Thank you. Next question is from the line of Dipanjan Ghosh from Citi. Please go ahead.
Hi. Good evening, sir. Hope I'm audible?
Yes.
Yes. Two questions. One is on the other expense side. If I see there has been a sharp decline sequentially and also on a YOY basis, it's quite controlled despite the first half being quite high in terms of activity and engagement. Just wanted to get some sense of how should we see this going ahead in terms of trajectory on the other expense side, if there is any further headroom to control it, or what sort of growth should we assume given that you have opened a few branches also here and there in January? And in line with that, also on the employee expense side, should we expect some amount of investment on the sales franchisee or the non-MF side, let's say, over the next 12 to 24 months? The second question is on, again, going back to the growth of SIP for market share.
Now, if I just see the ticket size for HDFC AMC versus the industry over the past, let's say, 12 months, both for December and September, I mean, HDFC AMC has witnessed a decline in ticket size for both these period ends, whereas the industry has seen an accretion. So is it fair to assume that, and anecdotally, we also know that the ticket size tends to be relatively kind of lower on the fintech channels? Is it fair to assume that maybe there has been some moderation or customer churn or resilience of the customers during this market downturn? They're a little lower on those channels, and you're kind of facing the heat of that? Just wanted to get some color on that.
Right. So Dipanjan on expenses, so for the quarter, I think, first of all, I would request that we look at from a nine-month to nine-month point of view, where that's a more reasonable way of looking at expenses. For the quarter, we didn't have so many NFOs this quarter. CSR expense was a bit lower. So that's why you see some decline in the December quarter. I think our request has always been that, see, on an annual basis, the overall costs, employees as well as other expenses, should grow between 12% to 13% or 15%, give or take, depending on how markets are. So that's the way I would urge you to look at it, not on an every quarter basis. So that's broadly where it is. But this December quarter has been slightly lower, as I said, due to certain costs being lower from CSR.
On what you asked about the ticket size? Average. Average. Yeah. So I mean, by the way, I mean, again, I repeat the same point I made earlier that what we disclose is systematic transactions, which include both STP and SIP. It's not strictly comparable when you see the industry number on that side. And it also depends on the money coming in from a particular channel or the kind of product. For example, we had a cap on our SIP amount per unique investor in our Defence Fund, which is like INR 10,000 that one could do. And also, depending on the channel from which that money is coming in. But otherwise, I think we would be in line with the industry, if not better, yeah.
Sadhbhi, maybe just a follow-up. I mean, would it be fair to assume, let's say, the accretion that you would have seen in your SIP mix through direct and without going into specifics of fintechs would be, let's say, better than the industry or in line with the industry? Some color on that, if you can give.
No, I have mentioned earlier that our share across channels has been very healthy, which includes MFDs, NDs, banks, the parent bank, HDFC Bank as a distributor, and fintechs, RIAs, so our market share has been healthy across all channels. We focus on all channels. They all are important for us, and we continue to invest in all channels.
Got it. Sure. Thank you, sir, and all the best.
Thank you.
Thank you.
And still.
Next question is from the line of Raghav from JM Financial. Please go ahead.
Hi, sir. Thanks for the opportunity. So I had a couple of questions. The first question is, when we look at our revenue, so essentially, our equity share in the AUM has come up. None of our funds have actually reduced in TER plan. And you have said that there's no incremental change in distributor payout. But still, the yields have increased by around 1 bp , QOQ. So I mean, how do we I mean, what explains this increase in yields?
So I think there are a couple of things, right? One is, if you look at last quarter, we did some bit of distribution commission rationalization effective 1st of August. So if you compare this strictly with last quarter, last quarter was two months. This quarter, the impact of the entire three months come by, point number one. Point number two, the direct plan change that happens because of the rationalization of commission tends to get affected with a bit of a lag. So we've seen direct plan TER go up somewhere in the middle of September and then again in the middle of October, so on and so forth. So these things have resulted in a marginal increase.
Okay. Broadly, this is a good case for looking at Polycab.
Sadhbhi, Naozad pointed that out, right, saying that, "Okay, we did the quarter number at 58 bp s." Now, it depends. For example, if the market really kind of shoots up again from where it is, you might see a decline because of increase in AUM. So the telescopic pricing would work. But yes, otherwise, we start with a base of 58 bp s that Naozad touched upon.
Yeah. Thank you, sir. And the second question on the distribution. So direct is now 27% of the business. So what portion of this would be through our direct online channel? And has that been the major driver of growth in the direct channel?
I mean, what we disclose, I mean, further to that, as I mentioned earlier, from a comparative perspective, we don't disclose further. But as I mentioned earlier, that we have fairly healthy share, whether the investor's coming directly to us, investors coming through RIAs, and investors coming through the fintechs. Within fintech also, you have various kinds. There are some who are distributors who take the ARN and are commission-based, and there are some who put money in the direct plan. There are some who are what we call EOP, the execution-only platform, who charge a small transaction fee. So there are different kinds, and we try to optimize our share everywhere.
Okay. Okay, sir. Thanks for this.
Thank you. Next question is from the line of Jayant from Jefferies India. Please go ahead.
Thanks for the opportunity. One question regarding the industry broader. We've seen that this quarter, there seemed to be some moderation in the broadening of the investor base, whether you look at Demat accounts or active investors on exchanges. And then you sort of marry that with the addition that we've had to unique investor base for the mutual fund industry. From this 1.1 million kind of number, we have done 800,000. And the industry also has seen like a 20-22% drop in this quarter. What are you reading, given that we're already 14 days into January? Is it a possibility we may have peaked out on the quantum of investor base addition or incremental investor addition for FY25?
I think we have a long way to go. Last year was outstanding for the industry. Industry added almost one crore new unique investors and almost six crores of volumes. If you look at the SIP number, I mean, the one-year growth was like some 9,000 crores. This was the SIP book around three years back, right? I mean, what the entire book was three or four years back has got added in like one calendar year. And the overall equity AUM has grown by like 10 to 11 lakh crores, which was the total AUM of the industry a few years back. So it's been an outstanding year.
Having said that, over the next several years, I think the efforts industry is making, efforts all of us are making, the work that the regulator is doing to build more trust in the product, to bring more transparency in the product, we feel very positive about the long-term opportunity. I mean, while we can celebrate all the numbers that I talked about, but we need to keep in mind there are only a little over 5 crore unique investors in the industry. Can we say that we have peaked at 5 crore unique investors in the industry? I mean, no way. I mean, I mean, of course, you would know that better.
I mean, if you compare ourselves with, I don't know, maybe the vehicle ownership or passport holders or the number of people who file income tax returns, many numbers, I think we still have a long way to go.
Just to follow up, sir, while the long-term trend, we all agree.
Even if there is a long way to go.
Sorry to interject.
Even if I look at the Demat accounts, which are like around 19,000 or so, and I don't know how many unique investors in that, but I assume that number is substantially higher than what we have as an industry in terms of unique investors. The people who have already invested in capital markets but are yet to invest in mutual funds, that number is also quite large. That would be like another, I would say, cohort of investors that we would like to target as an industry.
Yes. So just following up, while the long-term trajectory we all agree on, could there be a sort of healthy consolidation in the near term where we see this large base of current year not being repeated, at least for the next three, four quarters?
See, one healthy thing is to see that I think the market turned volatile sometime in September, I remember. And last quarter was extremely volatile with so much of foreigner selling and some of the other I mean, for other reasons that caused volatility in the market. And in this quarter, we have seen record flows in the mutual fund industry. I'm talking about the equity funds. And in terms of SIP addition, in terms of new account addition, it's been very, very pleasing for everyone in the industry. It shows the maturity of the investor. It shows that mutual funds are getting sold as a product where investors need to invest in a disciplined manner with a long-term orientation. Having said that, you are right. There would be some cyclical aspect. If, let's say, we remain in a bear market for an extended period, it may impact overall sentiment.
That may have impact on whether the new investor addition or topping up of amount by the existing investors also. But I feel positive that this time, a good part of our growth is structural in nature and not completely cyclical. Another interesting thing from our interaction with the distributors and investors, the one thing we notice is mutual funds have performed substantially better than what investors have witnessed in their own portfolios where they've invested directly. And they can clearly see the comparison and the advantage of investing through professional managers like us. I think this will also keep us in good stead and will help the industry in building more trust among the investors that this is a better vehicle than doing on your own.
Great. Sir, sorry to just one last question, if I could squeeze. For the December quarter investor addition, is it that the sort of this 20% drop was more in fintechs versus the NDs? Anything qualitatively that you can call out?
I don't have that handy. But I mean, the industry, as I said, I mean, in one calendar year, I mean, the total number of unique investors four years back, four and a half years back, I remember, was 2 crore. And in one calendar year, we added more than 1 crore. As an AMC, we have added 40 lakh new customers in the last 12 months or so. I mean, these are phenomenal numbers. I also keep thinking that one investor addition, but too, a big opportunity for us is also to ensure we get more allocation from the existing investors. The industry has done a very good job in spreading the word about Mutual Fund Sahi Hai , investing through SIP. But have you invested the right amount? Do you need to invest more to meet your goals? I think there's a lot of potential for us.
As an organization, we are putting a lot of effort. As an industry, we are putting a lot of effort on that. I don't know if you have noticed, I mean, some of the media channels where our next, I would say, target for Mutual Fund Sahi Hai is that, "Are you investing rightly? And are you investing the right amount that you need to invest?" There's a lot of potential to get more money from existing investors also.
But Jayant, what number has dipped 20%? Because unique investors have grown from 5.01 crores to 5.26 crores year on, sorry, quarter on quarter.
Yeah. So I was seeing in the September quarter, we added 3.2 million new unique investors in the industry. And December quarter, we added 20.
So you just slowed down by 20%.
Incremental addition, yes. Incremental addition, yes.
But incremental, so you're talking about growth on growth is not happening. Growth on growth is happening at a slower pace.
Yes, yes. So yeah. Okay, sir. Thanks for asking.
At that pace, I think unique investors will beat Indian population.
Thank you.
Thank you.
Thank you. Next question is from the line of Saurabh from J.P. Morgan. Please go ahead.
Sir, just one question. Sir, basically, just on this SIP and the net new money in equity, given that Nifty return is now in the mid-single digits, and now if this market continues like this, probably FD returns could start becoming better than equity, at least in the one-year view. Do you think there's a case that the net new money accretion in the industry and the SIP accretion starts to tone down from here?
I mean, kind of I answered before, but also there's a lot of opportunity for us on the fixed income side, right? I mean, if you think that, I mean, where the interest rates are, there could be investors who want to allocate some bit to fixed income also. Last two, three years, because equity markets have done so well, investors have allocated, I mean, a larger proportion of their money into equity funds. But there are hybrid funds. We have asset allocation products. We have fixed income products. And I'm sure there is an opportunity for us to position ourselves for that allocation also.
Sir, my limited point is basically if, let's say, t hat I think if you have an extended bear market, that may have some impact. But what, as an industry, we have been trying over the last five, seven years in particular, is to educate investors that you are investing for the long run. I just talked about 30 years of HDFC FlexiCap Fund. And what we try to showcase is that there have been many, many, many cycles: economic cycles, business cycles, profit cycles, political cycles. And across all of those periods, if you just stayed invested, what kind of returns you have got over a period of time? What kind of experience you had in terms of compounding your money with a disciplined investing?
And I'm hoping that, I mean, as the entire industry is making these efforts, I'm hoping that investors take a more longer-term view and don't get swayed by the volatility. But of course, I mean, I take your point. There are a lot of investors who come in the last three, four years. They haven't seen a severe correction. First time they have seen some bit of correction in the market. And we have to wait and watch for their behavior in this cycle. Yeah.
Okay. Thank you.
Thank you. Next question is from the line of Mohit Mangal from Centrum Broking. Please go ahead.
Yeah. Thanks for the opportunity and congratulations on a good set of numbers. Just one question. So, I mean, we have seen the SIP discontinuation rate to be high in the industry. So just to get a sense, say, for HDFC AMC, were the ticket size for SIPs less than, say, 5,000, or was it a higher ticket size, say, or more than 25,000? Any color on that would be very helpful.
Sorry, I didn't get that. You're asking for the ticket size of the SIPs?
Yeah. SIP discontinuation rate, I mean, obviously, we would have seen something for the quarter, right, for the company. So just wanted to get a sense of the ticket size of those SIPs. Were they higher, say, greater than 25,000, or were they less than, say, 5,000? Just wanted to get a sense of that.
We mentioned earlier that you look at the total number of SIP accounts, and then you look at the new addition and the cancellation. This is not really so material as you are making out to me, and also, as I mentioned, that we don't give the SIP number. We give systematic transactions, which include both SIP as well as the STP. STP is a systematic transfer plan.
Yeah. No, I mean, I just wanted to understand, as you know, I mean, we are seeing in the industry that discontinuation rates to be high. So, I mean, just wanted to get a sense, as you know, why, I mean, are the ticket sizes a concern, or basically, it's just the market returns? I mean.
There are many factors. Somebody can start with, let's say, in five different funds, and then, depending on the view, they may change. I mean, they may add another two funds and stop SIP in the existing two funds, right? Now, those two where they have stopped will go as cancellation. Those two where they have started the SIP will go as new. It could be the same fund house. It could be a different fund house, so there are many factors at play.
Okay. Thanks for the thanks, and all the best.
Thank you.
Thank you. Next question is from the line of Priyanka from Triton Capital . Please go ahead. Priyanka, may I request to unmute your line and proceed with your question? No response? We move on to the next participant.
Hi. Can you hear me now?
Yes, we can.
Yeah. So my first question is that what is the strategy for attracting passive, especially EPFO flows, considering they are the biggest investor in this segment? There was an EPFO tender in 2023, which was open to private AMC players also, but I guess we did not win that. So is this tender up for renewal or any new talks on getting some share of these EPFO flows?
As and when that happens, we will consider that. It will surely be, I mean, we will surely consider that as and when it comes back for tender.
So is there a when will this tender come up for renewal? Is there any particular date, a periodic tender, or anything?
Everybody will come to know at the same time. So I don't think we have any—
Okay. Okay.
Yeah.
Okay. Next thing, just there was this question on employee expenses earlier also. So I'm just looking at the employee expenses for the last nine months, okay? The employee expenses have gone up 9% compared to nine months, the previous period. But our branches have increased that by 25. So is this the rate that we are looking at, that the employee expenses goes up by 9% to 10%, assuming a branch expansion? Or how is it that we take into consideration for employee expenses?
I'll just clarify. The employee expenses is the total expense you're looking at. That has a component. The ESOP cost has a non-cash component of employee expenses. So for the previous nine-month period, that was INR 37 crores. The same number for this nine-month period currently is INR 17 crores.
Okay. Okay.
So if you take that off, then you'll see a reasonable increase in employee expenses.
So what is, on an annual basis, considering this 25 branch increases, what is the employee expenses increase that I should look at for my modeling purpose?
So we don't give out guidance specifically as a general matter. I think employee expenses across the board, as you know, is the financial services sector. And we will do what is appropriate given the business cycle where we are in for employees when we look at costs for next year. We've always been very prudent and rational on our costs, whether it's employee expenses or other costs. At the same time, if we have to invest in people and technology and network, etc., we'll do it at the right point. Again, to clarify, and we did mention this in our previous quarter's call, when these branches are, while they are the offices, as we call them, are still small offices manned by a couple of people, it's not like a very material from a cost point of view or a people point of view that it really changes it.
Of course, you have to man the branches, etc. But it's not like a material increase in cost because of 25 new branches or.
Okay. Yeah. Yeah. Yeah. Thanks, Sir. That's all my time.
Thank you. Next question is from the line of Bhavin Pande from Athena Investments. Please go ahead.
Hi. Good evening. Am I audible?
Yeah.
Congratulations on a good set of numbers. So, sir, how do we look at protecting fund performance in a down cycle if we were to extrapolate this kind of scenario, planning out maybe for a longer horizon? And secondly, again, not going too granular on flows side, have we seen any reorientation both from direct and non-direct channels in terms of allocation towards funds where belief is that certain sectors overheated or maybe performance might not come? So they have reoriented to other strategies which had not done for maybe the last couple of years?
Yeah. So we have seen some bit of change in terms of the categories that get more flows. While we try to educate as much as possible that, I mean, investors should not have a recency bias, don't look at the returns of last six months, 12 months, or so, and then allocate your money accordingly. Focus on the larger goal planning, asset allocation, and then the fund selection. Having said that, the recent performance has some implications, while industry tries very hard, as I mentioned earlier, to educate investors to ensure that they invest from a longer-term perspective. What was your other question on?
How do we protect?
Actually, I mentioned it earlier that, in fact, in the presentation, Chirag was showing that when you look at the number of stocks that have fallen from the 52-week high versus, I think, if you look at the fund performance or if you look at, I mean, the alpha that has been generated by several funds, I think fund managers have done a very good job during this period of drawdown.
Okay. And so on macro fronts, given the high-frequency indicators pointing towards maybe an extended period of higher interest rates, so would we sort of ramp up our efforts towards scaling up the debt business as well, barring the fact that equity might not do well, again, just purely from a debt perspective?
No, I mean, we have full booking of products to meet every need of the investor. Having said that, our message to investors has been that they need to think from a longer-term perspective. I don't think that they need to stop the allocation because equity markets have not been doing well over the last few months or may or may not do well in the next few months. I think it's about the allocation. I'm sure in several of the presentations, people from our industry show that if you missed out on a few good days or a few weeks of, let's say, up cycle, you miss out on a very large part of the market. And that's why it might sound like a cliché that it's the time in the market and not the timing that really adds to the wealth creation.
And over the last couple of years, this is what I think industry has done very well in delivering this message that you need to invest in a very consistent and disciplined manner and don't get swayed by the volatility but actually take advantage of the volatility. Over the last few months, we feel very positive looking at the investor behavior, and I feel hopeful. I mean, I feel that investors should continue to invest with a long-term horizon.
That was helpful, sir. Good luck to the entire team.
Thank you so much. Thank you.
Thank you. Next question is from the line of Lakshmi Narayanan from Tunga Investments. Please go ahead.
Hi. A couple of questions. First is that what has been our market share growth in or how are we seeing growth in the hybrid and balanced advantage funds when compared to the market? Are we growing faster, or do we have any product gaps there?
No, I think we have been a pioneer in that category. Our Balanced Advantage Fund is the largest actively managed equity-oriented fund in India, hybrid fund, dynamically managed. I mean, current AUM would be like an excess of INR 90,000 crores. And across the board, whether it's the hybrid equity, conservative debt product, asset allocator fund, multi-asset fund, there are many products that we have got to meet various kinds of needs of investors and our partners. Historically, we always had a high share in that segment, and we continue to build that portfolio. In terms of product gap, I don't see now equity. I think almost all the products which are allowed as per SEBI categorization, we are already present.
Right. The second question is related to the VWAP rule or some kind of contours of some certain things that came up by either Ananth Narayan or SEBI . Does it actually affect you how you have actually taken up that? Because that, I understand, affects mid-cap and small-cap in particular, and that we have a large mid-cap and small-cap funds. So can you just tell more about that? Is it actually becoming difficult for you to manage large sums of money in those schemes because of this rule?
No, I have not heard that from our fund managers. And by the way, I mean, we at AMFI and regulator, we work very closely. I mean, SEBI has always talked about the co-creation of regulation and best practices. Everything that we do is to enhance transparency. Everything that we do is to build more trust in the product. And then we work very, very closely with the regulator from AMFI's side.
Thank you so much.
Thank you. Next question is from the line of Kunal Thanvi from Banyan Tree Advisory. Please go ahead.
Hi. Thanks for the appointment, and happy New Year to the team. I had two questions. One was on regulations like in 2023, there was a lot of talks about TER from a scheme-based to fund-based. Anything that you've heard on that incrementally from the regulator in your sense of the same? Second question was in terms of last two years being very good for the industry as we've been talking about in terms of growth, SIP, growth in the unique investors. What are the key risks that you see from here on in the business, both medium term and long term? If you can talk about these two with the details.
Thank you, Kunal. And I wish you too a very happy New Year and wish everybody on the call a very, very happy New Year. On the TER, in fact, I've been stating that the telescoping structure, especially in case of equity-oriented schemes, does have an impact on the TER. And the current formula incorporates this mechanism, and its effects have been evident over the last couple of years. So in our opinion, further regulatory intervention may not be necessary to pass on the benefits of the scale to the investors. The scale benefits have been passed on to the investors over the last couple of years. The rest of our business, of course, because I mean, if you look at our AUM, the growth consists of two things. One is the mark-to-market. The second is the flows.
If markets, I mean, don't do well, which is the case, let's say, last couple of weeks, it impacts our AUM, right? I mean, if, let's say, this kind of market trend continues for an extended period, it may also have an impact on the flows. While we believe that a good proportion is coming in the form of systematic transactions, and that should continue. And it may offer other opportunities to look at fixed income and some of the other categories. But yeah, that would be one of the key risks given our business here.
Sure. Thank you so much. All the very best.
Thank you. Next question is from the line of Lalit Deo from Equirus Securities. Please go ahead.
Yeah. Hi, sir. Congratulations on a good set of numbers. So there's two questions. One was the non-cash charge which you're talking about in the employee expenses. So right now, we have the existing plan which is going on. And so for next full year, do we have any new plans that are there in the pipeline in terms of outlook on the non-cash charge?
We haven't discussed that so far. Yeah.
Okay. So, answer just lastly, when you're talking about the systematic transactions, so can you just give us a color on how much would be the SIP book and how much would be the STP book on a qualitative basis?
Lalit, we don't give that split yet.
Sure, sir.
Thank you.
Thank you very much. Next question is from the line of Ajay Jain, individual investor. Please go ahead.
It's accounting.
Ajay, sorry, we were not able to hear you. Can I request you to repeat your question from the beginning, please?
Sir, this is regarding accounting entry. Can you explain other income? There has been a big difference in quarter two and quarter three.
Sure, sir.
What constitutes other income in your accounting?
Sir, largely other income is what we earn on the investments we have made from our balance sheet. The movement that you see between the September quarter and the December quarter is largely on account of the equity mark-to-market loss of the investments that we have to make. Those investments are largely due to the SEBI skin-in-the-game circular, which requires the AMC to put its own balance sheet capital into its own funds in a prescribed formula. Since the markets were lower in the quarter, there is a mark-to-market loss on the equity investments of the fund.
Okay. Can I conclude it? What I've understood of it is that if the market increases, the value of the shares increases, then you have a better margin in other income and vice versa. Am I supposed to?
Yes, sir. Yes, sir. So we have to mark-to-market our investments.
Mark-to-market. Fair. Got you, sir. Thank you. Thank you so much.
Thank you.
Thank you very much. Ladies and gentlemen, that was the last question. I would now like to hand this call over to Mr. Navneet Munot for closing comments.
Thank you so much. I wish you all a very happy Makar Sankranti Pongal, and of course, wish you and your loved ones a very happy New Year. Thank you so much.
Thank you very much. On behalf of HDFC Asset Management Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.