The Hindu Business Line : `Service is a big differentiator' — Mr V. Shankar, Managing Director, CAMS

If you have invested in mutual funds, chances are you have experienced CAMS (Computer Age Management Services) capabilities first-hand. With a client list that includes the majority of private sector funds, CAMS processes about six out of every 10 fund transactions put through in India. CAMS also provides a suite of online information services for distributors and fund houses. What has CAMS done to make fund investing easier for investors? The company's Managing Director, Mr V. Shankar, talks to Business Line and shares some unique insights on the workings of the Indian fund industry.

Excerpts from the interview:

How different are your services for mutual funds from those offered by the registrar for a company?

The sales transaction in a mutual fund is an ongoing process, whereas in a company it is a one-time event. In a mutual fund, servicing is not an administrative chore; it is meant to provide a competitive edge to the fund house for marketing its product.

At times, the quality of customer interface has actually driven customers to choose one fund over the other, regardless of returns. In the developed countries, where funds do not offer very different returns, service is a big differentiator. In that sense, the word "transfer agent" is a misnomer when used in our context; what we do is a sales and distribution function.

The infrastructure required to provide transaction processing services to a mutual fund is really elaborate. We handle the whole chain of activities designed to reach a product to a customer, collect the sales proceeds and receive feedback, which is transmitted back to the fund. This is much like the distribution chain that a FMCG company, such as Hindustan Lever, runs to reach out to its customers.

How much have you improved transaction times for fund investors over the years?

When the first few open-end funds were launched in 1994-95, the comparable products were close-end funds. The regulatory requirement was 60 days. If the customer wrote to you with a service request, he would forget about it for 30-45 days, it would take that long to get a response! But the first open funds that started out at that time — Alliance, Birla and Pioneer looked at service as a differentiator. So, we agreed on two- or three-day transaction turnaround time for most services. In 2000-01, debt funds took off in a big way. Their investment cycle was shorter and this drove down transaction times to T+1 or T+2.

When cash and liquid funds took off, companies began using funds for treasury operations. This required transactions to be processed across the counter.

Today, the most prevalent cycle is T+0. That is, requests that come in by 2 pm are likely to be processed the same day, with the transaction through by early next day. But transit times may slightly lengthen transaction times at the customer's end.

You have enabled many transactions through the Web. What proportion of your customers has adopted these services?

We offer Net-based services to AMCs, to distributors, and also to investors. Use of these services is extensive with distributors and AMCs. But a negligible percentage of the transactions with investors happen through the Net. A large proportion of the mutual fund investors do have access to the Net, as we cater to several medium and high net-worth investors.

Many of these investors use Net Banking, but do not prefer using the Internet for mutual fund transactions. I think the process of enrolling for a Net-based MF service is complicated.

This process happens unobtrusively with a bank, when you set up a new account. The second factor is that banks have always worked on the principle of self-service.

But in a mutual fund, especially if you are a big investor, the distributor does the legwork for you. So, you have no incentive to transact through the Net.

As debt returns dwindle, fund costs may influence returns. What have you done to cut servicing costs?

Our fee today is a fourth of what it was three-four years ago and the costs will keep coming down.

There are conflicting influences on our costs. On the one hand, since we handle transactions on a real-time basis, we need to build in a lot of redundancies into our infrastructure. We cannot tell a company, which needs a crore of rupees in its bank account today, that our network is down and so they will have to wait. We need back-ups and this drives up costs.

Our cost structure depends on transactions, rather than the assets. And transactions (for the fund industry) have grown much more rapidly than assets in recent years! On the other hand, the growth in assets has helped bringing in the benefits of scale. We always have three-four projects going on within CAMS, which look at specific processes with the objective of cutting costs.

What are the ways to cut fund costs?

One aspect is that there is excessive and unnecessary investor communication. I am not saying the reports that funds mail to investors are unnecessary; I am saying that the duplication is unnecessary.

If one person holds several accounts with the same fund, he gets the same mailer several times over.

What is more, about 40 per cent of the investor accounts are inactive or zero-balance accounts.

So you actually need to service only 60 accounts out of 100, but you are servicing all 100. If this duplication is done away with, it would really cut servicing costs.

Would you say Indian investors transact more frequently on their mutual funds than those overseas?

Yes, if you look at the industry as a whole, but this is because the proportion of equity money in Indian fund assets is very low.

Overseas, there is a channelling of retirement money into equity funds through savings products such as 401 Ks. This lends stability to the fund assets.

Here, there is no such channelling and the bulk of assets are made up of money-market products.

Typically, investors in equity funds in India transact just as often as those overseas. An equity investor transacts about three times a year, a debt fund investor five-six times a year. But investors in liquid funds put through 40-50 transactions a year. Equity assets, even in India, are very stable.

Does the composition of the fund industry's assets have a bearing on costs?

Yes. It is the predominance of money-market and cash products which is driving down costs. Actually, corporate customers who invest in money market funds should be happy even with a 1 per cent return; that is 1 per cent more than what they get on a current account!

But the situation is so competitive the AMCs have several schemes that actually do not make any money for them. With money-market products picking up over the past few months, these pressures will only intensify.

Some fund houses have been expanding outside of the big cities into smaller cities and towns. How will you service these centres?

We are very clearly focussed on the mutual fund industry and depend on it for growth.

The fund industry now is quite dependent on corporate money. In the long term, this is a cause of concern and we do need retail money.

On our part, CAMS is doing its bit to support the expansion plans of funds by facilitating transaction processing. Over the past seven-eight months we have added 30 new centres to the existing base of 20 locations. We intend to further expand to 60-65 centres within the calendar year.

Many of these locations are remote and record very few transactions as of now. But we are hoping that by making this alternative available, we will be able to draw investors.

We are saying that all you need to do is to walk into CAMS centre and you will get exactly the same facilities that you would get anywhere else in India.

We do not expect this investment to pay back in the next two-three years. But we expect it will help over the long term.

Do you see an expansion in the investor base of Indian mutual funds?

Yes. About a million investor accounts have been added since last August to the existing base of four million.

Of course, it is difficult to be sure if these accounts represent new investors coming into mutual funds or if these are existing investors opening new accounts.

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