HDFC Asset Management Company Ltd (HDFCAMC) Q1 2022 Earnings Call Transcript

HDFC Asset Management Company Ltd  (NSE:HDFCAMC) Q1 2022 earnings call dated Jul. 16, 2021.

Corporate Participants:

Simal Kanuga — Chief Investor Relations Officer

Piyush Surana — Chief Financial Officer

Navneet Munot — Managing Director and Chief Executive Officer

Analysts:

Shailaja — Concept Investment — Analyst

Aditya Jain — Citigroup — Analyst

Kunal Thanvi — Banyan Tree Advisors — Analyst

Prakash Kapadia — Anived Portfolio Managers — Analyst

Prashant Kothari — Pictet — Analyst

Prayesh Jain — YES Securities — Analyst

Piran Engineer — CLSA — Analyst

Anshu — Edelweiss — Analyst

Saurabh — J.P. Morgan — Analyst

Nitin Jain — Fairview Capital Partners — Analyst

Madhu Gupta — Quantum Asset Management — Analyst

Venkatesh Sanjeevi — Pictet Asset Management — Analyst

Mukherjee — — Analyst

Utkarsh Solapurwala — DAMOS Capital — Analyst

Hiral Desai — Anived Portfolio Managers — Analyst

Kunal — Bayan Tree Advisors — Analyst

Kapil Agrawal — Itus Capital Advisory — Analyst

Franklin — Equentis Wealth — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Q1 FY’22 Earnings Conference Call of HDFC Asset Management Company Limited. [Operator Instructions]. From the management team, we have Mr. Navneet Munot, MD and CEO; Mr. Piyush Surana, Chief Financial Officer and Mr. Simal Kanuga, Chief Investor Relations Officer. I now hand the conference over to Mr. Simal Kanuga, who will give us a brief, following which we will proceed with the question-and-answer session. Thank you, and over to you, Mr. Simal.

Simal Kanuga — Chief Investor Relations Officer

Thank you so much. Good evening, everyone, and thank you very much for getting on to this call. Our presentation is available on our website as well as that of the exchanges. As usual, we’ll start off with an update on the industry and then follow it up with our Company. We’ll open it up for questions after that.

The first quarter of the current financial year has seen healthy inflows into equity-oriented funds. As against an outflow of INR84 billion in quarter ended March ’21, this quarter saw net inflow of INR251 billion. We have seen reversal in trend from the month of March ’21, and that continues as we speak. The interesting thing that we have observed is gross equity flows. The average monthly gross flows for the financial year ended March ’21 was INR237 billion as against that average monthly gross flows for the first quarter of the current financial year was INR337 billion.

Average monthly reductions which were at INR290 billion in last financial year dipped to INR253 billion in this quarter. Net fund saw outflows of INR20 billion, while liquid fund witnessed inflows of INR95 billion. Others, which includes ETF, Arbitrage funds and Funds Investing Overseas, continue to see healthy inflows. Individual folios for the first time has crossed 100 million mark and is at 102 million as of June-end. Individual AUM is INR18.3 trillion with 70% of that in equity oriented fund. B-30 AUM continues to be at 16% of the overall industry AUM and 27% of equity oriented AUM. SIP flows as you would all know, for the month of June 2021 was INR92 billion.

We will now move to our Company. We closed the quarter with AUM of INR4,187 billion, market share of 12.4%, with quarterly average AUM of INR4,169 billion, market share of 12.6%. For reasons mentioned in earlier calls, we also present market share and AUM data ex ETFs. Our market share in quarterly average AUM, ex-ETF is at 13.7%, while of closing basis, it is at 13.6%.

In terms of actively managed equity oriented AUM, our market share stands at 12.9% on QAAUM basis and 12.6% on closing AUM basis. At this point, it would be pertinent for us to mention that we recently concluded a sectoral NFO banking and financial services fund. During the quarter, we had also launched asset allocation Fund Of Fund, which has seen healthy response. Our market share in debt is at 14.5% in QAAUM, and 14.7% in closing AUM.

In liquid, it is at 15.5% and 15.9% in QAAUM and closing AUM respectively. We continue to have a favorable asset mix as compared to that of industry in terms of higher proportion of equity assets; 57.9% of our AUM comes in from individual investors. Comparable number for industry is 53.7%. We continue to enjoy highest market share in individual AUM, and that stands at 13.5%. We process systematic transactions, adding up to INR9.8 billion in month of June 2021. The number we report is on actual cash flow basis. For the quarter as a whole, we received inflows to the tune of INR28.3 billion through systematic transactions.

Now, when we are on topic of systematic transactions, we would like to highlight an interesting campaign we ran in month of June. We called it Nurture Nature, and committed to plant a tree for every new SIP that got digitally registered in equity oriented strategy. We planned the campaign around the World Environment Day and planning for a couple of weeks. The results were truly encouraging and saw strong interest across the country. Our B-30 market share of 11.5% makes us a distant number too.

On the digital front, we are making some material changes. We have recently refreshed our mobile app, simple and powerful, and the feedback we are getting on the same is truly encouraging. I think rather than stating what all we are doing, it would be good for us to update all of you as and when we get done. You will definitely hear much more from us on this. We continue our journey in creating a state of the art digital infrastructure and leveraging on the same for enhancing customer experience. We now move to financials.

The Company has shown an improved performance during quarter ended June 30, 2021 as compared to corresponding quarter in 2020. Revenue from operation increased due to an increase in AUM, as well as, more remunerative mix with higher percentage of equity AUM. However, during the quarter, Company incurred additional business promotion expenses. Since such scheme related expenses are accounted for in the books of the scheme, they’re resulting in lower management fees to the Company.

The Company has also seen some dilution in margin due to reduction in total expense ratio in some equity schemes due to increase in the size. Other income was higher this quarter on larger book size and mark-to-market gain on investments. In Feb of 2021, a grant of ESOPs was made to certain employees, and the expense at employee benefit expense includes a pro-rata amortization of the fair value of these ESOPs as required under IND-AS accounting framework applicable to the Company. This is a non-cash charge, which is not tax deductible and is book value neutral.

In quarter one FY’22, this non-cash charge amounted to INR176 million. Besides this, employee benefit expense also showed increase as the Company resumed its practice of annual increment in employee remuneration after taking a break from the practice last year due to COVID-19 pandemic. The dis-allowance of certain expenses and higher tax on Company’s investment income have contributed to the increase in Company’s tax rate.

We now move to financial highlights for the quarter. The numbers for the quarter are as follows. The operating profit of the Company for quarter ended June 30, 2021 was INR3,652 million as compared to INR3,006 million for the quarter ended June 30, 2020, an increase of 21%. Profit before tax for the quarter ended June 30, 2021 was up by 23% to INR4,661 million as compared to INR3,804 million for the quarter ended June 2020. Profit after tax for the quarter ended June 30, 2021 was INR3,454 million as compared to INR3,024 million for the quarter ended June 30, 2020, an increase of 14%. Our operating margin now stands at 35 basis points for the quarter ended June 30, 2021 as compared to 34 basis points for the quarter ended June 30, 2020.

We would now like to open up for questions. As Neerav announced, we have both Navneet and Piyush here. We’ll be happy to take questions, if any. Neerav, we can open the line for questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Shailaja [Phonetic] from Concept [Phonetic] Investment. Please go ahead.

Shailaja — Concept Investment — Analyst

Thank you. My first question is, what is the target equity, non-equity mix for the next two to three years?

Piyush Surana — Chief Financial Officer

Hi Shailaja, we do not have a target as such, but you would have noticed that our share is better than the overall industry share. Our overall equity within the overall assets is higher than the rest of the industry, and we would love to see that going forward.

Shailaja — Concept Investment — Analyst

Okay. And my second question is like, you have been seeing a continuous decline in the market shares for over a year now. So what do you think is attributable for this fall? And what are we doing in response for the same?

Piyush Surana — Chief Financial Officer

So I think Simal has mentioned earlier — First of all, when you look at the market share, the more relevant data to be seen would be the data on the Slide 8, which is the market share excluding ETF, because you know that the ETF AUM has over 80% of the AUM from two AMC, then also from the government disinvestment program in the PSU Debt ETFs. But of course, we have seen a marginal decline in the market share at ETF AUM as well. But we wouldn’t read too much into it.

I’ll be worried, no, but we are definitely doing something to change it, no doubt about it, of course, yes. We’ll continue with our efforts and focus which we are hopeful and confident will result in a healthy market share. We believe that we have all the necessary ingredients in place. These things whether we like it or not are not a straight line. We do go through gyrations, as you are aware, there have been a period where some of our equity funds weren’t doing as well. There has been a significant improvement in the performance. Some of the fund are in top quartile or in top decile in the last one year performance. Even the performance over three and five years have started looking good and being recognized by our distribution partners as well as clients.

We have been making efforts on all counts including better connectivity with our partners to spread this message. You would have seen some of the other marketing campaigns recently. Simal talked about the Nurture Nature campaign that we did to — as an ESG initiative, but also it helped us in better digital adoption of our digital assets as well as increase in the flows into SIPs bringing new investors and new partners into our fold. And variety of other initiatives that are underway, which gives us confidence that over a period of time, you would see improvement in market share.

Shailaja — Concept Investment — Analyst

Okay. And by when do we see our market share getting back to 14%, 15% like it was earlier?

Piyush Surana — Chief Financial Officer

So as Simal talked about, I think about the — some of the product gaps or some of the categories where we were not fully present, I mean, as you know that from 2018 onwards, as per the SEBI classification, there are four categories wherein in equities we have been the largest player, in fixed income, we are present in almost all categories across duration and credit products, and of course, we have another larger player on the money market side.

But there are few categories like sector and thematic funds, passive products, both ETF and index funds, international funds, and of course some of the fund of fund. Some of these categories our product bouquet wasn’t full, but over the last couple of quarters, we have launched a few products. We are going to have some more products over the next several quarters. In fact, Simal can correct me that last quarter we had two NFOs which I don’t remember, when is the time HDFC AMC had two NFOs in one quarter. And both of them met with very good response from our partners and investors.

And we believe that all of these efforts, including the performance improvement would be noticed by the market and we should be able to see gradual improvement in the market share.

Shailaja — Concept Investment — Analyst

Sure. Thanks a lot. That’s it from me.

Operator

Thank you. The next question is from the line of Aditya Jain from Citigroup. Please go ahead.

Aditya Jain — Citigroup — Analyst

Thank you. On the equity AUM growth quarter-over-quarter [Indecipherable] have been decent. Can you talk about — qualitatively talk about what kind of market share you are seeing in flows, is it improving, roughly what reason if it isn’t?

Piyush Surana — Chief Financial Officer

So Aditya, we don’t give the number on the flows for the competitive reason. I think over the quarters or years, we have mentioned that, we have repeated that point. But overall, as you know that in the industry, flows have reversed. For nine-odd months industry was seeing outflows. Over the last three or four months, industry has started seeing positive flows. We believe that, I think over the next several quarters, equity flow should remain healthy.

Aditya Jain — Citigroup — Analyst

Got it. On the… [Speech Overlap]

Piyush Surana — Chief Financial Officer

[Speech Overlap] Specifically if you’re asking about our funds, I think some of our funds managed by the newer fund managers who joined us in last one or two years, they have seen good traction, whether it’s a new fund that got launched in December quarter, the dividend yield fund, the large and mid-cap fund, focused equity fund, multi strategy — multi-asset funds. I think some of these funds have seen a good traction over the last few months. And of course, we have been highlighting the fact that the performance has improved across the board and over a period of time we should see flows coming back across all categories.

Aditya Jain — Citigroup — Analyst

Got it. That helps. On the ESOP costs, could you tell what are the expected numbers for full year FY’22 and then ’23, if you just — I assume those would be pretty clear numbers, but just what they are from a modeling point of view.

Navneet Munot — Managing Director and Chief Executive Officer

So, hi you know — I’ll take this one. Last call we had talked about the ESOP and the structure of the ESOP which is vesting over three years.

Aditya Jain — Citigroup — Analyst

Right.

Navneet Munot — Managing Director and Chief Executive Officer

Right? And one third are vesting this year, so and the second vesting is after two years and the third, after three years. So the costs that you see are upfronted in the first year, because the first year has the full cost of the first tranche, half the cost of the second tranche, and one-third the cost of the third tranche. And since these were granted in February, so one full year gets over in Feb.

So this cost that you see in this quarter — yeah, logically speaking, you would see the same cost in the next two quarters, and the last quarter, it would dip. And then, the next two years would be a lower cost based on the vesting schedule that I just told. So, you could — kind of, based on this information do some calculation and figure out what would be the likely cost.

Aditya Jain — Citigroup — Analyst

Got it. Okay. And then just last thing. You were — you mentioned briefly about your own digital investment. I mean, could you talk about how significant they are, or how they are placed versus the new digital channels like — so apps like Groww and Paytm Money and INDwealth. So how important is the own acquisition versus through these third-party apps, which are getting good traction these days? Thank you.

Piyush Surana — Chief Financial Officer

So, I think Simal talked about our refreshed app, I ask you to use the app and have a feel for yourself. We’ve enabled a voice search on our corporate website, we’ve enabled API gateway for third-party integration with some of the tech-savvy distributors. We’ve got an RM build access on mobile solution to partners, I mean, I can go on. But as — I think I’ll say this that digital is not about culture, it’s about mindset, it’s about people’s participation and making it a way of life for your people.

It’s not only about technology, applications, portal or the app. But it’s about ingraining a culture of automation, a culture of customer centricity, removing every possible friction in their journey, moving from, I would say, KYC to UYC, I mean, Know Your Customer to Understand Your Customer, enabling our partners to scale up their business, how do we use data and analytics in every part of our business, how can we automate our processes.

So all I would say is that, I mean, digital is going to be the backbone of everything we do, entire ecosystem. I mean, even at the cost of repeating some of the things I mentioned, how do we serve our customer, how do we make their journey like as frictionless as possible. How do we on-board a new distributor, how do we serve those distributors, how analytics can help them in upselling, how do we deliver our content better, we make it a more contextual and more consumable.

So it’s about variety of things, and in making the organization future-ready. We have good digital assets, over the years we have been investing. We’ll be investing a lot more in that, as we speak.

Aditya Jain — Citigroup — Analyst

Got it. Thank you.

Operator

Thank you. The next question is from the line of Kunal Thanvi from Banyan Tree Advisors. Please go ahead.

Kunal Thanvi — Banyan Tree Advisors — Analyst

Hi. Thanks for the opportunity, and congratulation to the team for a decent set of numbers. And I hope team HDFC AMC is doing well and safe.

So I had two questions. The first question was on the SIP market share. We see SIP market share has been trending down. And just wanted a color on what is the driver in the market share fall? Is it the lower number of new SIPs or higher cancellations? Because what we’ve been seeing in the overall industry number is that there has been significant rise in the new search and the cancellation is way more plateaued. So how you know at HDFC AMC we are seeing this similar trend from the Company perspective?

Piyush Surana — Chief Financial Officer

So, of course, I mean, you would know, Kunal, over the years, I think we have been clearly a leader in the SIP. In fact, more than a decade back where SIPs were not as prevalent, I think we were one of the largest player in the SIP market. We have worked very hard as an organization to promote the concept of SIP in the mutual fund industry.

But I mean, over the years when you have a cycle, which is not in your favor and performance took a dip, we also saw a little bit of cancellation and less addition of the newer SIPs. As we discussed earlier when we talked about the flows coming back into equity, we expect the same thing to happen in the SIP book as well.

Couple of other initiatives that we have taken of late, which they also include how do we regain our leadership on the SIP front. That’s very, very critical component of our business growth strategy. It has always been, and will always be.

Kunal Thanvi — Banyan Tree Advisors — Analyst

Sure. I get it. The reason I asked this question, like — and maybe a follow-up on the same as you know, one thing that we hear across the industry is that the digital players, be it the Groww, the ETMONEYs of the world, the PhonePes of the world, they are driving the new addition in the SIP. In the last call, we had also mentioned — talked about it. So how are we placed [Phonetic] with these third-party apps in terms of — in terms of getting that new pie of the customers that are entering the market?

Piyush Surana — Chief Financial Officer

So every possible thing, I mean, working with all our partners who historically have helped us in building the SIP, whether they are the banks or the national distributors or the MFDs, large or small, as well as the FinTechs are another set of partners for us. So, we will be — we have been a partner with all of them. As I mentioned, that as performance if you guys [Phonetic] noticed, I mean, we intensify our efforts in better partnership with them as we improve our overall digital capabilities. I see no reason that even in the FinTech space why our market share should not be higher than where it is currently.

And couple of other things, I think Simal talked about the Nurture Nature campaign and we were very pleased by the response of investors and our partners. We will be taking more of such initiatives to ensure that we get our fair share of the SIPs. Apart from that, I would also say that it’s a lot about market making. One is, getting the market share from what we deserve as HDFC AMC, but also one can talk about the INR90 crores to INR100 crores of SIP flow. But looking at the overall savings pool, that number should be much larger over the next several years. And I think as a leading industry player, we will do whatever it takes to ensure that we not only work on getting the market share from the current book, but also work as a collaborator with other industry players, how do we grow that substantially.

So working with millennials, I mean, providing the best possible investor education and providing the best possible transaction tool to millennials, several of them over the last one year or 15 months we have seen have got lot more attracted towards direct investing. We believe that for long-term value creation, it’s important that they don’t take the focus away from mutual fund products, particularly through the SIP route. And whether it’s our marketing strategy, whether it’s our digital strategy, whether whatever initiatives we are taking on being more client centered, being more customer-centered, I think, and moving from a client services to a client delight or a customer delight, I think all of those should help us in helping the industry and expanding that market.

Kunal Thanvi — Banyan Tree Advisors — Analyst

Sure. Sure. That is really helpful. Thanks so much. I will go back in the queue.

Operator

Thank you very much. The next question is from the line of Prakash Kapadia from Anived Portfolio Managers. Please go ahead.

Prakash Kapadia — Anived Portfolio Managers — Analyst

Yeah. Thanks for the opportunity. I had two questions. You know, if I look at the last one year per se in the lockdown, the share of HNIs [Phonetic] as well as individual investors in cash volumes has been steadily increasing. It’s almost been like two-third of the overall cash share delivery volumes.

Typically, what happens when this changes? Because somewhere this direct route of investing, market has to rationalize. And when this course correction happens, do we see immediate flows to mutual funds coming soon or they come with a lag? What typically happens because we’ve seen so many cycles across markets. What typically happens? Do these investors come back to mutual funds and they have a larger role to play in mutual funds because some of them burn their fingers and they come back? Does it happen with a lag? That’s the first question. And secondly, if you could quantify the amount raised last quarter through NFOs?

Navneet Munot — Managing Director and Chief Executive Officer

Prakash, if I can interrupt, the question is on direct equity versus mutual fund participation by HNIs?

Prakash Kapadia — Anived Portfolio Managers — Analyst

Yes, because currently, we are seeing this euphoria, so what happens once this changes? Do we see more participation in mutual funds when this normalizes, once they burn their fingers? Do they come back? Do they come back with a vengeance? Do they come back with a lag? If you could give some color, that will help.

Navneet Munot — Managing Director and Chief Executive Officer

We have seen that, Prakash. I mean it’s not a first for the market. We have seen in earlier also, 2007/08 or ’99, 2000, or in ’91, ’92. Industry has gone through these phases. I mean there are always when moneymaking becomes a lot easier. The way it has been in last 12 months, 14 months, lot of people get attracted to direct investing. Over a period of time, they realize the benefit of professional management and giving money to mutual funds. We believe that, I think, over a period of time, we should be able to start getting that share. I’m talking about the industry as a whole and of course, for us as well. And I think these — one of the message that for industry as well as we would be working very hard is wealth creation, it’s not about like trying to make money on a daily or weekly basis but wealth creation. If you have seen some of our recent campaigns, it’s about what we are calling STP, a sound investment, plus time, plus patience. And we have clearly attributed that as an industry. I mean, if you look at some of our products, which have got 20 years to 25 years of track record and the compounding that has happened, that people who invested INR1 lakhs 25 years back, they have like INR80 lakhs, INR85 lakhs or INR90 lakhs or a INR10,000 SIP over a 25-year period has become INR8 crores or INR9 crores. As we go around and spread that message more strongly and make our UI, UX, which they see while trading in the secondary market or investing in IPO, when they see our ease of transaction as easy as that or as I would say, user friendly as that. Hopefully, I think we should be able to get that back. But globally, I mean, we are seeing the same thing. There are large number of newer investors who are entering the equity market or rather, I would say, capital markets. And yeah, I mean, as one of the savings option as long as we are able to provide a better experience and give our story better that in the long run it’s better you compound your money by giving money to proficient fund managers like us, I think we should be able to benefit from that trend. I mean the trend is very welcomed. Honestly, if you ask me, I mean, more than 10 million accounts have got opened in demat. I think these are — that just shows the interest in the capital market. It’s just that how our industry mix, our product is appealing to — I mean, our proposition is appealing to these investors and hopefully, we should also benefit from that.

Prakash Kapadia — Anived Portfolio Managers — Analyst

Right. And if you could quantify the amount raised through NFO during the last quarter?

Navneet Munot — Managing Director and Chief Executive Officer

So, I think in our asset allocated fund, it was around INR1,100 crores. In our BFSI fund, it was INR1,877 crores, if I remember correctly. Yeah.

Prakash Kapadia — Anived Portfolio Managers — Analyst

And lastly, Munot, you did mention about this cycle. So within the cycle, assuming, you know the cycle has to reverse and normalize sooner or later, so flows then come immediately. People realize, okay, I’m better off making 15%, 18% rather than making that quick buck and then losing everything. So does that happen with a lag in terms of these individual investors coming back to mutual fund or it typically takes its own time and effort once the market normalizes and corrects?

Navneet Munot — Managing Director and Chief Executive Officer

I think a part of this, what we are seeing this time is structural. Maybe I think some people think that they can manage and they can invest directly in stocks. I mean, there is a good experience they have got. Maybe they may continue. A lot of investors who have entered recently over a period of time, as they make money, they might give testimony to the professional fund managers and start refocusing on their own profession or their own business. I think that would be a better utilization of time on a lighter note. I think it’s a — we’ll have to wait and watch, I mean, what is that tipping point where the new mutual fund folios are greater than the new demat accounts. I mean, I’d just give you a data point. Between 2017 and 2020, if I remember correctly, our unique investors grew as like 70% or so in absolute numbers. And during that time, the demat accounts increased by like somewhere around 40%, 50%. So mutual funds were adding more unique investors than the demat accounts where people were entering the secondary market. Now in last one year — that 15 month or so, that has reversed. I mean, we have seen around 15% increase in unique investors, while the demat accounts, I mean, are growing at like 50% or so. But we have seen these cycles before. And as I mentioned, as long as our industry collaborates and the message that we have been delivering, Mutual Funds Sahi Hai, as long as we are able to spread that message, market is very large. I mean the under penetration is so much that there would be enough scope for us to grow as well.

Prakash Kapadia — Anived Portfolio Managers — Analyst

Thank you. All the best. Thank you.

Operator

Thank you. The next question is from the line of Prashant Kothari from Pictet. Please go ahead.

Prashant Kothari — Pictet — Analyst

Yeah. Hi. Thank you for the opportunity. I just wanted to understand the trend of the yields that we have seen. I mean, I understand from FY ’18 to ’20, it was the usual tier calculations with regulations. But why is it that the yields have not really gone up yet equity mix becoming favorable for us in the last quarter?

Navneet Munot — Managing Director and Chief Executive Officer

Are you talking about margin dilution?

Prashant Kothari — Pictet — Analyst

No, I’m talking about the yields themselves, the operating revenue, which is 49 basis points. Why it is not kind of going back to FY ’20 levels while the equity mix has surely become better?

Piyush Surana — Chief Financial Officer

I will talk about the margin compression a little bit. So, I think it’s a — I think over the years, we have mentioned that margins are a function of the asset mix that we have [Technical Issues] or money market. It’s also a matter of flow versus stock. And when I say asset mix, within the asset class also, so when you talk about the debt, credit funds versus money market funds where margins are distinctly different. In equity also, there are products where margins are lower. There are products where margins are higher. Some of the newer funds where money has been raised recently, payouts may have been higher. I mean the overall commission would have been higher versus the stock that we have, payouts would be lower. So it’s a combination of variety of things. Also, I think there have been some competitive pressure. You might have heard about some of the NFOs that have happened and the money has come at a higher cost, for the industry, I’m talking about overall. And we have to be cognizant of that fact. And it’s a fine balancing for us to look at growth versus margins when we play our game.

Prashant Kothari — Pictet — Analyst

Do you have any long-term view on where these margins would be after, let’s say, five years, 10 years?

Navneet Munot — Managing Director and Chief Executive Officer

So, I mean, Piyush would have mentioned earlier several times that we look at equities for like around 80 basis point or so. And fixed income, it used to be like mid-30s, but it has fallen because the proportion has changed. People have, I would say, a different view on interest rates now, as well as on the credit environment and money has been at the front end of the curve where margins are lower.

And of course, I mean, there is a bit of interest coming into the passive fund where margins are lower. I think over the next few years in India, we still believe that active funds will continue to grow and relatively, we have healthier margins than the industry. Even in the fixed income, the bouquet that we have, we believe that our margins can sustain where we are currently. And in fact, they were higher some time back, but we hope that at least we should be able to maintain where we are currently and we are exploring all options. I mean, looking at some of the categories where we are not present, I mentioned in the beginning, some of those products.

And we provide the exposure to domestic investors to invest internationally, etc., through international funds. Over a period of time, we expect that, yeah, our margins could be where they are. But I think, globally, if we see the way margins have been under pressure in this industry, with the move happening from active to passive and markets become more and more efficient, obviously, there would be some pressure and I think we cannot deny that. How will we respond? So, we will respond through, as I mentioned earlier, on variety of initiatives on the digital and automation side, how we build better operating leverage on that side and also exploring some other revenue streams.

As of now, almost our entire revenue and profits come from our own mutual funds products. There has been a very strong belief, which I agree that there is so much of a runway for growth in that space given the massive under penetration in India. At the same time, looking at the global trends and also changing taste of various investors, I think we would be open to look at what else we can do on the non-mutual fund side, which includes BMS and AIF where margins could be better. It’s on the drawing board.

Hopefully, we should be able to share over the next couple of quarters what we are thinking on that front. So on the core product, I mean the margin range that I gave you that has been the case over the last few years, we hope that we should be able to sustain, notwithstanding the competitive pressures that are emerging. But over a period of time, yeah, if you look at the global trends, then definitely India is on the higher side.

Prashant Kothari — Pictet — Analyst

Okay. Thank you very much.

Operator

Thank you very much. The next question is from the line of Prayesh Jain from YES Securities. Please go ahead.

Aditya Jain — Citigroup — Analyst

Yeah. Hi. Good evening, everyone. Firstly, on the — if I look at the equity AUM, sequentially, we have moved from something like INR1.66 trillion to INR1.72 trillion. This is just a growth of 3% on a sequential basis, where the market returns itself has been pretty strong in a market [Indecipherable] has given some 6%, 7% kind of returns or even higher. So does that mean that HDFC would have seen some outflows on the equity side?

Simal Kanuga — Chief Investor Relations Officer

Prayesh, the only thing is, I think, you are watching those numbers that you mentioned are quarterly average AUM. If you look at the closing AUMs, it has gone up from about INR1,654 billion to INR1,805 billion in the quarter.

Prayesh Jain — YES Securities — Analyst

Okay.

Simal Kanuga — Chief Investor Relations Officer

So if you look at Page number 9 of the presentation on the right-hand side, we have given the closing AUM number. And that would just indicate — so it basically, in terms of — if you look at INR15,000 odd crores in the quarter has been the AUM rank. When you’re looking at point-to-point market returns, you need to compare with this.

Prayesh Jain — YES Securities — Analyst

Sir, even if we look at that Simal, there still seems to be, especially considering that the market has seen such a sharp increase in flows, there seems to be some disconnect as to whether are we seeing lesser additions.

Navneet Munot — Managing Director and Chief Executive Officer

Yeah, we are — we are seeing obviously. We’ve been — and that is visible in the market share, right? So if you look at our market share number, if the market share is dipping. So what you’re stating is absolutely right.

Prayesh Jain — YES Securities — Analyst

Okay. And similarly on the liquid side, our market share is dipping sequentially as well. Any thoughts there?

Piyush Surana — Chief Financial Officer

We had a significant increase in our market share in liquid. I mean, when there was a crisis around March and April, obviously, money was to save here and we got our flows within the liquid fund. But as the corporate requirement of money has gone up over the quarters, I mean, the overall AUM in the liquid funds category has come down for us. And now our market share is more reasonable there. It would be — I mean it was exceptionally on the higher side last year.

Prayesh Jain — YES Securities — Analyst

Yeah. But I was talking more from — even from Q4 onwards, Q4 to Q1 also, our market share has dropped. So any specific reasons that you would like to highlight here?

Navneet Munot — Managing Director and Chief Executive Officer

Liquid is very difficult to predict. I mean, there is a short-term growth from corporate treasuries, institutions and some of the other investors. They keep changing in line with the situation in the money market and could be specific cases of couple of investors. I mean, they are not moving out on those particular days. Yeah.

Prayesh Jain — YES Securities — Analyst

Okay. Okay. And lastly, on the other income, there was a very sharp jump, that’s primarily on equity side or what was the reason for that?

Navneet Munot — Managing Director and Chief Executive Officer

The other income has gone up. Couple of reasons. We’ve got some mark-to-market gains on some portfolio. Besides that, this whole business of the Essel Group NCDs that we spoke about, that has been set to rest. We talked about it, I think, on the last call also. And so we made some gains by selling off lateral on that debentures. So that has also contributed.

Prayesh Jain — YES Securities — Analyst

Could you quantify the Essel part?

Navneet Munot — Managing Director and Chief Executive Officer

I don’t think we want to get into quantifying it.

Prayesh Jain — YES Securities — Analyst

Okay. All right. I was just trying to get the sustainability of the other income trend.

Navneet Munot — Managing Director and Chief Executive Officer

So on that, I wouldn’t kind of look at this quarter as something that one could extrapolate. There is certainly some which is likely to sustain because of the way interest rates are at this juncture. So, there is fair amount of one-off here. But beyond that, I don’t think we’d like to give any guidance.

Piyush Surana — Chief Financial Officer

But having said that, I mean, you can see our portfolios. I mean, we are 88.5% invested in mutual funds, which is primarily liquid in that product and 19.5% in arbitrage fund, which, again, I mean, you would know, where the prevailing yields are and remaining in debentures and tax free bonds. So, you can look at prevailing yields and you can look at your own estimates on that.

Navneet Munot — Managing Director and Chief Executive Officer

And also look at the fact that the dividend payment is coming up in the next few days, which will take some money off the books.

Prayesh Jain — YES Securities — Analyst

Got that. Thank you so much, sir.

Operator

Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead.

Piran Engineer — CLSA — Analyst

Yeah. Hi. Congrats on the quarter. I had a couple of questions. So firstly, regarding incremental margins being lower than back book margin. Now, that has been a story that has been playing out since October 2018. Where are we now in that cycle? Is most of the back book repriced downward and probably you will see maybe just a couple of quarters of downward repricing or is this going to be a continued trend for at least a couple of years?

Navneet Munot — Managing Director and Chief Executive Officer

So, hey, Piran, we’ve talked about this a few times before. And so this is going to last for some time and as I’ve always mentioned, it’s going to be difficult to project the rate and the time period for which this will happen. The back book, like we’ve talked in the past was accumulated in a different dispensation and the flows are coming at a different price. So till they merge at some point in time, this is likely to continue to happen.

Piran Engineer — CLSA — Analyst

Okay. But is it fair to say that more than half of today’s AUM has come, let’s say, in the new pricing dispensation era, like in the last two and a —

Navneet Munot — Managing Director and Chief Executive Officer

Piran, I don’t think we can kind of give you any more information than what we’ve already done on this.

Piran Engineer — CLSA — Analyst

Okay. Sure. No problem. And secondly, you mentioned about extra scheme-related expenses this quarter. Could you please quantify it?

Navneet Munot — Managing Director and Chief Executive Officer

No, not really, but some business development expenditure that we’ve started incurring, for example, things like SIPs and stuff like that. So that is some additional expense that has happened, but I don’t think we’ll quantify that. From a competitive perspective, it doesn’t make sense for us to do that.

Piran Engineer — CLSA — Analyst

Okay. Got it. And just lastly, in terms of — you were speaking about partnering with FinTechs and being — having your fair share of market share in that distribution channel, if you could just tell us how do commission rates look like in that channel versus say traditional distribution channel?

Piyush Surana — Chief Financial Officer

So some of them who have been garnering large amount of new SIPs, they all bring the money in the direct plan. In fact, they have the RIA mode, not in the ARN as mutal fund distributors. Some of them may be mutual fund distributors. It would be a mix of that.

Piran Engineer — CLSA — Analyst

Okay. But if they put in regular plans, are you’ll offering at par commissions or lower or higher?

Piyush Surana — Chief Financial Officer

At par I guess.

Piran Engineer — CLSA — Analyst

Okay. Fine. That’s all from my end. Thank you. And all the best.

Piyush Surana — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Anshu from Edelweiss. Please go ahead.

Anshu — Edelweiss — Analyst

My question has been answered. Thank you.

Operator

Thank you. The next question is from the line of Saurabh from J.P. Morgan. Please go ahead.

Saurabh — J.P. Morgan — Analyst

Sir, on the launches, how many more funds are you expecting to do this year, the NFOs?

Navneet Munot — Managing Director and Chief Executive Officer

So, we have talked about the categories where we would be looking at newer products launch. So among the core categories, multi-cap fund is something that we would be launching in some time. Among the thematic and sector, you would be expecting an MNC fund from us. On the whole passive side, there are a couple of products that we have lined up. The first to start this would be an Equal Weight Nifty Fund, and there are few more in pipeline at various stage. One international fund, I mean, that’s in the pipeline. So yeah, we would — we have our hands full for next couple of quarters.

Saurabh — J.P. Morgan — Analyst

But sir, I mean — for the full year, I mean, how much should we expect, four, five or higher than that?

Piyush Surana — Chief Financial Officer

I don’t know whether it’s five versus one. You have seen what one NFO can collect versus maybe many others. It depends on the — I think it’s more about which category of products there what kind of money can be collected. Yeah, I don’t think numbers mean that much, yeah.

Saurabh — J.P. Morgan — Analyst

Okay. Fair point. And sir on this direct part, one is if you can quantify what the IT budget at HDFC AMC? And second is any sourcing that you get from these platforms is part of that direct sourcing, or will it be part of that national distributors?

Navneet Munot — Managing Director and Chief Executive Officer

No, so platform that comes sort of into direct plan is part of direct only.

Saurabh — J.P. Morgan — Analyst

Okay. It’s part of direct. So how much will HDFC’s direct as in from your branches of that 46%?

Piyush Surana — Chief Financial Officer

So Saurabh, we have not broken down those numbers because it is like multi-channel. Some bit of it comes on our website, some bit of it comes through our physical branches and then after the RIAs, as well as the FinTech platforms.

Saurabh — J.P. Morgan — Analyst

Okay. But the FinTechs will be like — I mean, can you give an — I mean, a rough range of where that number will be? Will it be dominant part of this part or?

Piyush Surana — Chief Financial Officer

Of our current book, not dominant part, for sure, because I think the FinTech SIP creation is a more recent phenomena than an older one and our book is like much, I would say… [Speech Overlap]

Saurabh — J.P. Morgan — Analyst

No, no, sir, of the incremental — incremental, I was asking.

Piyush Surana — Chief Financial Officer

On the incremental side, no, I don’t think, yeah, not in value on it, yeah, numbers maybe.

Saurabh — J.P. Morgan — Analyst

Okay. And that technology IT budget will be how much, sir?

Piyush Surana — Chief Financial Officer

I’ll give you the amount of money, and as I mentioned, I think part of it is capex, part of it is revenue expenditure, part of it is like partner shares, part of it is like our own development. It’s just a combination of various things. So, I think I won’t be able to give you an IT budget as such within the overall expenditure, yeah.

Saurabh — J.P. Morgan — Analyst

Okay. And just one final question, sir. I mean, we have seen some of your competition pushing a lot very aggressively now into passive ETFs. And you have — Zerodha is now launching a passive ETF. And we’ve seen what they’ve done with the broking industry. So I mean, what’s your view on this passive business now? Would you be looking to expand this more aggressively? Or — so how will you think about this passive ETFs?

Piyush Surana — Chief Financial Officer

I think if you look at the overall size of the industry, it’s still small, and you talked about one player. I mean, we, I think mentioned in the last call, the more, the merrier. I think, the more participants will only help in expanding the market. The market is very small. I mean, all said and done, we still have like 2.5 crores unique investors in India in 1.35 billion people. We have set a very audacious, I would say, a mission for ourselves that we want to be the value creator for every Indian.

So, we have little over 5 million unique accounts. We think we have a very, very long way to go. Some of them will come in active funds, some of them will come in passive funds, some of them will come in solutions-oriented product. I think in India different households will have different needs. I think at our end, the way we are looking at business is not looking at the way, I mean, the asset managers would look at, okay, active versus passive or equity versus fixed income or mutual fund versus AIF, PMS, or within the distribution, direct versus with distributor, within distributors, banks versus NDs versus MFDs or RIAs or looking at T-30 versus B-30, so on and so forth.

I think at our end, the way we are thinking is like there are 10s of millions of savers [Phonetic] in India who are yet to get the right kind of product, which they can use for meeting their financial goals. As long as we are able to provide right kind of solutions to these people by understanding them better, working with our partners or working with digital platforms, over a period of time, we should be able to grow.

Surely, I mean, passives have grown tremendously. Globally, I think there is a lot of scope for that product to grow in India as well. In fact, we earlier mentioned about, we would also be launching couple of products to fill our product bouquet. But whether this will significantly dent the growth potential of the other segments of the business, the answer is no. Will it really expand the market? The answer is clearly, yes.

And I think I mentioned that line last time that large number of people in India are yet to meet the market. They don’t get up in morning, how do I beat the market today or in next six months and one year. So, I think we are very clear there. I think we are going to put customer at the center and how we can help them in meeting their financial goals, meeting their life goals. And as long as we are able to do that, what product and how we construct their solution is something that I think collaboratively we’ll all do in industry. And newer players will bring new innovation, whether in terms of product, in terms of delivery, in terms of providing different experience to investors, they are all welcome as part of the industry. We will all work together.

At our end, I’ll tell our mission is absolutely clear. We want to be the value creator for every Indian, and we believe that this product has a lot more potential to grow. And we need to reach out to lot many more investors than what we have reached out in last 25 years, 30 years as an industry.

Saurabh — J.P. Morgan — Analyst

Got it. Thank you, sir.

Operator

Thank you. The next question is from the line of Nitin Jain from Fairview Capital Partners. Please go ahead.

Nitin Jain — Fairview Capital Partners — Analyst

Hello? Can you hear me?

Navneet Munot — Managing Director and Chief Executive Officer

Yes, Nitin.

Nitin Jain — Fairview Capital Partners — Analyst

Yeah. Thank you. So based on the data that the Company has provided in the last three annual reports, so it seems that it is continuing to lose its distributors. So for example, in FY ’19, you had around [Technical Issues] plus distributors on your panel, which dipped to 70,000 in FY ’20 and now we’re down to 65,000. So like, I have asked this question before as well. But all I’ve got is that the Company values its distributors.

So just wanted to get your perspective on why people are leaving us compared to what the listed peers are reporting, an increasing trend of empanelled distributors?

Piyush Surana — Chief Financial Officer

Okay. I think they are back to more or less where we were in terms of number of those distributors. In between there was a trend where some of these distributors, if I remember correctly were moving to platforms like Prudent and NJ and all because, I think aggregating technology [Phonetic] and the other IT backbone is available, you get better service. So some of them kind of merged with these platforms. So maybe the number may have gone down, but then newer distributors are starting, and our numbers are there.

In fact, I’m happy to state that in our sector fund, the BFSI fund that we had more than 10,000 MFDs participated in that. So, I think we have a fair, I would say acceptance among that category of distributors.

Nitin Jain — Fairview Capital Partners — Analyst

Okay. No, the reason why I ask this is, from the time since SEBI has banned upfront commission, HDFC has been seeing a consistent decline. So does it have anything to do with that because the Company straight away passed on to the distributors?

Piyush Surana — Chief Financial Officer

No. So, I think — see, there are two ways to look at it. One is basically the 70,000 kind of a number that we are talking is the entire universe. The active distributors, the list is obviously much smaller. And I think what Navneet referred to saying that in our latest BFSI, NFO, we saw more than 10,000 distributors participating, which is a very, very large number. So nothing of that sort. So in terms of, if you look at — and I think that is the point that Navneet made, some of the smaller distributors have actually moved to platform, and for reasons of efficiency and cost benefit analysis.

Nitin Jain — Fairview Capital Partners — Analyst

Okay. And the other significant trend that seems to have played out in the last couple of years is the rise of passive investing. So if you see, they have risen from somewhere around INR8,000 crores to INR9,000 crores. In 2010, they are close to INR2,00,000 crores to INR2,500,000 crores like the entire passive AUM. So, I’ve tried to get the Company’s perspective earlier as well, but it was kind of, the only response was that, no, it is still a very small part of the entire industry. But if you see the last three years, it is the fastest-growing section of the industry as well. And some of our peers have like 35%, 40% market share in that. So what is our strategy? I mean, do we want to wait some more time and then take aggressive, corrective actions or how is the Company planning?

Piyush Surana — Chief Financial Officer

So let me do one thing. I’ll give you some data and then Navneet can give the strategy part of it. So the number, if you look at as of June end, for the passive ETFs is INR3,20,000 crores. Now out of this INR3,20,000 crores, the two government, quasi government owned entities, they add up to close to INR2,00,000 crores, right, slightly — actually more than INR2,00,000 crores. And that is basically Government of India’s EPFO money and some of the other provident funds which tend to mirror image the EPFO. So the large part of that money where we talk about, out of INR3,20,000 crores, INR2,00,000 crores goes to these two asset management companies. And as of now, all of that money has been allocated to both of those in ratio of 3:1. That’s point number one.

Second is — so this is — others close to INR40,000 crores is the liquid debt and the Bharat Bond ETFs, and out of that INR40,000 crores, close to around INR34,000 crores is the Bharat Bond ETFs, which is again, government owned entities, the PSU, fixed income capital raise, which has been done through one asset management company. We did not participate in that bid for economic reasons.

Then you have some bit of money in the CPSE and the Bharat 22 ETF, again, that was government disinvestment program. Close to around INR22,000 crores has been from that. Now government has come out and made a statement. So the Divestment Secretary has made a statement that this would no more be the preferred route of further disinvestment.

Then there is a gold ETF which is close to around INR16,000 crores. We have a fairly healthy share there. We are the second largest player [Phonetic] in that space. So if you look at all of these numbers, so, yes, the number seemingly looks very large. Having said that, if you kind of break those numbers and look at the target market segment, does not necessarily really kind of fit into the way we look at things. Now, when you look at the retail participation in passive, and that tends to happen through index funds rather than through ETFs, it is close to around INR25,000 crores of AUM in index funds. Out of that INR25,000 crores, we have total — we have a AUM of INR5,600 crores. So, we are literally kind of more than one-fifth of that — of that market.

And as Navneet mentioned earlier, we recently got an approval from the regulator to launch an Equal Weight Index Fund, which you would — we would be launching it maybe some time during the course of this quarter. Navneet can throw more light on the strategy part.

Navneet Munot — Managing Director and Chief Executive Officer

No, I think you talked about it and I mentioned earlier that there would be growth in both active as well as passive as we see India evolving. Even globally, I mean, we mentioned earlier that passives have done very well in terms of incremental growth. But my sense is that over the next few years, even globally, it may be a little contrarian view that I think active is going to make a strong comeback. In India, I think there is strong growth potential on both sides, passive as well as active.

I think, even at the cost of repeating maybe second or third time I would say that the way we would look at ourselves is not like active versus passive or — I mean in those terms, but like putting the customer at the center and then using our capability as an investment manager, right? I mean, we can do active, we can do passive, we can do — I mean, whatever it comes to investment management, put that along with our risk management, and the overall product capability.

And then using the power of data and analytics and providing the right kind of contextual, consumable content, whether it comes through any kind of channel, whether the traditional channel or the digital platform, the idea is that how do we reach out to more number of savers and provide them the right kind of solution with the help of our partners or the digital platforms. That’s the idea. If it means like maybe investing a little bit more in passives than what we have done historically, we will surely do that.

Operator

Nitin Jain, you are on mute. May I request that you need to…

Nitin Jain — Fairview Capital Partners — Analyst

That’s it from me. Thank you.

Operator

Thank you very much. The next question is from the line of Madhu Gupta from Quantum Asset Management. Please go ahead.

Madhu Gupta — Quantum Asset Management — Analyst

Thanks for taking my questions. So basically, I wanted to know whether HDFC AMC has any scope for further reducing its — I mean, for driving operating leverage benefits going ahead? And if that is so then, in which areas do you see the savings coming in from?

And the second question would be the latest regulatory — I mean, as per the new regulation as of new — under the compensation of the key management employees, at least 20% of that should be going to the mutual funds in which they are managing. So is that going to impact your employee costs in anyway? So any color on that?

Piyush Surana — Chief Financial Officer

On the first, I mean on operating leverage, I mean, the business, inherently the asset management business globally is known for its high operating leverage, right? I mean, a new fund manager at our end is, let’s say, managing INR5,000 crores or INR10,000 crores of asset that AUM doubles in next few years given our franchise. Would we have another fund manager for that? No, I mean, the same fund manager is managing that, the same set of branches, the same set of the overall cost which we have.

Of course, a part of it would be variable, let’s say, the money coming in from the distributor, there is a cost attached to it. But our margins, obviously, there is — I mean if you look at the overall margins, there is obviously a positive operating leverage. Having said that, I think Piyush has been highlighting it over the last couple of quarters that some of the cost reductions that have happened, particularly, I think the organization ensure that during the tough time of last one year, lot of cost rationalization happened. Some of those costs will come back as we start looking at newer growth avenues and expanding the market and launching the new products, investing in marketing and business development, investing in IT and technology, I mean, in the technology and digital, etc.

So some bit of costs will come back. Having said that, structurally, I mean, if your question is about the operating leverage, yes, inherently, this is a business with a very high operating leverage.

Madhu Gupta — Quantum Asset Management — Analyst

So the reason I’m asking is like, if you look at HDFC AMC, the cost is — I mean, as compared to peers you are already on the — I mean, quite low. So is there a scope for further reduction in that? Or is this the optimal, which you can reach? And, I mean, beyond this, there is going to be an increase. That’s the [Speech Overlap]

Piyush Surana — Chief Financial Officer

I think more important, Madhu, would be like how these flows kind of come back and build market action on the revenue side I think rather than on the — focusing on the cost side. I think in the last call, we mentioned that some of the cost reduction that we saw last year in FY ’21, yeah, 2021, they were on account of reduction in travel and business development some of the other overheads, etc.

Some part of this cost is going to come back. And we wouldn’t want to like hold that on, because I think we would like to invest and growing our business. So some of it may sustain, I think the cost rationalization that has happened as you use technology better. Some of it, which could not be spent last year, for example travel. I think would come back at some point in time, but structurally, I mean again repeating the same point, if you’re asking about operating leverage, yes, I mean it is there at a side, it keeps growing.

So for us more important would be, how do we grow the revenues and how do we grow the AUM.

Madhu Gupta — Quantum Asset Management — Analyst

Got it. And regarding the regulatory change, where now the compensation — 20% of the compensations should essentially been making funds which the [Technical Issues] — I mean, the key management [Indecipherable] are managing, so would that have any impact on your employee cost? Do you see any kind of [Indecipherable] from that change?

Piyush Surana — Chief Financial Officer

No, I think that, today in the AGM also our Chairman talked about it. He applauded, I mean, he praised the regulators for bringing this in and I mean he mentioned that we would be happy to implement. Of course, he talked about some bit of flexibility that can be given to the asset managers on how to implement it. But otherwise, I think even otherwise most of our employees as it is would have their money invested in the fund [Phonetic] also or in their own funds. So I don’t think it will dramatically change the way people look at their investments, and maybe [Phonetic] our employee cost not necessarily.

All I think the Chairman asked for was like, if some bit of flexibility can be given a younger employee may have a different kind of risk return expectations or a risk profile or let’s say different employees would have their own different financial needs. But otherwise in general, I think it’s a welcome move and he applauded it.

Navneet Munot — Managing Director and Chief Executive Officer

And to your pointed question will it affect our employee cost? No, it won’t.

Madhu Gupta — Quantum Asset Management — Analyst

Okay. Okay, that’s it from my side. Thanks.

Operator

Thank you. The next question is from the line of Venkatesh Sanjeevi from Pictet Asset Management. Please go ahead.

Venkatesh Sanjeevi — Pictet Asset Management — Analyst

Hi, thanks for taking my question. Just an general observation on the domestic mutual fund industry is that lot of products gets sold by distributors, based on the ten-year term performance, maybe one year or maybe maximum two years or so. What was done well in the recent past, easy to sell and get sold, even if you see the way international funds are getting closed now, the segments have done well getting closed, it seems to be that case.

So the question is what — how can this change? Can it — can other parameters like risk or turnover or other aspects of fund to be highlighted, are AMCs taking steps to sort of sell the products on things apart from just near-term performance. Do you think it is feasible to get some such structure of maturity over the industry as well?

Navneet Munot — Managing Director and Chief Executive Officer

So that’s a great point, Venkatesh, you have made that people focus so much on fund on the short-term side, rather than looking at the Investor Alpha. More important is how do you meet investors go, and how do you create the Alpha for the investors money over a long period rather than keep chasing last funding at our three years’ performance and there are number of studies, I’m sure you know that, that just where I think standing money based on the recent performance doesn’t lead to better outcome for the end investor. I think it would be, yes, we are seeing good number of our partners understanding that aspect, I think fund our sales and then with the distributor, selling with all the other stakeholders have been making lot of efforts on that front to highlight the importance of is staying invested for the long-term. Initially I talked about our newer marketing campaign about the STP, sound investment, plus time, plus patient, and not trying to chase the head of the season, which really create value for you over the long period. And we hope that as markets become more mature and investors as well as the distributors pay a lot more attention to long-term performance and long-term wealth creation rather than keep chasing these short-term performance.

Venkatesh Sanjeevi — Pictet Asset Management — Analyst

But do you think, AMFI as a body needs to have regulated mutual fund for year campaign came out kind of bring something on that side and try to build awareness and stuff just one or two funds trying to do this?

Navneet Munot — Managing Director and Chief Executive Officer

No, I think everybody in the industry and I must compliment every player over the last several years have been working very hard to highlight the importance of long-term investing, highlight the importance of staying disciplined, the whole SIP campaign that how they staying disciplined and keep investing on a monthly basis over a longer period is better than chasing the short-term market movement. I think it’s been happening. The entire industry is doing it together. Can we do more? I mean of course, everything, I mean that’s true for everything that the industry can do relative to whatever we are doing. And your point is absolutely right that all the stakeholders need to work together to ensure that investors look at like creating brands over much as longer period than trying to change short-term performance.

Venkatesh Sanjeevi — Pictet Asset Management — Analyst

Okay. Thanks for that, and all the best, Navneet.

Operator

Thank you. The next question is from the line of Mr. Mukherjee, Private Investor. Please go ahead.

Mukherjee — — Analyst

Yeah, thank you for taking my question. Basically 90% of my mutual fund holding is in HDFC AMC, and 90% of my portfolio shares is also HDFC AMC. So I have — I’m viewing this very carefully, and what I have observed is, that compared to other AMCs, HDFC AMC is lacking some aggressiveness in their portfolio. For example, if I see SBI Focused Fund, if I see Axis Focused Fund, they are having significant rate on Avenue Supermart, significant rate on Alfa Bank, and those companies which are growing very fast, whereas if I see HDFC AMC portfolio, there are funds which are holding Jagran Prakashan, and such sort of stocks in their portfolio. So my question is, if HDFC wants to go ahead with value-based investing, this is perfectly fine, but why can’t HDFC AMC offer aggressive portfolio, because I as a investor, I as a customer, if I want to invest a part of my money in aggressive funds, then I have to go to other AMCs because HDFC AMC is not offering me any portfolio of that stock. And what is your thinking on that, because that is my first point?

Navneet Munot — Managing Director and Chief Executive Officer

So, if you look at, I think I mentioned it in the beginning, If we look at the longer term track record of several of our funds, which have been in existence for a very, very long time, I think the performance speaks for itself. There could be cycles in the short-run, but more important is the way money has got multiplied over the years. We talked about our Flexi Cap fund, which used to be HDFC equity fund, or the HDFC balance advantage fund, which was a different name, but the same product, over the years the kind of performance that has delivered. At any point in time, one can always pick up like let’s say the one or two names I wouldn’t comment on the individual stock name, but they don’t reflect the aggressiveness or the conservativeness, I think more important is remaining true to the label, remaining true to the fund philosophy rate you have, to the mandate that you have and what we have communicated to the investor, and that is what that we have attributed over the last couple of decades. And we see no reason that most of our funds won’t be able to deliver that kind of performance that investors expect from us over a long period. I think our focus has always been on risk-adjusted return. There are various kinds of products, the investors who are looking at, let’s say, a small cap fund, they can enter or they can invest in a small cap fund versus who is looking at a concentrated portfolio of couple of high conviction ideas. They can look at our Focused Equity Fund, those who are looking at a more diversified across market cap can invest in Flexi Cap. Those who want a little bit of fixed income within the portfolio can look at balance advantage on the Hybrid Equity Fund. And within that different fund managers have thought different investment style. And by this whole value and growth and quality and I just say that I mean, I don’t know who said this that every investing is value investing, because when you don’t say I do best in swimming, I mean every swimming is like you get wet. I mean in investing you look for value, which is more than what we are paying today. So different managers have a different lens of looking at the stocks and a different style, but I think all I can say is that, the history has clearly proven that we have an investment strategy, an investment philosophy, an investment process and the people who have been able to demonstrate high quality, I would say performance for very long period of time.

Mukherjee — — Analyst

Thank you.

Navneet Munot — Managing Director and Chief Executive Officer

Thank you so much and really appreciate your confidence in the AMC. Thank you so much.

Mukherjee — — Analyst

My second question is, how do we incentivize the fund manager, because if I see I have my fund in all the small cap, mid cap, whatever you say, I have my investment in all these funds. But when I see their portfolio, they are — there is a significant amount of overlap between all these funds. So I want to know how do you incentivize fund managers, because if the AMU is increasing, it is increasing because of maybe inflation, or maybe new fund that is coming into that particular fund. So what weightage you are giving to automatic increase in the AMC because of inflation and what weightage you are giving to new fund that the investor is devoting or putting into that particular mutual fund, because that shows the trust that I am having on that, suppose if I believe that focused fund will do very good, HDFC focused fund will do very good, then I will pour in more money into that. So how do you — what is my share of wallet? How much of that is coming into the incentivized system? How is it getting tracked?

Navneet Munot — Managing Director and Chief Executive Officer

I think, is it about —

Piyush Surana — Chief Financial Officer

Fund manager incentives and — Mr. Mukherjee, if you don’t mind, maybe this would not be the best platform to discuss this, but if you’re okay, if you can just drop in a mail to us or give us your contact will call you and address this query of yours.

Mukherjee — — Analyst

Okay. And my last question is, I see on YouTube you know, although we have lot of trust on HDFC brand, everybody is positive about it, but there are several YouTube videos which are talking negative about the HDFC AMC, it’s fund managers, it’s performance. Now, if a small guy from a small town is viewing those YouTube videos, and he is also viewing the video of some other competitive AMC’s, he may get biased. How do we counter that?

Navneet Munot — Managing Director and Chief Executive Officer

So, I mean you cannot respond to the millions of tweets and millions of comments on the social media that won’t be possible for a company. But I think the proof is in the pudding. So, I mean we can clearly see the recent — our Nurture Nature Campaign or some of the other flows, the response that we get from the smaller towns is highly encouraging. I think our brand is highly respected across the country, whether it’s large town or a small town. And I think the people look at through us as a highly trustworthy brand. And I don’t think that some comments here and there really impact investors. This is a making.

Mukherjee — — Analyst

Thank you so much for your comments.

Navneet Munot — Managing Director and Chief Executive Officer

Thank you. I mean you — 90% of your money is with our spend out. I’m sure there would be many other investors like you, and I hope there are more and more investors like you, who have that faith in AMC, which has put the purpose at the center of everything that we do, which is to be the value creator for every Indian.

Mukherjee — — Analyst

Thank you. Thank you so much.

Operator

Thank you very much. The next question is from the line of Utkarsh Solapurwala from DAMOS Capital. Please go ahead.

Utkarsh Solapurwala — DAMOS Capital — Analyst

So recently, now we have launched index fund at a very low TR ratio. So going forward with many other digital only AMC will launch that at the lower TR, there would be price-based competition. So what we sort of view on the price-based competition in India?

Navneet Munot — Managing Director and Chief Executive Officer

I mean, in our industry competition has always been there. I mean it’s not something new, but of course, I think there are innovations and product, there are innovations in terms of delivering those product etc. As I mentioned earlier that given the opportunity in India and this industry, the more than earlier more and more of these participants will help in expanding the market and just have 2.5 crore investors, I think for a lower fee for an AMC’s, I mean if they are able to bring in not many more investors, I think as an industry participant, I would welcome that. Having said that, as I have been repeating a couple of times for us, it’s like, how do we — how do we provide the right solution to each investor and each of our partner in meeting their financial goal? We wouldn’t really look at one particular product that has got a much lower cost. There would be various things that every investor would need. And it’s not only about, I mean, if history is any guide and every investors’ experience would clearly state that it is not about saving few basis point here and there that really helps in meeting their all life goals or financial goals. I think it’s about the overall package that an AMC or an asset manager delivers. I think we always believe that together with all partners, both the mutual fund as well as the other stakeholders should work on enhancing the investor alpha, while we, the manufacturer continue to work on delivering better fund alpha. And I think that’s a more important part. For us, I mean, we’ve mentioned it several times. Our business over the last 20 years has got built on this premise that we aspire to have scale. We are one of the largest player. We aspire to have quality, which is reflecting in our asset mix and in the way, we source our business, the way we have built our business and of course, very volatile industry-leading profitability and wouldn’t really sacrifice one for the other. And all of this with purpose at the center which is to be the value creator for every Indian.

Utkarsh Solapurwala — DAMOS Capital — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Hiral Desai from Anived Portfolio Managers. Please go ahead.

Hiral Desai — Anived Portfolio Managers — Analyst

Hi, Navneet. Am I audible?

Navneet Munot — Managing Director and Chief Executive Officer

Hi, Hiral.

Operator

Hiral, may I request you to speak a little louder, please?

Hiral Desai — Anived Portfolio Managers — Analyst

Can you hear me now?

Operator

Little better.

Hiral Desai — Anived Portfolio Managers — Analyst

Yeah. So, I actually had a question on the cost side, Navneet. But you sort of answered that in one of the earlier question, and I think you covered it fairly in a detailed manner. But just wanted to understand, out of this sort of the total 10 basis points of cost that we had last year, what proportion of this would be variable in nature? Just a ballpark number.

Navneet Munot — Managing Director and Chief Executive Officer

Yeah, Piyush.

Piyush Surana — Chief Financial Officer

In the past, we’ve talked about, roughly, out of our costs, between 20%, 25% are variable.

Hiral Desai — Anived Portfolio Managers — Analyst

20% to 25%.

Piyush Surana — Chief Financial Officer

Yeah.

Hiral Desai — Anived Portfolio Managers — Analyst

Got it. And lastly for Piyush. Are there any other collaterals still sitting related to the Essel NCD or it’s done?

Piyush Surana — Chief Financial Officer

I mean, from a financial perspective, there is nothing else. It is pretty much done.

Hiral Desai — Anived Portfolio Managers — Analyst

Got it. Got it. Perfect. Thank you.

Operator

Thank you. The next question is from the line of Kunal from Bayan Tree Advisors. Please go ahead.

Kunal — Bayan Tree Advisors — Analyst

Hi. Thanks for the opportunity again. My question now relates to the — we have seen a lot of traction in the national pension business after PFRDA changing the realization there and HDFC being the largest private player there, can you throw some light on that business and the long-term — from a very long-term perspective, we are, if I’m not wrong at INR18,000 crores of AUM now, how do we look at that market? Because the large part of that market is locked with PSUs. How do we look at it from, say, five years to ten years, let’s say?

Navneet Munot — Managing Director and Chief Executive Officer

So, I mean, that’s part of one of our group company. I’m sure you would have enough opportunity to ask them about, specifically about that company and that business. But in general, I mean, of course in India, if you look at the overall savings pool, if you look at the demographics, if we look at our need for investment product, I think all investment products will coexist. I think mutual funds have a play. Pension products have a play. Some of the other products have a play where everybody can coexist, and there is enough opportunity for all the players. But specifically, on that business and how it’s evolving, I think I may have a view but it’s better you ask HDFC Life.

Kunal — Bayan Tree Advisors — Analyst

Sure. Sure. Thanks. That’s all. Thank you so much. All the best.

Operator

Thank you. The next question is from the line of Kapil Agrawal from Itus Capital Advisory. Please go ahead.

Kapil Agrawal — Itus Capital Advisory — Analyst

Hi. So my question is regarding — I mean your flagship equity fund has seen significant growth in the last one and half years and that has made up for some under-performance from 2015 to ’19. But when it comes to raising capital, some of your competition has been quite aggressive and they fared much better in this regard. So how you’re looking at growing your AUM, both in terms of inflows and new fund offerings? Can you give us some color in where you’re targeting also?

Navneet Munot — Managing Director and Chief Executive Officer

So first of all, on the performance, as you mentioned that, there were some time when there was an issue in terms of performance of some of the key schemes and we have seen a material reversal on that front. And as I mentioned earlier that some of those schemes are now in top decile. In fact, some of them are in top quartile in one year and of course, even three years and five years has started looking good. And it’s being recognized by our distribution partners as well as clients. Of course, it takes a little bit of time for them to recognize the reversion. But we are hopeful that the ones that we are doing and giving that message and people have been noticing it. And have we done anything differently? Not honestly. I mean, not really. What was not working in the last couple of years is now working. So, our investment team has seen few such cycles in past and that makes them stick to their conviction because they have seen some of these cycles before. And this has been like another cycle. And we are very happy to state that interest on those positions or on those convictions have got vindicated. It does take time for the market to recognize this fully, but we can today confidently state that things are improving on the ground. I also mentioned, I think in the beginning, we mentioned about the style diversity, which even some of the earlier calls, we have talked about. The whole idea of achieving a style diversity is working out reasonably well. So some of the newer fund managers are now managing almost 15% of our AUM and some of those funds have seen traction. We also have a good product pipeline in place, while we expect those to start increasing in the core flagship products, which have one of the best-in-class long-term performance track record, though, they went through a cycle of underperformance and are now coming back.

Kapil Agrawal — Itus Capital Advisory — Analyst

Could you highlight something regarding the new fund offerings, any particular markets, any particular types you are targeting? Could you highlight something there?

Piyush Surana — Chief Financial Officer

Maybe you have missed it earlier, we have talked about the categories where our presence has been less, I think after the SEBI classification. As far as the core categories are concerned across equity, fixed income, gold, we have our product basket almost full. We would be launching a multi-cap fund at some point in time, of course, subject to all the approvals and other things in place. We would be launching new passive funds, maybe some on index side, some on the ETF side. We would be launching some international funds. We would be launching some funds on the sector and thematic side. Last quarter, we had this NFO of banking and financial services and some more on the thematic and sector side are in the pipeline.

Having said that, I think I might have mentioned this on the last call, my first call that I have always praised and appreciated HDFC AMC for one thing that this AMC would never launch a product because this is a fat of the season. Unless the investment team believes in it very strongly, unless we believe that at any point in time, at least a segment of investors would have the need for that product in their overall investment portfolio, unless we see a sustainable — sustainability as well as the longevity of that product. We wouldn’t launch just because we want to do an NFO. I mean, we have never done that and we would never do that. But wherever there are product gaps, we would fill that over the next several quarters or years.

Kapil Agrawal — Itus Capital Advisory — Analyst

Sure. Thank you. I have one last question. And you’ve touched upon this before earlier in this call. Regarding some of the newer entrants to the market investing directly. How are you looking to target these people? Like how — could you highlight something? Any particular steps that you’ve taken or going to take to target these markets?

Piyush Surana — Chief Financial Officer

So, I think our belief has always been that partners are very important. This is a large country, there are — I mean, hundreds of towns and 600,000 villages in India. There are 1.35 billion people across the country. If we look at the number of advisors today, there is like one for 17,000 people. Investing is not only about like an ease of transaction or doing it. It’s a lot about behavioral aspect. And that’s where the importance of a good advisor or a good distributor is very critical to do the hand holding at the right time that in the month of March 2020, you don’t move out of equities and maybe the other way around.

So, we strongly believe that partners have a big role to play. Having said that, I mean, there would be investors, who will kind of do it yourself, DIY, just like they do for several other aspects in their life, and they would like to do even investing on their own and we would have the best-in-class platform for those as well.

But our fundamental belief is that partners are important for us, and there is no reason to believe that they won’t remain important for our business to continue to grow.

Kapil Agrawal — Itus Capital Advisory — Analyst

Thank you for answering my questions. I wish you all the best.

Operator

Thank you. The next question is from the line of Franklin from Equentis [Phonetic] Wealth. Please go ahead.

Franklin — Equentis Wealth — Analyst

Yeah. Thanks for taking my question. So right now, the one of the main issues which is there in our mind is the shift that is happening between the increase in the number of demat accounts and in the mutual fund accounts. So I mean, right now also we have discussed this a bit in the call as well that when the market increases, you actually see a lot of increase in these demat accounts.

So my question is actually based on your experience in the past, what percentage of — when the market turns around or even remains subdued or even goes negative, what percentage of these incremental new additions that are happening into these demat accounts actually come towards the mutual fund category?

Piyush Surana — Chief Financial Officer

I think we quoted that number earlier that between 2017 and 2020 if you look at the proportion of the new accounts that got added by the mutual fund industry versus the demat accounts, I think that was like, mutual fund industry was adding a lot many more unique investors than the new demat accounts.

Now that trend has got reversed over the last 15 months. Variety of reasons, of course, markets have been favorable to people. I mean, the work from home may have made a difference, maybe some of the platforms which have made investing into secondary market a lot more easier. I am sure that may have made a difference. And of course, some of the millennials and some of the — I mean, the younger investors are liking that experience. And it’s not only in India, I think it’s been a global trend, I mean, the so-called Robinhood effect.

Now, how does the — I mean, how do we respond? I am talking about the entire industry and for us as well. So, I mean if we — I won’t look at it as a challenge. I mean, I would look at both, I mean, of course, that as if everybody thinks that making money is so easy and they can trade and can create wealth over a longer period of time, I mean, that’s concerning. The other way to look at it, it’s a big opportunity. It just shows the interest in the capital market, it just shows that the investing habits are changing. I think some of the earlier ways of investing versus maybe people are thinking that capital markets are a better place to put money. So from that perspective, it’s an opportunity.

So how do we need to respond, both as an AMC as well as an industry? And I would say that — I mean if you look at why this trend is happening, keep aside the near-term market movement, etc and all. I think we need to, as an industry, do about, I would say, faster digital adoption, provide a better user interface, a better user experience when they are investing in mutual funds relative to let’s say, when they are investing on their own through some of these platforms.

We need to do a lot more, I would say, deeper focus on investor education. How do we highlight the importance of long-term wealth creation that happens through the power of compounding by remaining disciplined? I mean doing, setting the right goals, doing your asset allocation, remaining disciplined across market cycles and that’s how the wealth gets created and spread that message in the language that these people, I would say absorb better.

We also need to redesign the product and marketing strategy that how do we deliver this message. As I mentioned, I mean, a while ago that in the — I would say in the language that they would prefer, we’ll make that content a lot more, I would say better consumable, better contextual. And of course, a right kind of partnership that some of these platforms, which have been able to attract a lot of these investors, they themselves have mentioned that large number of their investors don’t make as much money as they can make by just investing in fixed deposits, right?

I’m sure you would have heard or read their comments because they have the experience of what their investors are doing by trading in the market. And then, so at our end, I mean, from a mutual fund industry perspective or an HDFC AMC, you need to partner with them and ensure that our products are there for investors to see with the right kind of messaging and right kind of packaging. I think if we do all of this together, I have no doubt in mind that next few years, we would also be able to attract a lot of these investors into the mutual fund fold.

Franklin — Equentis Wealth — Analyst

Okay. And my next question is on the equity AUM share both for you and as the industry, if you see the trend, the longer-term trend, the share of equity AUM has been constantly increasing and that’s probably largely got to do because our interest rates are declining on a structural basis. So probably maybe five years, ten years down the line also, it is very much possible that the interest rates may not hit the peak and it makes equity investing much more attractive compared to debt investing.

So is it possible that we could see our equity share moving to like, somewhere around 60%, 65% kind of a level, if you have to just take a slightly longer-term view?

Piyush Surana — Chief Financial Officer

We would love to see it that way, I mean, if you look at the profitability, but that’s not how the world works. So, let’s say, I mean, even in other countries where interest rates are very low, is it that people only invest in equity? I mean, even at negative yields, there are trillions of dollars invested in bond funds and money market fund. Different investors have different income needs, different investing needs and I think we need to have products for all investors.

In India, I mean if you look at the total size of the fixed deposit market and some of the other fixed income products like bonds and post office and all of that, I mean that’s like a large market. And there also, I think mutual fund have a good proposition to attract those investors. So, I think, yeah, both will grow. I don’t see any reason that only equity will grow and there is not much of scope for us to grow on the fixed income side.

I think on the retail side, particularly, there is tremendous scope for us to grow in individual investors’ book.

Franklin — Equentis Wealth — Analyst

Yeah. Thanks. Thanks a lot.

Operator

Thank you. Ladies and gentlemen, we’ll take the last question from the line of Nitin Jain from Fairview Capital Partners. Please go ahead.

Nitin Jain — Fairview Capital Partners — Analyst

Yeah. So just a follow-up. Net of the increased ESOP expenses, what would our operating margins have been like in basis points?

Piyush Surana — Chief Financial Officer

36, 37. I think it’s 37 — 36.5.

Nitin Jain — Fairview Capital Partners — Analyst

Okay, so 37? Okay. And Navneet mentioned sometime back that the funds managed by the newer fund managers are getting increased traction. So is it possible to spell out the funds?

Piyush Surana — Chief Financial Officer

Sure, we can. So it is — there is a gentleman by name of Amit Ganatra, he manages the HDFC Capital Builder Fund, he managers HDFC Multi-Asset Fund, he manages the HDFC Asset Allocator Fund of Fund. He also now manages the HDFC Tax Saver Fund. Gopal Agarwal, who is one of the other managers, he manages the HDFC’s Focused 30 Fund, he manages the fund called HDFC Large and Mid Cap Fund, he manages the HDFC Dividend Yield Fund. These are the funds.

Navneet Munot — Managing Director and Chief Executive Officer

And now, Anand Laddha, would be managing the Banking and Financial Services Fund; and other fund manager, of course that fund hasn’t grown, but I think yeah, maybe the investment cycle turns then Rakesh Vyas, who manages our Infrastructure and Housing Opportunity Funds.

Operator

The line for the participant dropped. I now hand the conference over to Mr. Navneet Munot for closing comments.

Navneet Munot — Managing Director and Chief Executive Officer

Thank you so much for being with us. And I hope you and your loved ones are doing well, stay safe, stay healthy. Thank you.

Operator

[Operator Closing Remarks]