ICICI Prudential tops annual listing of India's Best Fund House
This is a turnaround story of a fund house that was known more for its
big product launches, aggressive fund management and distribution
strategies than consistency in performance.
Nimesh Shah, MD & CEO, ICICI Prudential AMC
This is a turnaround story of a fund house that was known more for its big product launches, aggressive fund management and distribution strategies than consistency in performance.
ICICI Prudential Mutual Fund started changing its strategy after the global financial crisis in 2008. Mutual funds globally focus on delivering consistent performance of their products, says Nimesh Shah, Managing Director and CEO. "We felt that if we could ensure that the performance of existing funds remained consistent, inflows would come into these funds."
The change in approach has worked well for the asset management company (AMC). Eight out of 22 equity funds and seven out of 15 hybrid funds figured in the top quartile in their categories in 2012 compared with only two out of 13 equity and two out of 10 hybrid funds in 2007.
Of the 71 funds of the AMC rated by Value Research in 2012/13, 25 are either five-star or four-star funds. Five-star funds are among the top 10 per cent funds in terms of performance, and four-star ones are the next 22 per cent in a category. Its average assets under management (AUM) has grown from Rs 54,355 crore at the end of March 2008 to Rs 87,968 crore* on March 31, 2013.
Its AUM is the third largest after HDFC Mutual Fund (Rs 102,096 crore) and Reliance Mutual Fund (Rs 96,851 crore).
"We realized that it is not necessary to hire star fund managers. It is better to focus on discipline and processes," says Shah. The fund house has developed robust in-house processes for portfolio construction, stock selection, risk-control and portfolio revision.
But the most significant change was in the fund management approach. The AMC, which had tried the absolute return approach (where the fund tries to give positive returns irrespective of the market direction) in the past with some funds, and had failed, switched to a relative return approach (where the fund performance is measured against a benchmark or category average) "Now, our focus is on relative performance and all we are trying is to beat the benchmark on a consistent basis. This way the probability of top quartile performance is higher," says Shah.
It also merged funds, which were similar in character, and cut down on new launches. In 2012, ICICI Prudential US Bluechip Fund was the only equity fund it launched.
All these efforts have helped ICICI Prudential build funds that are long-term performers. ICICI Prudential Focused Bluechip, ICICI Prudential Discovery, ICICI Prudential Dynamic and ICICI Prudential Banking and Financial Services, have emerged as consistent performers over the past three to five years. ICICI Prudential Focused Bluechip is one of the top three funds in Business Today's long-term growth fund category with 7.53 per cent returns in the three-year period to March 31, 2013 against 2.7 per cent of Nifty. ICICI Prudential Discovery Fund, which figures at No. 6 in Business Today's aggressive growth funds category, gave 11.29 per cent returns in the last fiscal year and 7.53 per cent in the threeyear period to March 31, 2013, against the benchmark's (CNX Midcap) negative return of -4.02 per cent and -1.33 per cent, respectively.
The AMC's new strategy to catch investor attention seems to be paying off. So far, the fund appears to have walked the talk.
*An earlier version of this story had incorrectly mentioned the figure at Rs 7,968 crore. It has now been corrected to Rs 87,968 crore.
ICICI Prudential Mutual Fund started changing its strategy after the global financial crisis in 2008. Mutual funds globally focus on delivering consistent performance of their products, says Nimesh Shah, Managing Director and CEO. "We felt that if we could ensure that the performance of existing funds remained consistent, inflows would come into these funds."
Of the 71 funds of the AMC rated by Value Research in 2012/13, 25 are either five-star or four-star funds. Five-star funds are among the top 10 per cent funds in terms of performance, and four-star ones are the next 22 per cent in a category. Its average assets under management (AUM) has grown from Rs 54,355 crore at the end of March 2008 to Rs 87,968 crore* on March 31, 2013.
Its AUM is the third largest after HDFC Mutual Fund (Rs 102,096 crore) and Reliance Mutual Fund (Rs 96,851 crore).
"We realized that it is not necessary to hire star fund managers. It is better to focus on discipline and processes," says Shah. The fund house has developed robust in-house processes for portfolio construction, stock selection, risk-control and portfolio revision.
But the most significant change was in the fund management approach. The AMC, which had tried the absolute return approach (where the fund tries to give positive returns irrespective of the market direction) in the past with some funds, and had failed, switched to a relative return approach (where the fund performance is measured against a benchmark or category average) "Now, our focus is on relative performance and all we are trying is to beat the benchmark on a consistent basis. This way the probability of top quartile performance is higher," says Shah.
It also merged funds, which were similar in character, and cut down on new launches. In 2012, ICICI Prudential US Bluechip Fund was the only equity fund it launched.
All these efforts have helped ICICI Prudential build funds that are long-term performers. ICICI Prudential Focused Bluechip, ICICI Prudential Discovery, ICICI Prudential Dynamic and ICICI Prudential Banking and Financial Services, have emerged as consistent performers over the past three to five years. ICICI Prudential Focused Bluechip is one of the top three funds in Business Today's long-term growth fund category with 7.53 per cent returns in the three-year period to March 31, 2013 against 2.7 per cent of Nifty. ICICI Prudential Discovery Fund, which figures at No. 6 in Business Today's aggressive growth funds category, gave 11.29 per cent returns in the last fiscal year and 7.53 per cent in the threeyear period to March 31, 2013, against the benchmark's (CNX Midcap) negative return of -4.02 per cent and -1.33 per cent, respectively.
The AMC's new strategy to catch investor attention seems to be paying off. So far, the fund appears to have walked the talk.
*An earlier version of this story had incorrectly mentioned the figure at Rs 7,968 crore. It has now been corrected to Rs 87,968 crore.
