Anand Rathi Wealth Limited (ANANDRATHI) Q4 FY23 Earnings Concall Transcript

Anand Rathi Wealth Limited (NSE: ANANDRATHI) Q4 FY23 earnings concall dated Apr. 13, 2023

Corporate Participants:

Feroze Azeez — Deputy Chief Executive Officer

Chethan Shenoy — Director and Head, Product and Research

Jugal Mantri — Group Chief Financial Officer

Rakesh Rawal — Chief Executive Officer

Analysts:

Lalit Deo — Equirus Securities Private Limited — Analyst

Madhusudan Kela — MK Ventures — Analyst

Samyath Shah — Sameeksha Capital — Analyst

Mayank Agarwal — InCred Capital — Analyst

Dipanjan Ghosh — Citi — Analyst

Abhijeet Sakhare — Kotak Securities — Analyst

Varun Pattani — Quant Mutual Fund — Analyst

Aejas Lakhani — Unifi Capital Pvt Ltd. — Analyst

Varship Shah — Envision Capital — Analyst

Pallavi Deshpande — Sameeksha Capital — Analyst

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Anand Rathi Wealth Limited Q4 and FY ’23 Earnings Conference Call.

This conference call may contain forward-looking statements about the Company which are based on the beliefs, opinions and expectations of the Company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.

[Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Feroze Azeez, Deputy CFO [Phonetic], Anand Rathi Wealth Limited. Thank you, and over to you, sir.

Feroze Azeez — Deputy Chief Executive Officer

Thank you so much, madam. Good afternoon, and thank you, everyone, for joining the earnings conference call for the quarter and year ended 31 March 2023. Along with me, I have Mr. Rakesh Rawal, the CEO; Mr. Jugal Mantri, the Group CFO; Mr. Rajesh Bhutara, the CFO; Mr. Chethan Shenoy, Director and Head, Product and Research; Mr. Vishal Sanghavi, Head, IR; and SGA, our Investor Relations Advisors.

Amidst geopolitical tensions, higher inflation and higher interest rate environment, we have delivered a strong performance across all our business verticals. In FY ’23, our revenue grew by 31% to INRINR558 crores, and the profit after tax grew by 33% to INR169 crores. Our holistic approach has also aided us in achieving a strong AUM growth of 18% year-on-year and reached a number of INR38,993 crores. During the last year, we’ve added 1,270 client family, a new record at ARWL. This clearly demonstrates the trust and confidence our clients have in our services. Our total client families as on 31 March 2023 stood at 8,352. On the Relationship Manager side, we have added 22 RMs on a net basis for the full-year. Over the years, Anand Rathi Wealth Limited has believed in providing uncomplicated holistic standardized solutions to our clients that has helped us consistently deliver robust performance at Anand Rathi Wealth.

For our flagship business, the Private Wealth vertical, AUM grew at 18% year-on-year. Despite the challenging environment, we have delivered strong performance across vertical, our net flows for FY ’23 stood at INR4,896 crores, a growth of 78% and the net flows of quarter four FY ’23 stood at INR1,180 crores, growth of 40% from the same period last year. This speaks of value which we have added to our clients. This growth also reflects the effectiveness of developing uncomplicated wealth solutions for our clients as well as our competency of our team.

Our Digital Wealth vertical is a FinTech extension of the Company’s proposition for the mass affluent segment also registered a growth in the AUM of 23% year-on-year to INR1,151 crores, while the number of clients grew by 9% year-on-year to end at 4,240.

Now, I’d request Chethan Shenoy to take us through the Omni business update. Chethan, can you step in, please?

Chethan Shenoy — Director and Head, Product and Research

Thank you, Feroze. Thank you, sir. OFA business is a strategic extension for capturing wealth management landscape to service retail clients through mutual fund distributors by using our technology platform. As on 31 March 2023, OFA has 5,677 mutual fund distributors associated and as assets under administration on this platform of INR92,174 crores. The Board of Directors have declared a final dividend of INR7 per equity share of face value of INR5 each of the Company, that is 140% of face value. Total dividend for financial year 2023 stood at INR12 per equity share. This includes interim dividend of INR5 per equity share paid in October ’22. In the last one year post listing, the Company has outperformed its own expectations. And we anticipate our long-term commitment to offer the most efficient wealth solutions to our clientele will enable us to achieve 20% to 25% growth in the years ahead.

Thank you. And now, I request Jugal Mantri ji, our Group CFO to take you all through the financial performance of the Company.

Jugal Mantri — Group Chief Financial Officer

Good afternoon. Thank you, Feroze bhai and Chethan. Rent [Phonetic], despite some volatility in the mid- and long-term outlook for the Indian equity market seems highly promising. We have delivered strong financial performance across all three verticals.

Our consolidated revenue for the quarter ended 31 March 2023 stood at INR147 crores as against INR115 crores in Q4 FY ’22, registering a growth of 28% Y-o-Y, while revenue for financial year 2023 stood at INR558 crores as compared to INR425 crores in FY ’22, registering a growth of 31% Y-o-Y.

Our profit before tax for the quarter stood at INR59 crores, registering a growth of 35% Y-o-Y, whereas profit before tax for FY ’23 stood at INR228 crores, registering a growth of 36% year-on-year. Profit before tax margin stood at 40.4% in Q4 FY ’23 and 40.8% in FY ’23. Our profit after tax for the quarter stood at a healthy INR43 crores, registering a growth of 23% Y-o-Y as compared to INR35 crores in Q4 FY ’22. Profit after tax for financial year ’23 registered a growth of 33% Y-o-Y and stood at INR169 crores. Our PAT margin stood at 29.1% in Q4 FY ’23 and 30.2% in FY ’23.

Earnings per share for Q4 FY ’23 stood at INR10.3 per share and for financial year 2023, it stood at INR40.5 per share. Out of EPS of INR40.5 per share for FY ’23, the Company has proposed to pay 30% as total dividend, that is INR12 per share.

Coming to the Private Wealth vertical, for FY ’23, our flagship Private Wealth verticals revenue grew by 31% year-on-year, which stood at INR538 crores, while sales revenue by 23% Y-o-Y, which stood at INR182 crores. Profit before tax for FY ’23 stood at INR226 crores, registering a growth of 36% Y-o-Y, while profit before tax margin stood at 42.1%. Profit after tax for FY ’23 stood at INR168 crores, registering a growth of 34% year-on-year, while profit after tax margin stood at 31.3%. Return on equity of our flagship Private Wealth vertical as on 31 March 2023 stood at a healthy 38%.

With this, we will now open the floor for question-and-answer. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Lalit Deo from Equirus Securities. Please go ahead.

Lalit Deo — Equirus Securities Private Limited — Analyst

Yes, hi. Good afternoon, sir. Thanks for the opportunity. So, sir, just first question on the revenue side. So like based on the revenue we see that the revenue has been driven from the distribution of AR’s [Phonetic] MLD products. So just wanted to know, during the quarter, like what kind of a broad issuance made lower [Phonetic] this quarter, like both primary, as well as secondary on the MLD side?

Feroze Azeez — Deputy Chief Executive Officer

Lalit, before I hand over to Jugal ji, to give the precise numbers, since the market in the last quarter, for example, started on 1 January from 18,100 to 17,300 and since the market has been flat for the full-year, it’s why you may want to say that the revenues have come from the MLD distribution. But if you look at it, our net mobilization on the equity mutual fund side, which is what will give us the trail revenues was INR900 crores in equity mutual fund approximately. In the full-year, we collected INR2,400 crores, INR2,500 crores in equity mutual fund, whereas the industry lost INR15,000 crores other than that SIP collections. So our net mobilization share in the trail-generating business has been significantly more focused than the MLD distribution. But since the markets have been subdued, the revenue seems to be more skewed towards MLD but my gross mobilizations and net mobilizations has been extremely skewed towards the trail-generating business. So I have to fulfill the commitment or an indicative commitment over the next few years to have 50-50 as the ratio between upfront and trail.

Jugal ji, if I can request you to give some more color to this?

Jugal Mantri — Group Chief Financial Officer

Yes, Mr. Lalit, see in Q4 FY ’23, the gross issuance of non-principle protected structured product was INR1,000 crore compared to INR984 crore in Q3 FY ’23. But if you look at the net number, in fact, the redemptions were more for — because of the maturities. The net number was minus INR407 crores in non-principle protected structured products for Q4 FY ’23. And for the mutual fund — equity mutual fund, the net mobilization was INR1,004 crore. For debt mutual fund, it was INR213 crores and other products INR370 crore. So overall for all the products, the net mobilization was INR1,180 crore in Q4 FY ’23.

Lalit Deo — Equirus Securities Private Limited — Analyst

Sure, sir. So, sir, this — like, as you mentioned, this INR1,000 crores, this is both primary expense, as well as the secondary expense, or this is just the primary expense?

Jugal Mantri — Group Chief Financial Officer

No, this is — INR1,000 crores is primary. The secondary number is INR287 crore.

Lalit Deo — Equirus Securities Private Limited — Analyst

Sure, sir. Sure, sir. And, sir, second question was on the [Technical Issues] during the quarter, there have been several negotiations which have been announced and like basically the taxation on MLD part. Then the second one was on the [Indecipherable] front as well. So, like, is it all these regulations coming up — coming into later quarter. Like how has been the customer behavior towards each products? And like what are the initial signs that we are reading from the market right now?

Feroze Azeez — Deputy Chief Executive Officer

Lalit, there are quite a few questions intertwined into one, one is client behavior. See, tax change. Regulatory changes which are there for the quarter. So first is, client behavior has been very, very positive towards Anand Rathi Wealth because we predicted — clearly predicted this on pieces of paper and sent notes saying that the tax advantage for principle protected MLDs will cease to exist, not even may cease to exist. We had said will cease to exist in the next few budgets. So that really helped clients not by even a single principle protected 10% taxation MLD. The problem was, MLDs — a few of those MLDs, which got listed because of their principle protected nature were being taxed at 10%, whereas all the other debt instruments were being taxed at 20%, so we never issued any principle protected debt-like MLDs. All our MLDs 1,200, which matured, 1,700 which are expected to mature, 1,600 which are expected to mature, all of them are equity-like non-principle protected equity-like. So clients could see the merit of — for us — for the years we have counseled them not to go for tax advantage as a prime purpose of an instruments per se, so that helped client behavior and become far more a positive and we have no more having to answer the same mundane question we’ve been answering for years, why we don’t do listed, rated principle protected MLD. That question has suddenly vaporized, which was the most commonly asked embedment during the sale.

Then comes tax efficiency, again, debt funds have come into the gamut of Section 50A. They’ve come under the gamut and again — it again reiterates us [Phonetic] that if you’re taking the risk, there is no problem. So 35% plus equity allocations in any fund will not cover — will not be covered under the 50AA. So that doesn’t change too much, because our strategy on the debt side, because our clients are inter-generational wealth, we have collected a homogeneous group of clients is why we have 8,400, not 80,000 clients. We have collected homogeneous clients of — group of clients who have inter-generational wealth and debt has a very large — very small role to play in inter-generational wealth. It’s a shock absorbent for short-term volatility. So we have very small amounts in debt and where we have a low-cost no credit risk, no interest rate risk strategy, so that doesn’t get impacted.

Regulatory changes have not impacted Anand Rathi Wealth and there are few more regulatory changes which have come, which would have gone unnoticed. There is a PMS regulation change, which has come in 2022 December 16. That’s one regulation, which has come. AIF regulation, which has just come two, three days back. All these don’t impact us because we had — there’s one more regulation, which came during the year — during the quarter was the B30 commission going away. So all these don’t impact us because we have not used any upfront commissions of AIFs or PMSs or the B30 provisions to build a revenue stream.

Does it answer, Lalit bhai?

Lalit Deo — Equirus Securities Private Limited — Analyst

Yes, sir. Actually last question on that, like since you mentioned that the global markets are there become a little uncertain and like — so in that equity schemes which we delineate share with the list of investors. So like have we changed any kind of a strategy over there or like that? Like we have a policy of like all the — giving out another equity scheme. So have we made any changes in those schemes?

Feroze Azeez — Deputy Chief Executive Officer

Yes, we have made some changes in the scheme. We do this exercise a very thorough exercise between Jan, Feb and March every year to see the validity of the schemes we recommend. There are 380 active schemes, out of which we had 11 schemes only. Our purpose of buying an equity scheme is to make sure on an aggregate level scheme level, we are able to beat Nifty by 2% to 3% or NSE 500 by 2% to 3%. S it requires immense amount of vigilance. Yes, there are some changes. Now, we launched our new model portfolio, which has 14 schemes instead of 11. We have increased the number of schemes, because we did a — we analyze client portfolios transaction-wise external portfolios, which are with competitors and we realize that we win over 90% of the external portfolios, but there are some portfolios, which beat us, they had more number of schemes, so we have increased the number of schemes to 14.

Lalit Deo — Equirus Securities Private Limited — Analyst

Sure. Thank you, sir. Thank you for the answers.

Feroze Azeez — Deputy Chief Executive Officer

Thank you for your questions.

Operator

Thank you. We have our next question from the line of Sumit Bhalotia from MK Ventures. Please go ahead.

Madhusudan Kela — MK Ventures — Analyst

Yeah. Hi, Rakesh, Feroze. This is Madhu Kela here. Both my colleague — my colleague, Sumit, is also along with me. So first of all, congratulations in this environment. I think over the last one year, amidst all this volatility, you guys have declared fantastic results. I have two, three points to make. One, in this overall tax environment, what has happened to debt mutual fund in terms of taxation, what has happened to MLD guidelines in terms of taxation? How do you see this business shaping up over the next 12 months, or maybe over the next two- to three-year period also? Has this lost something [Phonetic] compared to past because of slightly unattractive taxation? And same thing, asset class as a whole.

Feroze Azeez — Deputy Chief Executive Officer

Debt as an asset class, sir, is that what you asked, Madhu, sir?

Madhusudan Kela — MK Ventures — Analyst

Yeah. MLD basically.

Feroze Azeez — Deputy Chief Executive Officer

MLD, now they’ve defined MLD as those which have principle protection. So the answer is yes. The INR1.5 lakh crore industry which ARWL had zero share in, that will become absolutely non-lucrative for HNI.

Madhusudan Kela — MK Ventures — Analyst

Okay.

Feroze Azeez — Deputy Chief Executive Officer

Okay. We didn’t have a share. We were always in the non-principle protected, unlisted, unrated MLDs because they give the — give an equity-like return. But lot of MLDs were only debt with a small little clause. So they were practically a bond with some outrageous clause saying that if Nifty went to zero, I will not give you a return, right? So those were now give up the MLDs, those will definitely have an impact that was almost, if I’m right, if I — if my memory serves right, it’s about INR1,35,000 crore, INR1,40,000 crore industry, sir.

Madhusudan Kela — MK Ventures — Analyst

Sir, do you see then you’re gaining market share against that money which was going in those MLDs? Will this mean that part of that could come to companies like yours who are being selling unlisted MLDs?

Feroze Azeez — Deputy Chief Executive Officer

Yes, Madhu sir, that we are seeing because this was one thing which was competing with us, that competition has gone away. Out of our 8,400 families, by taking them through logic, we used to convince them that what we are saying is mathematical and logical. So most of our existing clients might not have too much intersection with that INR1,35,000 crores, but there are a few, right, they might be 10%, 15% of our clients who weren’t have had listed MLDs, they are seeking our tax advise also sometimes. So you’re right, we might have some collateral benefit of that industry losing it scheme [Phonetic], sir.

Madhusudan Kela — MK Ventures — Analyst

Okay. My other question is, of course, what we are hearing that the entire expense ratio is being discussed at the regulator that it will come down meaningfully for the ALP [Phonetic], right? Whether or not it will happen or not happen. Hello? It will happen or…

Feroze Azeez — Deputy Chief Executive Officer

We are very intently hearing you, sir.

Madhusudan Kela — MK Ventures — Analyst

Whether it will happen or not happen, we don’t know. But supposing if something like what has been proposed had to happen, how will it impact our business in terms of growth, margins, everything, because what is being discussed is pretty sharp?

Feroze Azeez — Deputy Chief Executive Officer

Yes, Madhu sir, there are about six to seven points in the discussion paper which was floated for my friends in the industry are concerned. So, one of them which has got implemented is B30 being abolished. What — first let me give you a context of how we look at it. We have not used any of the extra benefit. So it doesn’t impact us. Why I would like to say is, one thing, which was the B30 we have not used, we have not sold one NFO, in spite of knowing several of our companions in the industry sold them collected 3% in the first year as trail, we said no, we will not do an NFO because it doesn’t make sense for the client to — in spite of having three 80 old funds buying a new fund didn’t make sense to us. So we did not use B30, we have not used NFOs, we have not used smaller schemes just to increase our AUM.

The 11th key model portfolio last year — 11th key model portfolio, the average scheme size was INR15,000 crores. In the circular which SEBI has sent to — in turn to asset managers to asset managers, they’ve said that, let’s have a AMC-based expense ratio. Even if that gets implemented then my trail comes down by INR0.02, which accumulated [Phonetic]. Out of my trail commission, today, in the equity mutual fund is 1.11% that could come down to 1.09%, if I look at all AMCs have — all AMCs of the same scheme having the same expense ratio was the biggest hardest hitting item out of the seven written in that discussion paper, sir.

Madhusudan Kela — MK Ventures — Analyst

And, Feroze, how will it impact our future business if these guidelines were to be implemented? One is the trade commission coming down. How can — how will it impact the future earnings?

Feroze Azeez — Deputy Chief Executive Officer

Madhu sir, since this is — because we have a model portfolio, which only earns me 1.11%, if I used all — if I would have used all these provisions, I would be earning 1.4% trail because it is not in my client’s interest, so I’m currently in voluntarily earning lesser because I do not use any of the provisions which are there. To come back to your pointed question, Madhu sir, what will be the impact on the trail commissions in the future? I think minimalistic 2% to 3% if all of them get implemented, because I’ve not got that INR0.20 advantage is why it is not going away. So there will be several distributors who use to use those advantages, they will have an impact, for sure. So it’s an important point for a distribution fraternity because I’ve not used them in spite of having known of them is why the impact could be lesser, in fact, it will improve active funds performance which will impact us positively because [Foreign Speech] so — because I’m the third largest distributor, other than aggregators, other than Indian banks, I am the largest equity mutual fund distributor, it will impact me positively because performance [Foreign Speech].

Madhusudan Kela — MK Ventures — Analyst

[Foreign Speech] is there any particular reason why you guys have not looked at international markets as yet in terms of sourcing clients or even distributing product for, let’s say, Indian investors into international markets? Just wanted to have your perspective.

Feroze Azeez — Deputy Chief Executive Officer

To be very honest, [Foreign Speech], if you do anything which is little more beyond because we’ll have to have 20, 30 people doing research in international market, if not more. So — and relationships get a little dampened if you make mistakes. So we try and have a client — keep glove kind of an approach to our relationship. But Rakesh sir would be the best poised to answer this question, sir. Rakesh sir, can I ask you? I know [Foreign Speech] that’s why I’ve been doing the talking.

Rakesh Rawal — Chief Executive Officer

[Foreign Speech] Madhu, basically the whole thing is [Foreign Speech]. Hello?

Madhusudan Kela — MK Ventures — Analyst

[Foreign Speech].

Rakesh Rawal — Chief Executive Officer

Yeah. And we have to get to 12% to 14% in the simplest way possible.

Madhusudan Kela — MK Ventures — Analyst

Sure.

Rakesh Rawal — Chief Executive Officer

Right? So it’s the simplest way possible means in certain proportion to Indian equity through the simplest mechanism which is mutual funds and structured products, little bit of that, then that becomes the least distance part. Right? Anything more complicates it. So if I add foreign funds or if I add foreign market, it’s complicated, then it doesn’t serve the purpose. It’s a complication, which does not serve the purpose we avoid. And that’s been our strategy right from the beginning. So that’s the reason why we don’t look at it, plus I think also Feroze said that anything that we do, we want to do deep research in and then take to the customers. And if I were to take U.S. or take China, or any other market, I just don’t want to just do a fund just for the sake of it. I want to do it if there is going to be deep research, which means lot of resources have to be put into it, lot of resources, putting — not serving the purpose, didn’t make business sense to us. So that’s why we didn’t do it.

Madhusudan Kela — MK Ventures — Analyst

My other part of the question, Rakesh was, obviously, NRIs and the people residing abroad is also a large community for Indian markets. I’m assuming that Anand Rathi doesn’t have a significant international presence. Any particular reason why we have not looked at it.

Rakesh Rawal — Chief Executive Officer

No, no. See, we have an office in Dubai and we’ve got that now for the last six, seven years, we’ve got great traction there. So what we are doing with them is that, we are saying, hey, bifurcate your monies into two parts. The ones that you want to invest in India. And the one that you want to invest abroad. For the ones that you want to invest in India, we are masters. Instead of being bank of trade for all markets, we are master of one issue. And there is a lot of attraction to India over the last several years, the image of India has changed. And a lot of analysis are showing interest in investing in India. So for that portion of the portfolio, which is significant we have the full value of their money and that’s growing very handsomely in Dubai. And without having offices in the U.S., we have several U.S. clients. And I manage few, who is — 90% of them end up being finished [Phonetic] by us. So we have 30% of our book, which is NRIs. So we’re not ignoring NRIs, but yes, you have a point that yes, maybe we could be a little more aggressive there.

Madhusudan Kela — MK Ventures — Analyst

Thank you so much and all the best.

Rakesh Rawal — Chief Executive Officer

Thank you, Madhu. Thank you for joining us.

Madhusudan Kela — MK Ventures — Analyst

Thank you.

Operator

Thank you. We have our next question from the line of Samyath Shah [Phonetic] from Sameeksha Capital. Please go ahead.

Samyath Shah — Sameeksha Capital — Analyst

Hello? Congratulations for these good set of numbers. Am I audible?

Feroze Azeez — Deputy Chief Executive Officer

Yes, Samyath. You are.

Samyath Shah — Sameeksha Capital — Analyst

Yes. So there is significant amount of increase in other financial assets as we can see from cash flow. So is it like, at least which is collateral against bank overdraft? And if so, then, for what purpose such high amount of cash has been restricted?

Feroze Azeez — Deputy Chief Executive Officer

Jugal sir?

Jugal Mantri — Group Chief Financial Officer

Hello?

Samyath Shah — Sameeksha Capital — Analyst

Hello, yes.

Jugal Mantri — Group Chief Financial Officer

Yeah, Mr. Samyath. See, what has happened is that, if you recall, in the month of February and March, the FDs interest rates have shooted up and what we have done is that, we have made fixed deposits of more than one year in the month of February and March. So as per the balance classification in case if we are holding fixed deposit in excess of one year, then it has to be shown in other financial assets, which was earlier part of cash and cash equivalent. So actually it is — there is just movement of fixed deposit in — from cash and cash equivalent to other financial assets.

Samyath Shah — Sameeksha Capital — Analyst

Okay, got it. And my other question is that, can we get to know bifurcation of net inflows as to how much is from existing clients and how much from new clients? So new families, which we’ve added.

Feroze Azeez — Deputy Chief Executive Officer

Jugal sir, would you want to take that one?

Jugal Mantri — Group Chief Financial Officer

Mr. Samyath, can you repeat the question?

Samyath Shah — Sameeksha Capital — Analyst

Yeah. Sure. Sir, can I know the bifurcation of net inflows as to how much net inflow is from existing clients and how much is from our new clients?

Jugal Mantri — Group Chief Financial Officer

I think, see, this sort of classification, we don’t have about the AUM mobilization from the new clients, as well as old clients, reason being that our existing clients also, they keeps on — like moving from one bucket to another bucket in case if their AUM falls below INR50 lakhs, then they get excluded from my active number of clients. But we still will work out and give it to you, Mr. Samyath.

Samyath Shah — Sameeksha Capital — Analyst

Okay, thank you.

Operator

Thank you. We have our next question from the line of Mayank Agarwal from InCred Capital. Please go ahead.

Mayank Agarwal — InCred Capital — Analyst

Yeah, thanks for the opportunity and congrats for good set of numbers. My first question is on RM addition, we have added 16 RM. Now we have over 293 RM. So how many of the new originally from outside and how much is from the promotion of the AMs to the RMs? That’s my first question.

Feroze Azeez — Deputy Chief Executive Officer

I’ll just give you the split. The net addition is 22, right? Vishal? For the full-year, the net addition is 22, okay? And you would be also happy to note that last quarter when we gave our result, our regret attrition was zero. This quarter, it is one, that is 0.35% for this quarter. For some personal reasons, some RMs might leave, but we’ve been able to maintain a very, very low regret attrition number, regret attrition defined as a person who has got more than INR40 crores of AUM after having come to INR40 crores of AUM if somebody left out, it would be called a regret attrition and that was only 1% in the quarter.

And coming back to your question, lateral hires from the industry 40% internal and 60% external, lateral hires for the last quarter, right?

Mayank Agarwal — InCred Capital — Analyst

So there will be also some client addition, because of that outside hiring also, if I am right?

Feroze Azeez — Deputy Chief Executive Officer

Sorry?

Mayank Agarwal — InCred Capital — Analyst

The 40% hiring we have done outside, they would also have bring some clients out of the newly added clients, if I am right, is that we should look at or how…

Feroze Azeez — Deputy Chief Executive Officer

Yeah, there will be — see, client new RM comes, he adds about 10, 12, 14 clients. It’s not very easy to move all the clients from the erstwhile organization. So it will be very difficult to bifurcate that when he joins in, in the first three months, four months how many does he get. So over a period, he tries to reestablish connects with his erstwhile organization client. Yes, you’re right.

Mayank Agarwal — InCred Capital — Analyst

And I wanted your perspective on equity inflows. So the industry is witnessing kind of a muted inflows for last four to six months, it could be higher interest rate or the muted performance of the market. So when do you expect the equity inflows to return to the market?

Feroze Azeez — Deputy Chief Executive Officer

See, the fact that equity inflows are not there may not be the best judgment. What happens is, HNIs use different vehicle, right? Mutual fund has had very low inflows from HNIs. PMSs have had inflows, AIFs have had inflows. Now, AIF also is going to be starting a direct alternative, direct option. So then, again, the mix between MF, PMS and AIF in most wealth management outputs is going to change. So coming back to this year, the total net outflow of HNIs is INR15,500 crores negative if you remove that SIP collections for the full-year, right? So — and Anand Rathi’s number is, till February was INR2,400 crores, somewhere thereabout. So we are positive, the industry is negative.

To come back to your question, pointed question, Mayank, when will this become better? To my mind, it will become better, because you’ve already gone through a one and a half year time correction, you’ve gone through a 1,000 points of price correction. In the same period from October ’21 markets have not moved anywhere, they’ve added INR900 of earnings to their books, minus the dividend, of course. So I think there has to be the light at the end of the tunnel. So that’s point one.

But you would be happy to note how a wealth management outfit can influence the trend in its own set of smaller subset of 8,400 clients. You would see that the last quarter Nifty was very bad. But our sourcing was the maximum in equity mutual funds. It is one thing to have academic faith that a market [Foreign Speech]. These are all together a different thing to actually do that in action. So you would see that in quarters where Nifty’s average is lower levels, our net mobilizations increase. And that’s when client performance come, right? So that’s something which we take pride in, like Jugal just said, the INR1,000 crores of our total sourcing for the last quarter came in equity mutual funds.

Mayank Agarwal — InCred Capital — Analyst

Right, right, right. Thanks. That was really useful and best of luck. Thanks.

Operator

Thank you. We have our next question from the line of Dipanjan Ghosh from Citi. Please go ahead.

Dipanjan Ghosh — Citi — Analyst

Hi. Good afternoon. Hope I’m audible.

Operator

Yes, you are.

Feroze Azeez — Deputy Chief Executive Officer

Yes, Mr. Ghosh.

Dipanjan Ghosh — Citi — Analyst

Yeah. So just a few questions from my side. First, lot of the private banks and even so the boutique wealth managers have been guiding on expanding their presence in the INR1 crore to INR10 crore or INR1 crore to INR20 crore sort of a segment. So more from, let’s say, a medium-term of five- to seven-year perspective, how do you see the competitive intensity increasing in the segment? Obviously, there is the pie expansion in terms of client penetration — our new client acquisition, but also there is an aspect of competition increasing from some of these players.

Second, I think from the cost perspective also over the last few years, we have seen some improvement. If you can give some color on what sort of buffer or headroom do you see on the cost side from a medium-term perspective, where you can see some improvement out there? And also if you can split your overall expenses between variable and fixed rate on the employer who are on-site?

And lastly, two data keeping — one data keeping question, if you can quantify the ESOP expense for the quarter and full-year?

Feroze Azeez — Deputy Chief Executive Officer

Yes. That’s a long question, Mr. Ghosh. So I might just miss any of them. So just you can pull me back into those one. The first one, you said about is the competitive intensity, right?

Dipanjan Ghosh — Citi — Analyst

Yes, yes.

Feroze Azeez — Deputy Chief Executive Officer

See, the competitive intensity could — is not just about the number of players in the space. It’s about number of similar players in the space. What we stand for is being mathematical, not product pushing, right? We have a strategy, we do it very uncomplicated, there is no wealth management outfit, which would be able to survive without doing an NFO, without doing a PMS, without doing an AI for 10 years. So we have acclimatized our clients to expect no entertainment uncomplicated advise, not something new every quarter, right? So when you look at it, the industry does direct equity, clients may not even know their IRR, forget their alpha, right? PMSs, they do, they don’t know their post-cost, post-expense alpha and IRR. Quite a few clients don’t know. So we want to be guiding our clients on the basis of mathematics. So — and all other peripheral services, right?

A guy does direct regular mutual funds with us not just to remunerate me on mutual funds. He wants to remunerate me for the trust I created for the tax opinions I gave or help them source. He wants to give me a regular scheme, because I’ve made is will. I’ve registered his will. I’m making quotations on his will. So there are several services. So for Wealth management outfits to offer these services and do mathematically just a 1% equity mutual fund business, I don’t see that will change too much, because as of now there are so many players. But not the real private bankers want to start in the ultra HNI segment, but we have the INR5 crore to INR50 crore segment, which Rakesh sir chose way back in 2007 as his preferred segment because the DNA of those people is mathematical, professional. They don’t like product pushers. They like somebody who can give in professional service. So — and we will traverse that as the industry evolves.

And that’s — what is your next question, Ghosh?

Dipanjan Ghosh — Citi — Analyst

Second was on the cost part. Whether you see some headroom for improvement and what is the quantum and also if you can split between variable and fixed?

Feroze Azeez — Deputy Chief Executive Officer

Yeah. Jugal sir?

Jugal Mantri — Group Chief Financial Officer

Yeah. Mr. Dipanjan, if you look at the overall cost structure which we have, out of INR100 revenue which we see earn, see, our PBT margin is about, say, 42.5%, okay? So rest about 57.5% that constitute my total cost. And out of that, if you split it, the operating costs, including employee cost that is, say, about 46%, 47% and remaining 10% is other incidental cost, which is other operating business promotion, rental and all these things. And even in case of employee, their split is between revenue-generating employee, as well as the product, operation or non-revenue generating employee setup is, say, between two-thirds and one-third.

So what we can say as far as concerned with increase in the volume of business, there’s a one-third cost we are still capacitized to handle, say, another 50% volume of what we have been doing right now and that will be a semi-variable cost and revenue-generating employee which constitute that is directly variable cost. So if we — overall — as long as we achieve, say, 42.5% to say 43% or 44% of the gross margin or the PBT margin, I think that is we are very close to the optimal — this thing, margin level and further scope of improving it is limited. That will be next driven by the volume and commensurate increase in the cost.

Does this answer your question, Mr. Dipanjan?

Dipanjan Ghosh — Citi — Analyst

Yes, yes. And if you can just quantify the ESOP expense number?

Jugal Mantri — Group Chief Financial Officer

That is very insignificant. I think in this quarter it was about INR1.5 crore. That was the ESOP expenses. There is no other — there are no other ESOPs which was outstanding. So in fact, that expenditure will also go away going forward.

Dipanjan Ghosh — Citi — Analyst

Okay. And if I can just follow-up on one of the points you mentioned in the previous answer, you mentioned that if the industry were to move to an company-level TER from a scheme level TER, then the impact will be around 2 bps going down to 1.09% to 1.11%. So if you can give some color on how you kind of arrived at this calculation? Or what are the inputs that you’ve kind of baked in?

Feroze Azeez — Deputy Chief Executive Officer

Yeah. So what we did was, see, every asset management company, we had nine asset management company in 11 schemes. Okay? If every asset management companies average AUM of each of the schemes became their actual TER fixation number. For example, if I take the largest AFC, the biggest scheme could be INR30,000 crores, right? If all of them were back to INR30,000 crores, what would be the actual expense chargeable on the scheme which I am selling, right? I am selling, for example, okay, let me not give you examples of asset management companies, but if I would be selling a INR10,000 crore scheme in a asset management company, which average AUM is INR20,000 crores, will I get impacted there in that asset management company? I’ll get it back to you.

Now, I sell a very, very large scheme also in my 11 schemes, which you would have heard of me speaking on TV or somewhere, where you would have INR50,000 crores, INR40,000 crores in that scheme, in that AMC has not get impacted. So we went AMC by AMC trying to repeg the TER permissible as per SEBI slabs on the average and the highest scheme of that corresponding asset management company. Then, did the math, then the drop was 3%, 4%. Then if you made some modifications to the model portfolio, the new model portfolio set 2% to 3%.

Dipanjan Ghosh — Citi — Analyst

When you say average AUM basically overall some of AUMs number of schemes, right?

Feroze Azeez — Deputy Chief Executive Officer

But the one of the interpretation says, that’s not the case. So, I’ve also simulated to the largest scheme. If all the smaller schemes of an asset management company now get charged only on the basis of the larger scheme. So there is some degree of interpretation there. Average may not be the right because it’s not become a rule and I think that put at bay in my opinion so far. So when it happens you have to try and navigate that and I don’t think — my model portfolio was so designed to get a 1.3% trail, which I could have very easily. The average AUM of my 11 scheme is INR15,000 crores because I am a client-centric organization. I will choose a scheme, not because of INR2,000 crores scheme could give me more commission. The average schemes I’ve being INR15,800 crores is self implies that I didn’t use the smaller schemes to bring my revenues up. If I would have done that I would have been at 1.4% trail, then would I’ll come back after this regulatory change to 1.1%, so I could have enjoyed that 0.2, 0.3 more for some period of time, very well knowing it will go away. So I’ve not used that.

Dipanjan Ghosh — Citi — Analyst

Got it.

Feroze Azeez — Deputy Chief Executive Officer

Does it answer?

Dipanjan Ghosh — Citi — Analyst

No, yes. Sure, sure. It does. I think thanks for the clarifications and all the best.

Feroze Azeez — Deputy Chief Executive Officer

Thank you, sir, for your question.

Operator

Thank you. We have our next question from the line of Abhijeet Sakhare from Kotak Securities. Please go ahead.

Abhijeet Sakhare — Kotak Securities — Analyst

Hey, hi. So, one question. Just a broader question on how we operate. So just some perspectives on what’s been the level of acceptance or what are your broad thoughts around moving towards a advisory-based or a fee-based model in terms of advising our client base?

Feroze Azeez — Deputy Chief Executive Officer

Fee-based model, 2013 is when advisory regulation was introduced. There about 10 circulars, which has been published after that, seculars and discussion papers. We have not had to change our business model, we have chosen distribution, we will remain distribution still advisory, all products need to be on direct. After 10 years of mutual fund going on direct, two days back or three days back, you read that AIFs are also going to have a direct option because a client portfolio has several products, insurance, AIFs, PMSs, mutual funds, only mutual fund had a direct option. PMSs did have a direct option. So it’s not — so that’s why we chose the distribution model. Five years from now, 10 years from now is all financial instruments could come on direct is when somebody can choose to go the advisory model or the distribution model and then give unbiased advise, right? So that’s the reason.

And anyway the advisory licenses had been surrendered by all wealth management outfits in October 2020. This is something and now PMS platforms get used for charging a fee. So all the advise — most of our companions in the industry surrendered their advisory license. If you Google you can find it.

Does it answer, sir?

Abhijeet Sakhare — Kotak Securities — Analyst

Yeah, got it, got it. Thanks a lot.

Operator

Thank you. Ladies and gentlemen due to time constraints, we request you to restrict your question to one. We have our next question from the line of Varun Pattani from Quant Mutual Fund. Please go ahead.

Varun Pattani — Quant Mutual Fund — Analyst

Yeah, hi. Congratulations on a great set of numbers. So my question was on the selection of the schemes, you mentioned you have 11 schemes, and you might increase a few more schemes. So what sort of criteria — apart from maybe AUM size or something else, what criterias do you look at? Because most of the industry practice is looking at historical numbers like returns or sharp ratios or something like that. So as a customer or as a client, how do you explain it to them why you have gone for a particular mutual fund scheme?

Feroze Azeez — Deputy Chief Executive Officer

So, Varun, I can sometimes offline take you through the presentation from a client standpoint. But we — I’ll just tell you in a nutshell. But we tell the client that don’t evaluate each scheme independently. You have to evaluate the full portfolio. I don’t take the mandate to get you the best 11 schemes. So the portfolio — you will always have two, three ones, two, three of those schemes out of 11, 12 you choose, which will not do well, that’s an expectation setting. Otherwise, the client is always going to get into individual schemes and it will be rest assured, there will be two, three of them which will underperform and even woods for the trees. Point one.

Point two, how do we choose it? We ran a regression model on 104 variables to check the correlation with as a lead indicator. And then we identified some 11 variables, which have a significant correlation between the past variable and the future performance. So what are those 104, it’s a laundry list of them, not those conventional sharp players only. There are several other variables we check the correlations of them and then we use the regression to put — to fit the coefficient of those differential equations. That is the statistical method.

The second is, we try and get into the schemes — stocks in each of those portfolios and we use our research to find out the overall basket’s future potential, just like most analysts give a target price for a stock, a basket of stocks also we try and put rigorous effort to find out which is the portfolio which has the maximum headroom for growth and in turn price movement. That’s the second.

Third we do is, we try and see, we rank our fund managers, 152 fund managers are ranked in the chronological order of their decision-making capability which we deliberately measure using a proprietary formula. So I don’t want to give that all on a call. But, yeah, that’s — these are the three steps and then doing all this just to make sure that we are able to beat Nifty by 2% to 3%, nine and a half years we have run the model portfolio ever since direct came, we said we will have to generate alpha and create our relevance that’s when we will be able to sustain a regular business for years to come, or if not, decades. So in the nine and a half years, the audited performance of our model portfolio of 38 exits and 36 entries in the portfolio has resulted in 2.23% alpha over Nifty compounded for the last nine and a half years is the outcome of our statistical evolving mathematical model for a choice.

Operator

Thank you.

Feroze Azeez — Deputy Chief Executive Officer

Sorry for the monologue. Yeah. Varun, does it answer at least conceptually?

Varun Pattani — Quant Mutual Fund — Analyst

Yes, yes, it does. Thank you.

Operator

Thank you. We have our next question from the line of Aejas Lakhani from Unifi Capital. Please go ahead.

Aejas Lakhani — Unifi Capital Pvt Ltd. — Analyst

Yeah, hi, thanks for the chance. Sir, just one question that from the current revenues, in the PPD, the way you reported, out of your 141, 47 is trail. So that’s clear. So the balance 95, how much of it comes from the upfronting of the MLDs? Could you quantify that? That’s just a query I have. And the second one, actually, if you could quantify this, if it’s possible?

Feroze Azeez — Deputy Chief Executive Officer

Yes, yes, surely possible. Jugal sir, if you can say that? So a reasonable portion of that will be MLD, primary, secondary and some broking income, some things which are generally there. And…

Jugal Mantri — Group Chief Financial Officer

Yeah. So out of that like 91 or 91.5 is from the MLD and rest is from other business [Phonetic].

Aejas Lakhani — Unifi Capital Pvt Ltd. — Analyst

Perfect. And Feroze you mentioned a couple of times that your growth is in the MF has been INR2,000 crores ballpark and the industry is at minus INR15,000 crores. So could you just tell me what is exactly driving that? And what do you think are the growth drivers for that in FY ’23 — ’24 and ’25?

Feroze Azeez — Deputy Chief Executive Officer

So measurement is driving that. Now, if a client came to me or if I — we went to a client, we try and find out transaction-wise alphas of over Nifty, most distributors don’t give this number. On a specific day, now let’s assume few days back I just met a large client, who had done 426 entries into mutual funds and about 121 exits into mutual funds over the last four years. So I take the transaction information, put that on an excel sheet, compute if you bought and sold Nifty on those specific dates, would you be richer or poorer. If he is poorer, he has underperformed Nifty and he doesn’t even know, most people don’t even have the exact transaction-wise alpha. So we analyzed last five months, we analyzed 239 external portfolios transaction-wise, no approximation because Nifty moves 1% every day. If you have to measure alpha, you have to measure it on the same day if I bought and sold Nifty’s out of the 239, about 170 of them did outperform Nifty in spite of being an active funds through other distributors. 219 of them couldn’t beat my module portfolio, 20 of them have beaten my model portfolio. So I learn from the people who beat me, the 219 clients who underperform my model portfolio on a transaction-by-transaction basis, that’s the crux. Then I go to them and say, sir, you may go direct, you might think that you’ll save some cost, but your revenue has dropped far more than your cost. That’s why you’ve underperformed Nifty by 3% in spite of saving 0.5% or 1% on cost. Then I am able to move even a direct client — large direct clients are moving to regular. So, measurement, which we started lately, mathematically exact same precise measurements is helping up establish that we have gained distributors rather than in English, but in numbers.

Operator

Thank you. I request you to come back in the queue for further questions. We have our next question from the line of Varship Shah from Envision Capital. Please go ahead.

Varship Shah — Envision Capital — Analyst

Yes, sir, thank you for taking my question. Just from a reporting perspective, it will be better if [Indecipherable] in average AUM for the quarter it make it easier for us to calculate yields? I mean, surely internally we got exercise, right, asset transfers [Phonetic].

Feroze Azeez — Deputy Chief Executive Officer

Great suggestion, sir.

Varship Shah — Envision Capital — Analyst

Okay. And on the MLDs so we are completely unimpacted by the regulation — taxation change, right, because we are non-principle protected?

Feroze Azeez — Deputy Chief Executive Officer

In our belief, we are positively impacted by that change because that’s what we called out saying, this will happen. So from a taxation standpoint, the answer is yes, we don’t get impacted. And that belief gets solidified because debt funds with 35% equity also don’t get impacted. So the Section 50A basically says, if you’re taking the risk no problem. If you’re not taking the risk, please don’t take indexation and long-term capital gains. That’s why debt funds with more than 35 in equity are exempt from 50A.

Does it answer?

Varship Shah — Envision Capital — Analyst

Yes, yes. Thank you.

Feroze Azeez — Deputy Chief Executive Officer

All our products are risk, they can also lose full capital, even Nifty become zero. So they’re more equity-like.

Varship Shah — Envision Capital — Analyst

Thank you.

Operator

Thank you. We have our next question from the line of Pallavi Deshpande from Sameeksha Capital. Please go ahead.

Pallavi Deshpande — Sameeksha Capital — Analyst

Yeah, hi, sir. Thank you for taking my question. Sir, just a small one here on the NBFC that back in the structured products, I understand it’s G6, derivatives and small amount of loans. So just want to understand what’s the yield on the loans there?

Feroze Azeez — Deputy Chief Executive Officer

Jugal ji, you may be equipped to answer this one, the yield on the loan.

Jugal Mantri — Group Chief Financial Officer

So that is a question related to NBFC. But I’m sure that on the NBFC front, whatever lending, which has been done, the average yield which they are earning is about 11.5% for the loan against shares portfolio and for mortgage and construction finance book, the average yield is in excess of 13%.

Pallavi Deshpande — Sameeksha Capital — Analyst

1-3?

Jugal Mantri — Group Chief Financial Officer

Yes.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right, sir. Sir, second question would be on what could be the average age of the clients that — the 2,500 clients, what could be the average age?

Feroze Azeez — Deputy Chief Executive Officer

Let me — sorry, average age of?

Pallavi Deshpande — Sameeksha Capital — Analyst

Of the clients. Of your clients?

Feroze Azeez — Deputy Chief Executive Officer

The average age, I can’t tell you, but I’ll tell you one number, 63% of the clients have finished more than three years, 37% are less than three years.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right.

Feroze Azeez — Deputy Chief Executive Officer

In our fleet, when the person goes through one cycle of three years, then he’s a mature relationship with us.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right. I was asking is, the higher the…

Feroze Azeez — Deputy Chief Executive Officer

Okay, okay. You are not speaking of the vintage with us, you’re speaking about the age. Okay [Speech Overlap]

Pallavi Deshpande — Sameeksha Capital — Analyst

Age of the client, 50 years, 20 years, yeah.

Feroze Azeez — Deputy Chief Executive Officer

No, no. Sorry? 50 years, 20 years is actual age, right?

Pallavi Deshpande — Sameeksha Capital — Analyst

Yeah. Actual age. Yes.

Feroze Azeez — Deputy Chief Executive Officer

Okay. I’m so sorry, I misunderstood you. I thought the vintage with us is what you were looking for…

Pallavi Deshpande — Sameeksha Capital — Analyst

Or if you could tell me how many of them would be higher than 60 years old?

Feroze Azeez — Deputy Chief Executive Officer

Okay. Rakesh sir, do you want to take that to break the monotony of my voice?

Rakesh Rawal — Chief Executive Officer

I don’t have a precise number. But my experience is that, close to about 40% would be higher than 50, 55.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right. And sir, that’s why I was just relating this to the debt funds that are going to be becoming more than attractive in the whole scheme of things. Do you see money then shifting? Would you be looking at the allocation shifting more clients to equity and are — yeah.

Rakesh Rawal — Chief Executive Officer

What we have found is that, people with 50, 55, 60 years, has the same aspiration to be well and earn from 14% return, and maybe with a guy 30 years of age. This is a misnomer that maybe a 60-year relegated to a old age debt bucket. There’s lot of life still left. I’m 67. So, we have — we’re very comfortable with equity unlike the presumption. I see a lot of young people put money in deposits. Hello?

Pallavi Deshpande — Sameeksha Capital — Analyst

Yes. Yeah. I mean, but money shifting to FDs, just like you have put your money into an FD, the Company has, right? So I have to look at industry-wide as a shift expected from debt funds to [Speech Overlap]

Rakesh Rawal — Chief Executive Officer

No, no, no. I’m just saying — sorry, Feroze carry on.

Feroze Azeez — Deputy Chief Executive Officer

Sorry, sir, you were saying, I didn’t hear you. I’m sorry. Please go ahead, sir.

Rakesh Rawal — Chief Executive Officer

No, no. I’m basically saying that if a person has a 12% to 14% aspiration, any client, whether 60, 65, 50, 80, then there is a mechanism to do that, which should evolve with certain degree of equity. So it’s not about — it is about what objective that person has. And the point I was raising was that, it doesn’t make sense to have a 6%, 7% kind of objective when you have inflation of 5%, 6%. So that’s why most people or many people have chosen 12% to 14%, which is — and they get comfort over it — overtime in equity. So each profile which you see, my experience hasn’t — doesn’t have a correlation to what kind of equity exposures will have.

I don’t know if that answers it. But it is my experience tells me that it doesn’t have a correlation. Feroze, you can add to that.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right. That was very useful. Thank you.

Feroze Azeez — Deputy Chief Executive Officer

Yeah. I would like to Pallavi, what happens is, with age earning potential reduces, a person who has not financial free. See, the present value of all the HNIs goals is less than its current net worth, then he has attained financial freedom. If you have attained financial freedom, then he has inter-generational money. So if I am 80 and I am not going to be using INR35 crores, for example, it is going to be dependent on who is the Kartha. I might see that — if I — let’s assume I’m 80 years and this money is in a trust of a benefit of my three grandchildren, who are 18 years age. Will mine is capital tied we’re dictating the allocation or the 18-year olds who are actually the beneficiary of this money? What do you think, Pallavi?

Pallavi Deshpande — Sameeksha Capital — Analyst

Oh yes, I got my answer.

Feroze Azeez — Deputy Chief Executive Officer

Right. So when we look at this perception, it is coming because 99% of India is living hand to mouth. They have not able to fulfill the goals of their lifetime. But we have collected a homogeneous group of those guys who — if they want to achieve all that goals, they will still be left with money. That’s why Rakesh sir is only implying return objective, not retirement objective. He’s saying 12% to 14%, he’s not saying [Foreign Speech] he us not saying retirement.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right, right.

Feroze Azeez — Deputy Chief Executive Officer

Right? So what’s the difference between ARWL and 99% of India’s operating with the same mentality, which you said because [Foreign Speech]

Pallavi Deshpande — Sameeksha Capital — Analyst

Right. Got it. Thank you so much, sir.

Feroze Azeez — Deputy Chief Executive Officer

Thank you.

Operator

Thank you. We have our next question from the line of Prayesh Jain from Motilal Oswal. Please go ahead.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Yeah, hi. Firstly a question on the client addition trajectory that we’ve seen. It’s kind of on the weaker side when we compare it with what you have been doing in the past. So is it — and also I see that you have generally whatever numbers — reported numbers, we have even in last year’s Q4 that number used to be on the lower side. So first of all, is there a seasonal trend in terms of client acquisition trajectory wherein you king of get into some slowdown or that sense?

Feroze Azeez — Deputy Chief Executive Officer

No, Prayesh ji. If you look at — see, when you look at client addition, the number which you would be looking at is net. What happen is, if a client’s market value falls below a certain threshold, we stop counting them as a client. But the markets fall, we have some degree of outflow, not that the client has gone away, right? Clients mark-to-market has brought and beyond the threshold, which we like to see.

If you look at gross addition, it will give you a true picture. Let me give you the gross addition. In the first half of the last financial year, we had 1,230 gross addition. And in the second half we had marginally lower 1,070 gross addition. Because the market in March 31 closed significantly lower, right, then the December number of 18,100, some of them would have slipped lower. Now the beauty is, of course, there is a 5%, 10% lower in the second half than the first half. But the quality of addition, the client who started in the first half gave us INR91 lakh average to begin with. The client who gave us money in the second half, started with INR1.45 crores as an average. As they have become a listed entity, we’re getting popular, we’re becoming more trustworthy, because there’s a perception attached to a listed company of governance and transparency. So we need to cut bigger and bigger cakes [Phonetic] as we progress. So, it’s the quality of acquisition has improved. Marginally you are right in the second half, there was a marginal dip relative to the previous half. But if you compare it to the previous year we’ve had a gross addition increase significantly.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Okay, sir. And just a question on the employee cost. You mentioned — so how do you account for the variable cost? So it’s on a quarterly basis you forecast for the full-year and then approximate during the year, the accounted in one particular quarter, how do you view that?

Feroze Azeez — Deputy Chief Executive Officer

Jugal ji, if you can answer?

Jugal Mantri — Group Chief Financial Officer

See, does the incentive? The largest portion of the incentive is accounted on a quarterly basis. Okay? But there are certain incentives which are like add-on incentives linked to the achievement of certain threshold limit. Okay? That we come to know in the last quarter only that whether every AM, any individual RM who has crossed a particular threshold and because of this, there is some incremental incentive, which is getting accruing to him over and above the incentive, which has been provided for. So that is why when we are finalizing the annual accounts, the assessment of the incremental accrual to any employee on account of incentive that gets computed in the last quarter and that is why you will see that, in fact, the employee cost for the Q4 is higher by say about INR5.5 crore in Q4 that is on account of that incremental incentive, but you can say that largely around 90% to 95% of the incentive that gets computed and accounted in respective quarter. And the remaining 5% to 10% of the incentive, which is add-on, that gets computed and accounted in the final quarter.

Operator

Thank you. I would now like to hand the conference over to management for closing comments. Over to you.

Feroze Azeez — Deputy Chief Executive Officer

Jugal ji?

Jugal Mantri — Group Chief Financial Officer

Yes, please. So I take this opportunity to thank everyone for joining on the call. I hope we have been able to address all your queries. For any further information or clarification, kindly get in touch with our IR Head Mr. Vishal Sanghavi; or CFO, Mr. Rajesh Bhutara or Strategic Growth Advisors, our Investor Relations Advisors. Thank you very much.

Operator

[Operator Closing Remarks]