HDFC Asset Management Company Ltd (HDFCAMC) Q1 FY23 Earnings Concall Transcript

HDFC Asset Management Company Ltd  (NSE:HDFCAMC) Q1 FY23 Earnings Concall Jul. 22, 2022

Corporate Participants:

Simal Kanuga — Head Sales and Investor Relations

Navneet Munot — Managing Director and Chief Executive Director

Naozad Sirwalla — Chief Financial Officer

Analysts:

Kunal Thanvi — Banyan Tree Advisors — Analyst

Mohit Surana — CLSA India — Analyst

Madhukar Ladha — Elara Capital — Analyst

Prayesh Jain — Motilal Oswal — Analyst

Saurabh Kumar — J.P. Morgan Chase — Analyst

Dipanjan Ghosh — Citibank — Analyst

Amey Sathe — Tata Asset Management — Analyst

Lalit Deo — Equirus Securities — Analyst

Nidhesh Jain — Investec — Analyst

Atul Mehra — Motilal Oswal Asset Management — Analyst

Hiral Desai — Anived Portfolio Managers — Analyst

Abhijeet Sakhare — Kotak Mahindra Bank — Analyst

Unidentified Participant — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Q1 FY ’23 Earnings Conference Call of HDFC Asset Management Company Limited. From the management team, we have with us Mr. Navneet Munot; Mr. Naozad Sirwalla; and Mr. Simal Kanuga. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Simal Kanuga, who will give us a brief following which, we will proceed with the Q&A session. Thank you, and over to you, Mr. Kanuga.

Simal Kanuga — Head Sales and Investor Relations

Thank you so much. Good evening, and we really appreciate all of you taking time out for this call on Friday evening. The results for the quarter ended June 22, along with a brief business update, is available on our website under the A&T shareholder tab and also on the exchanges. Let me start off on the industry. So net flows for the industry continue to remain strong. I’m talking about the equity flow. During the quarter, industry saw net new flows add up to INR783 billion, lower than INR968 billion for quarter ended March ’22 but materially higher as compared to INR251 billion for the quarter ended June ’21.

What we did mention last quarter does hold for this quarter too. That equity inflow number includes index fund, and index funds comprises of both equity as well as debt index fund. We do not have data separately available for equity and debt index fund as yet. Inflows in net index fund have seen material uptick and hence — thus data to an extent. Let us look at it from AUM perspective to get some idea. AUM of debt index fund stood at INR23 billion as of June 21. And that number now is INR417 billion, so nearly INR400 billion increase. As this is pure fixed income, material part of growth is in form of inflows.

Fixed income funds continue to see outflow. This quarter, industry loss INR1,178 billion. The number for the previous quarter was INR1,046 billion. It would make logical sense to add debt index fund numbers here. Actually, one should even add AUM or frozen debt ETF[phonetic], which is currently merged in overall ETF number. Debt plus liquidity now account for INR606 billion in terms of AUM. The corresponding number as of June 21 was INR399 billion. Liquid funds saw net new flows of INR133 billion for the quarter and others of the category, which is basically ETF, arbitrage funds, and fund of funds investing overseas saw inflows of INR216 billion.

Individual investors continue to allocate to mutual funds. And now the live folio count stands at INR133.9 million with the overall unit number of investors at INR35.3 million. SIP flows for the month of June was similar to that of March ’22 at around INR123 billion. We closed the quarter at overall AUM of INR3,966 billion, market share of 11.1%. Excluding EPS, our market share is 12.4% on closing AUM and 12.3% on quarterly average. If one looks at actively managed equity-oriented AUM, our market share is more or less constant as compared to March ’22.

We continue to enjoy a favorable asset mix as compared to that of industry and also favorable ratio in terms of AUM from individual to nonindividual investors. Our market share in B30 AUM is 11.4%, and that makes us a distant number two. In terms of systematic transactions, we processed over 3.73 million transactions, totaling up to INR12.8 billion in month of June 2022 as against INR12.3 billion in March of 2022. Before we move to financials, let me quickly update on what is happening in terms of new products and other businesses.

There was a regulatory embargo on industry level on launch of any new mutual fund schemes for the quarter. We have approval for nine ETFs though few of them do need some kind of data extension as we have clarified that earlier today. Assuming all approvals fall in place, we propose to launch all of these during the course of the quarter. We have a few more ETFs and index funds, which have been filed. We launched those as and when the approvals combine. In terms of sectoral and thematic funds, as mentioned during the previous quarter, we have four funds awaiting clearance and the same will be launched over time subject to those approvals coming by.

We also filed for a fund that would track the MSCIEmerging Markets Index. In terms of category-two AIF, we have filed PPM with SEBI in early June, a quick recap here we are launching a fund of funds which would invest across the entire spectrum, right from early stage VC fund to mid-market, growth funds to buyout funds. In terms of our wholly-owned subsidiary Index, we are progressing well and hope to go live over the next couple of quarters. Now we move to financials. Revenue from operations grew by 3% year-on-year and 1% on a quarter-on-quarter basis. Other income for the quarter is materially lower due to lower MTM gains in index mutual funds on account of increase in interest rates as well as the MTM loss attributable to market volatility on mandatory equity mutual fund investments.

Employee costs for the quarter was INR780 million versus INR835 million. If you take the cost of ESOP, which is a noncash expenditure, Employee costs for the current quarter stands at INR677 million as against INR659 million for the quarter ended June ’21. Other expenses have increased by 27% year-on-year basis. First quarter of the last financial year was in time for lockdown or say reduced operations. We would like to draw your attention to the expenses for the quarter ended June 2019. That was a normalized quarter pre-COVID. It was INR406 million. So over a period of three years, the cost has gone up from INR406 million to INR525 million, an absolute increase of 29% or a CAGR of just above 9%.

Profit after tax fell by 9% both year-on-year and quarter-on-quarter basis with lower other income being the key contributor. Before we open it up for questions, I would just like to hand over the call to Navneet to make a couple of comments. So thanks, and we will hear Navneet, and post that, we’ll open it for questions.

Navneet Munot — Managing Director and Chief Executive Director

Hi. Good evening. So first of all, at the outset, I want to place our sincere appreciation for contribution made by Prashant over the last 19 years or so. You must have heard about the announcement we made earlier today in reference to his resignation. In 2003, when Zurich Financial Services decided to move out of India, Prashant along with their schemes, moved to HDFC Mutal fund. As everyone knows Prashant has distinction of being the longest-serving fund manager in India. I’ve known Prashant for many years and has the highest regard for him as a fund manager as well as CIO.

The HDFC AMC investment team is known to be amongst one of the best in the country. I’ve now spent nearly 1.5 years at HDFC AMC and can vouch for the processes and that is second to none. In fact, this has got further verified when I hear the same from fund managers who have joined us in the last couple of years from other AMCs and also the analysts who have joined from the sell side. Talking about the fund management team, so on the equity side, we have Chirag with experience of over 20 years; Gopal Agrawal over 18 years; Ruchi Jain, over 20 years; Anand Ladda over 18 years; Rakesh Vyas over 20 years; Srinivasan Ramamurthy over 15 years. And I’m sure several of you would know most of these people well and our other analysts.

We have further beefed up our team by adding Rahul Baijal, who has just joined us from Sundaram Mutual Fund. Again, an experience of over 20 years across sell side and buy side. There are nine dedicated analysts with experience ranging from six years to 20 plus years. Most of them had experienced over a decade and are counted among the best in the sector that they cover. The combined years of experience of our equity investment team when I look at all of these people would come to something like 230 or 240 years. Over and above, we have Krishan Daga and Arun Agarwal who manage arbitrage funds, passive strategies. Again, Krishan has experience of over 30 years, Arun would have experience of over 24 years.

Now let’s look at fixed income, Shobhit and Anil Bamboli, have been with us for over 18 years. Shobhit has experience of 30 years while Anil would have experience of around 28 years. Anupam Joshi, who manages some of our fixed income schemes like Mutual fund, corporate bond fund, low duration funds, et cetera, has experience of 21 years. Vikash Agarwal has experience of over 16 years and of that 14 with us. And Praveen Jain, has experience of 17 years and of that, 14 with us. And then with the analyst Sankalp and Bhavesh, we are talking of an experience of over 140 years of fixed income fund management side too.

So this wonderful team that has worked under Prashant will now be led by an able duo of Chirag and Shobhit. Chirag Setalvad is one of the founding member of the investment team when HDFC AMC got setup in 2000. So he’s been with us from like day one in 2000, but for a couple of years in between that is 2004 to 2007 is now going to lead the equity team. Chirag has been part of the system, and that should make for a comfortable transition in terms of equity investment and research process. He’s been one of the most respected fund manager in India, managing strategy is running over almost two decades.

Shobhit Mehrotra will take over as head of fixed income. Shobhit again is a veteran fixed income fund management with over three decades of rich experience in fixed income and credit assets. Both of them will be leading a team of 30 committed investment professionals. In HDFC AMC, we are proud of our people, our processes and our philosophy, that has stood the test of time. I’m very confident that this team will leave no stone unturned to carry the legacy further notch.

Simal Kanuga — Head Sales and Investor Relations

Thanks, Navneet. Neerav, what we can do is just start building on the questions queue and happy to take questions from here on.

Questions and Answers:

 

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Kunal Thanvi from Banyan Tree Advisors. Please go ahead.

Kunal Thanvi — Banyan Tree Advisors — Analyst

Thanks for the opportunity. So I had three questions. First was on the organization structure. So what we understand is Shobhit and Chirag will take as you know debt and equity as head respectively. So will we have a CIO or they will continue reporting to Navneet directly? That is question number one. Second is on industry, you see that there has been a significant outflow in that debt, can you throw some light, what are the reasons for it? How do we see fixed income as a category in medium to short term? And thirdly, on any thoughts on the buyback with the kind of cash we had in the balance sheet would help. Yes, these are my three questions.

Navneet Munot — Managing Director and Chief Executive Director

Sure. So on the first question, there’s a distinct focus on two different asset classes. Chirag will lead the equity team, and Shobhit will lead the fixed income team. Both of them will report to me. On your other question on the debt part, yes, you are absolutely right. Last year, we had net redemption in debt funds[phonetic] as a category, and I’m talking of the industry flows as well as the last quarter. Maybe rates have been moving up, and the fixed income fund returns may not have been as attractive. But I guess, as and when people believe that rates are stabilizing, there’s a possibility that money starts coming back into the fixed income fund. They also move along with the overall system in liquidity, which you would know that has shrunk over the last couple of quarters.

Your third question on the capital allocation. I think we have always said something that our Board is cognizant and we will continue to evaluate best possible options. If and when there is a right kind of an opportunity comes by, we’ll keep exploring all those options. You would know that our dividend payout ratio for the last financial year was just a shade under 65% and I would like to believe that this should slope upward.

Kunal Thanvi — Banyan Tree Advisors — Analyst

Sure. And then one more I can squeeze on was on the [technical issue]

Operator

Sorry to interrupt. Your voice is not coming very clear.

Kunal Thanvi — Banyan Tree Advisors — Analyst

Is it better now?

Operator

Yes. Thank you.

Kunal Thanvi — Banyan Tree Advisors — Analyst

Yeah, yeah. Yeah, thanks Navneet for your answer. If I can squeeze one more question was on the yields, if we see — look at our overall yields, both on a sequential and Y-o-Y basis, it seems to have improved. Can you help us understand what has led this improvement, is it entirely driven by the improvement in the equity mix or we were able to — the pressure on the yields itself has eased out in the industry, and for HDFC AMC?

Navneet Munot — Managing Director and Chief Executive Director

No, no. I think it’s got a little bit of mixing and some bit of rounding up, but I don’t think that you should read much into this.

Kunal Thanvi — Banyan Tree Advisors — Analyst

Sure. Thanks.

Operator

Thank you. Next question is from the line of Mohit Surana from CLSA India. Please go ahead.

Mohit Surana — CLSA India — Analyst

Hi, sir. Thanks for taking my question. My first question is then — last year during — when we were losing market share in equity, you had alluded that you know broadly, our market share and outflows were stable, and we were kind of losing market share in gross new inflows. So if you could just qualitatively update us on how the situation has changed on that front? Because as I understand, schemes performance has been quite good over the last one or 1.5 years. So if you could just update on that? And secondly, if you could just elaborate on what are the benefits that we can see that will accrue to HDFC AMC on account of HDFC Bank and HDFC merger? Those are two questions.

Navneet Munot — Managing Director and Chief Executive Director

Sure. Some — equity market share for the quarter was more or less stable. I can tell you two things, one, that our market share in redemptions is falling, which definitely is good news. And on the other hand, our market share in gross flows is getting better by the day. We did lose out on large number of SIP registrations that happened during the last couple of years, but we are catching up on that. We used to be a pioneer when it comes to the SIP creation, and we are very hopeful over the next couple of quarters, couple of years, we would look to regain that market share in SIPs. A related question would also be the linkages between performance and the share within outflows, as well as inflows. I would say that improved performance and see result in increasing market share, there is bit of a time delay between those two things.

My experience tells me that performance either ways, good or bad, tends to be ignored for a couple of quarters, it then gets noticed. But there is a belief that the phase is temporary. Investors and distributors will then start planning an action. But the real action would follow over the next couple of quarters. So it takes time for one to start seeing results of good performance or downside associated with difficult period of performance. So to repeat the point, I think we are seeing the market share is stabilizing and fall in the market share in redemption and increase in the market share in gross flows.

Mohit Surana — CLSA India — Analyst

Sure sir. And if you would — yeah.

Navneet Munot — Managing Director and Chief Executive Director

Merger. I mean, we have mentioned earlier that the impact on us due to the merger can be neutral to positive, I think we become part of a larger entity with a much deep distribution network.

Mohit Surana — CLSA India — Analyst

Understood, sir. Thanks for your response.

Operator

Thank you. The next question is from the line of Madhukar Ladha from Elara Capital. Please go ahead.

Madhukar Ladha — Elara Capital — Analyst

Hi. Good evening. Thank you for taking my question. Just hopping on the yield question by one of the earlier participants. There is a material uptick in the yield and sort of if I do a little bit of a back calculation, it seems to be coming from the Equity side. Any sort of color, comment on that will be very helpful. The other thing that I notice in the numbers is that the other income has fallen dramatically, and so, has the tax amount. And your tax rate has come off to about 18.4%. Now, this probably suggests a loss in the other income, a realized loss in the other income and you creating a deferred tax asset. If you could elaborate whether my reading is right? And what is this loss pertaining to? That would be helpful. Yeah, those are my two questions.

Simal Kanuga — Head Sales and Investor Relations

Madhukar, on the yield side. And I think tax one, Naozad will answer for you. I think the yield side as I stated earlier, it is nothing but a marginal mix in — marginal change in the mix. And secondly, as I stated some bit of round up. So what tends to happen is, last quarter, you would have seen it at 48 it being at 48.4. And if it goes to 49.6, it goes to 50. So some bit of rounding up and some bit of asset mix change. So these two things have led to an improved yield. Also, if you want to really get into a microscope, there was zero NFOs in this quarter, so the so-called low cost flows into the AUM were also lower. So lower revenue I mean — lower revenue flow into the yield was lower. So these two things would have led to some bit of. But as I stated earlier, don’t really look into it beyond a point. I think, the yields are in line with what we mentioned in the previous quarter, and I hope things change for the upside, but that’s not the case.

Madhukar Ladha — Elara Capital — Analyst

And just to add some more here directionally, do you continue with your earlier commentary of — for those sort of decline in active equity yields?

Simal Kanuga — Head Sales and Investor Relations

Absolutely. I think, see, we have stated this even earlier right? If you recall, see what tends to happen is if you look at our book somewhere at mid-70s versus that the flows are nowhere near that number. So absolutely, you are right. There is going to be dilution in yield as more and more money comes in. I think one thing that you need to kind of also consider the pace of dilution of years. See what happened last year when we started the year 2021-22, we started with an AUM base of just about. I’m talking about industry as a whole, started with an AUM base of INR13 trillion odd, and we saw inflows, gross inflows adding up to close to INR5.9 trillion or INR5.95 trillion. So there was a 45% of the AUM in terms of gross flow. Now if you look at current numbers in terms of run rate. Currently, the run rate is INR50,000 crores or INR500 billion. What was last year is this year? Now if you look at say another INR5.9 trillion even flowing in, it is on a denominator of nearly INR18 trillion or INR19 trillion. So the pace of dilution of yield might slow down, but yes, there would be dilution in yield as more and more money comes in.

Madhukar Ladha — Elara Capital — Analyst

Got it. Thank you. Thanks. Thanks.

Simal Kanuga — Head Sales and Investor Relations

On the tax thing, Naozad, you take?

Naozad Sirwalla — Chief Financial Officer

Yeah. I’ll take the question on. So other income, we also explained earlier. It is lower largely due to lower MTM gains on debt mutual funds, and MTM losses on account of the equity mutual fund exposure. Thank you to the Skin in the Game circular. On the effective tax rate for the period ended June ’22, it’s lower due to reduction in deferred tax charge on account of MTM losses and also reversal of deferred tax liability on certain investments that was sold and set off against carried forward losses.

Madhukar Ladha — Elara Capital — Analyst

Understood, understood. Okay. That’s it from my side.

Naozad Sirwalla — Chief Financial Officer

Thanks.

Operator

Thank you. The next question is from the line of Prayesh Jain from Motilal Oswal. Please go ahead.

Prayesh Jain — Motilal Oswal — Analyst

Yeah, hi. Thank you for the opportunity. Firstly, from distribution annually. So if I think about the merged entity or HDFC Bank today. If I compare it with say ICICI Bank or Axis Bank, when they sell their descended mutual funds, the share of the Group AMC is upwards of 60%. While if you look at HDFC Bank, the bank sales is close to what — around 30%, 35%. Is it some of the distributors commission disclosed by individual agencies? So why is that low? And do you think that there is a possibility that this can really come back to something like a very high number, going ahead? And Navneet, we have seen and we are almost everything, 100% of that out of the [indecipherable]. So do you think that we can really scale this up from the merged entity going ahead? That would be my first question.

Secondly, from a medium-term perspective on the yields front, how do you see the yield moving on debt side? What I understand is the current yield in the debt are possibly the lowest ever in the industry. And how do you see that moving ahead once the yield stabilizes and that offer some question to the deposit yields. And on the Equity side, what kind of could you give some understanding as to what is the current book or say in the three — from the legacy side? Some understanding there.

Simal Kanuga — Head Sales and Investor Relations

Okay. Sure. I think all the first part of your question was HDFC — HDFC Bank merger, the positive effect of that on distribution, so Navneet.

Navneet Munot — Managing Director and Chief Executive Director

Sure. So as I mentioned earlier, that we become part of a larger network. Of course, HDFC Bank has always been running an open architecture, they may continue with that. However, as we potentially become the subsidiary there is a greater value alignment and that should have positive implications. Your other question was on?

Prayesh Jain — Motilal Oswal — Analyst

That was — that one was on the debt yield.

Navneet Munot — Managing Director and Chief Executive Director

Okay.

Simal Kanuga — Head Sales and Investor Relations

So I think, if you look at, Prayesh, from a debt yield perspective, I think yields have been fairly more or less constant only, at somewhere in the late-20s. Whether they are low? So yes, I think it is lower than what it used to be, because of lower assets in the credit risk and some of the other higher yielding funds. Having said that, on the other hand, we are seeing some bit of migration happening in favor of debt index funds. So, even if we think that with the increased YTM on the credit risk fund, we might get in more money there, and thereby higher yields; some bit of that will get diluted by flows into debt index funds. So net-net, I think if you look at the debt side of our business, the yields should be more or less constant the way we see it, somewhere between 25 and 30 basis points is what we would — we understand it to be at. So that is on the yield side.

Prayesh Jain — Motilal Oswal — Analyst

And my last question was on the share of legacy assets in your current mix. While there is no exact numbers, but any color there that would be helpful.

Simal Kanuga — Head Sales and Investor Relations

Prayesh, we don’t really comment on that, but the way we would like to kind of help you understand is on our legacy book. Our yields are somewhere on the — equity legacy book, I mean, our yields are somewhere in mid-70s. So — and that is as of 30th June. So you can say that the entire book that does exist on 30th of June is giving us a yield of around somewhere in mid-70s. And then, the new flows are obviously all over the place. In a sense that, when we did our last NFO, the direct plan TR was somewhere in 40s. So you are getting in yields as low as 40s, but most of the flows that are happening in our regular, whatever, the existing fund, they are obviously at a yield better than 40 but nowhere near 75.

Prayesh Jain — Motilal Oswal — Analyst

Okay. And last question, what are the trends on commission payouts in the industry? Is there any competition or anything that you can — any trends that you are witnessing currently?

Simal Kanuga — Head Sales and Investor Relations

No, I think Prayesh, things are definitely getting better as compared to what it was say early part of last year. But yeah, competition is definitely intense. Now again, this whole NFO saga has started, so more number of New Fund Offer would put in some bit of an additional pressure. But like what we saw in the first half of last year, we are not seeing anywhere — numbers anywhere as bad as those, so things are definitely better. Industry as a whole, has kind of I think realized that it makes sense to do business at a rational price. See yeah, it is better than where it was last year, lower than where our historic book is.

Prayesh Jain — Motilal Oswal — Analyst

Thanks, and all the best. Thank you.

Simal Kanuga — Head Sales and Investor Relations

Thank you.

Operator

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

Saurabh Kumar — J.P. Morgan Chase — Analyst

Sir, I just have two questions. One is on this SIP and individual market share. So, besides the performance, are there any specific initiatives you have lined up to kind of improve that? The second is, is there any early distributor feedback on Mr. Prashant Jain departing, and do you think there will be an impact on new flows into the AMC? And third is, now with the new structuring, what will be the concentration of AUM with the top two or three [technical issue] Thank you, sir.

Simal Kanuga — Head Sales and Investor Relations

So first one was like what we are doing on SIPs?

Navneet Munot — Managing Director and Chief Executive Director

For the variety of things, as I mentioned that, HDFC AMC has been a pioneer when it comes to creating the cult around SIP, we were one of the first. We were among the early players to focus a lot on that. I think over the last several months, I think we have tried to regain that in terms of higher engagements with the distributors. Of course, as you mentioned, performance also helps. The performance has improved across the board, that is also helping us. In all the other initiatives, whether it comes to marketing, if you look at our social media handles and the other form of marketing that we have been doing, I think, in terms of — and that would be improving our digital assets, improving on user experience on creating a new SIP, or getting a new customer onboard, all of those things we have been working and the results are very, very visible. As products also get approved, as I think, we mentioned earlier that, there is a bit of lag between the performance and the flows. And particularly, with the banks and the other initial distributors, where the products go out of their recommendation list or the focus list when they come back, there is bit of a lag between when you start seeing those numbers whether in SIP or in terms of the lump-sum flows. We have started seeing the positive impact as the products are getting approved or are getting on the focus list or on the recommended list across most of the banks and the initial distributors. Your other question was on, will the Prashant’s departure impact flow?

Saurabh Kumar — J.P. Morgan Chase — Analyst

Exactly.

Navneet Munot — Managing Director and Chief Executive Director

That is — I mean, the announcement has happened today. But as I mentioned earlier that, I think we have a very solid team. But as a data point, I can give you that — out, I mean if you look at all our actively managed funds and now we have different fund managers, who have been managing funds with different styles, so when I talked about Joshi or Gopal or Srinivas or Chirag or now Rahul will be managing. Most of our existing products have been getting money, positive flows, so money has been coming into almost 90% of our actively managed funds. I mean, the positive flows are there in almost 90% of our actively managed funds. So I think, we remain confident that distributors would continue to support us.

Simal Kanuga — Head Sales and Investor Relations

And Saurabh, obviously, the concentration of AUM will go down. So if you look at Prashant manages somewhere around 43%-44% of our AUM. And we are yet to kind of make a formal announcement on which scheme should be managed by which manager, but evenly split between one, two or three managers depending on what we finally decide. So yeah, concentration of AUM would go down, as compared to where it was.

Saurabh Kumar — J.P. Morgan Chase — Analyst

All right, sir. Thank you very much.

Operator

Thank you. The next question is from the line of Dipanjan Ghosh from Citi. Please go ahead.

Dipanjan Ghosh — Citibank — Analyst

Hi. Good evening. Just two questions from my side. One is, you mentioned on the opex number and compared it with pre-pandemic levels. I just wanted to get some sense on directions regarding to the overall movement in your operating expenses. The second is, if I — on the distribution side, if I look at two things. One is, if I look at the disclosure on commissions, and just try to get some sense of where the commission kind of inched up during FY ’22, it seems that the distributors are the larger ones who have been contributing bulk of the flows for the industry. And also for — due to some extent, there the commissions increase was a little bit higher. And also to some extent, if I see the gross flow number, the overall gross flows from the top 10 distributors was significantly high in FY ’22. So I just wanted to get some sense on this two things out here?

Navneet Munot — Managing Director and Chief Executive Director

So on the cost, as you discussed, the increase in other expenses was largely attributable to business promotion, technology spend, and life going back to normal. So we will have the distributor training, we have travel, et cetera. We mentioned on the call earlier. So over the three years, June 2019 quarter we spent about INR40 crores of expenses, in the current quarter it’s INR52 crores. And that’s the sort of CAGR of 9%. Having said that, we are of course always mindful of what we spend. And at the same time, we don’t want to be shy from investing in the business. So the digital world is changing, and we have to sort of spend on technology. Data securities is a matter, and IT infrastructure is again something we needed to spend money on. So I think we will obviously be mindful of where we are going to spend money. We are HDFC. But costs in some form and shape will sort of be there for us. And that’s the trend we expect.

Dipanjan Ghosh — Citibank — Analyst

Sure. On thesecond part?

Simal Kanuga — Head Sales and Investor Relations

So I think you just mentioned about higher distribution commissions being paid to the larger guys and they being larger contributors to gross flows. So, yes, there has been some level of concentration in terms of larger brokers. In terms of commissions, I think the commissions across the board have been high, but as we have always maintained, right? If you look at it from our three broad distribution channels perspective; banking, national distributors, and MFDs; they tend to be as expensive in that following order. Banks being the most expensive, and followed by National Distributors, followed by MFDs. So, yeah, that has been the case.

Dipanjan Ghosh — Citibank — Analyst

Sure. Thank you, and all the best.

Simal Kanuga — Head Sales and Investor Relations

Thank you.

Operator

Thank you. The next question is from the line of Amey Sathe from Tata Asset Management. Please go ahead.

Amey Sathe — Tata Asset Management — Analyst

Hello?

Operator

Yes, sir. You are audible.

Amey Sathe — Tata Asset Management — Analyst

Yeah. I got two questions, sir. First question on the dividend payout. At what point do you think you can increase the payout to say closer to 95% to 100% considering we have around INR5,000 crore odd of net worth now?

Navneet Munot — Managing Director and Chief Executive Director

So I mentioned that last year, I mean, last two years, you would have seen an upward trajectory as far as the payout ratio is concerned. And my sense is that, this will have an upward trajectory going forward as well. I mean, the slope should move upward.

Amey Sathe — Tata Asset Management — Analyst

Okay. Okay, but is there anything that you’re looking at in the sense, some kind of level of cash and cash equivalent or net worth that you think after that will be comfortable increasing it to higher levels?

Navneet Munot — Managing Director and Chief Executive Director

So as I mentioned earlier, I mean, the Board is cognizant of that and will continue to evaluate best possible options. I mean, from the cash requirement perspective, we need to keep — set some cash aside for abiding by saving the Skin in the Game. We need to see that areas, it will help us make a strong business case. We also have to put in some capital into funds, we’ll set up in GIFT. But otherwise, as I mentioned earlier, that payout ratio should have an upward trajectory.

Amey Sathe — Tata Asset Management — Analyst

Okay, got it. Second question is on the distributor side, so post TR cut, since we passed on most of the TR cut to the distributors. A lot of them sort of were not keen doing the business, that is the feedback that we got from the distributor community. So are they coming back to us now? So is it possible to get some kind of a qualitative statement, how has been the engagement with them?

Navneet Munot — Managing Director and Chief Executive Director

So across the board, we are seeing positive traction. Whether it’s the banks, whether it’s national distributors, whether it’s the mutual fund distributors. I think in terms of our overall engagement and activity with them has gone up substantially, and we are seeing the results so — and we feel very positive about the traction across all channels.

Amey Sathe — Tata Asset Management — Analyst

Okay. Okay. And just a last question, so you made one comment that in the last two years, we couldn’t do much of SIP registration, so were there any specific reasons?

Navneet Munot — Managing Director and Chief Executive Director

No, that was, Amey, that was because of like overall our traction was pretty, pretty slow right now because of a slightly muted performance and stuff like that.

Amey Sathe — Tata Asset Management — Analyst

Okay. Okay. Got it, got it. Yeah, that’s it from my side, and best of luck for the rest of year. Thanks.

Operator

Thank you. And the next question is from the line of Lalit Deo from Equirus Securities. Please go ahead.

Lalit Deo — Equirus Securities — Analyst

Yeah. Good evening, sir. Thank you for the opportunity. Sir, I just wanted to understand, sir, despite the market volatility, the SIP closed in the industry have remained strong, and are at a all-time high. And for us also it has improved during the quarter. But at the same time, we also understand that the net SIP inflows are about like 40% to 50% in the industry level. So how has that been trend — how has that trend been for us? And recently, we have seen that there is a slowdown in the SIP registrations also. So, are we seeing any slowdown in the registrations as well?

Simal Kanuga — Head Sales and Investor Relations

Yeah, I think this net SIP is a bit of a — we have read these report right? Because — but finally, what is SIP? SIP is the inflows that is coming in. The number that we are presenting for our Asset Management Company is based on cash flow basis. So if you are saying that we are getting INR12.8 billion, we are getting that much amount of money in the account. These are not registrations, these are actually based on the cash flows and what we are reporting is a systematic transactions in total. So that is one part of it. And the second part of your question?

Navneet Munot — Managing Director and Chief Executive Director

On the overall, whether the market volatility would impact the flows? It’s interesting. When I look at the daily transaction sheet, I tend to see increased number of transactions, especially on the day the market corrects sharply, and it’s pretty interesting. Which means that, investors are actually trying to buy more than markets correct. And I’m talking about the number of transactions that our end. Of course, if the returns over say a year or two do not look attractive, there would be some amount of inertia. There would be an impact on the flows. But I must give that credit to the — you talked about like SIP flows remaining robust and I must give the — should give the credit to the entire ecosystem which is Regulators, Industry, Distribution Fraternity, Media, and the Association of Mutual Funds for getting the message of long-term investing across. And I think, volatility is now being taken aside, and the best example of that is like growth in the SIP flows over medium to long-term.

Simal Kanuga — Head Sales and Investor Relations

Also I think, [indecipherable] Rightly, SIP itself is a growth, right? So we are talking about growth-on-growth, so this whatever INR12,000 crores odd is actually additional money coming into the mutual fund industry. So it’s a step function, we have seen like a rapid growth, which stabilizes for some time that would not really concern us beyond a point.

Lalit Deo — Equirus Securities — Analyst

Sure, sir. And sir like, a data keeping question. So like in the quarter, like the employee expenses, if we see, excluding the ESOP expenses, sir, that has grown sequentially 13%. So any specific reason for the same?

Naozad Sirwalla — Chief Financial Officer

So I think one is, of course, we had our appraisals, which have sort of flown through. Also, I think you must see it in context of the fact that over the last three years, the expenses only grown by 6% per annum. So there is nothing sort of out there about it, it’s just a normal increase in year-end compensation.

Simal Kanuga — Head Sales and Investor Relations

And if I can add what Naozad just mentioned, markets are strong and it is important for us to retain our talent. Our industry is clearly experiencing a strong growth. We are extremely excited about the prospects of our business, and there is no reason for us to not invest in our people.

Lalit Deo — Equirus Securities — Analyst

Sure, sir. Thank you so much.

Operator

Thank you. Next question is from the line of Nidhesh from Investec. Please go ahead.

Nidhesh Jain — Investec — Analyst

Thanks for the opportunity, sir. It’s a couple of questions. First is, from a three to five-year perspective, how do you see this industry evolving? And how are we placed with those trends? Because there are multiple things which are happening. One is, the share of purchase is gradually increasing. I do know about the recent trends, but to last year, it was a gradual pickup in purchase. I think those trends may accelerate over the next five year. And there is pressure on our fees, and probably the direct role of direct — money coming directly to the AMCs may also increase over a period of time. There has been a quite sharp adoption in last five years. So in these context, how are we placed and how are we trying to benefit from these strengths?

Navneet Munot — Managing Director and Chief Executive Director

So how I think about our industry for the next three-five years? So purely from a growth perspective, think about it. We are a $3 trillion economy. And one of the fastest growing economy in the world. So even today, the household savings, I mean, if you take let’s say a ballpark number of around 20%. We’re talking about $600 billion of savings. And if we look at the percentage, which is coming into the mutual funds and within that into equity, I think it’s very small, sir, a long way to go. Other way to look at it, I mean, if you look at overall household assets today of $9 trillion, $10 trillion, half of that would be in real estate, 10% — 15% or so would be in gold. A lot of that would actually be in hard cash. And the overall equity assets within that is a little over 4%. In fact, the number was like half, 10 years back. It’s grown, but still abysmally low relative to any other country in the world. But if you look at equity effects as a percentage of market cap I mean, equity assets with mutual fund as a percentage of market cap, as a percentage of GDP, as a percentage of household savings I mean, it flows — or as a percentage of overall assets and a long way to go.

You look at, 50 crore people who would have a PAN card, within that maybe seven or eight crore people who file income tax returns versus the people who have invested in mutual funds. If you look at unique accounts are like less than 3.5 crores. So a long way to go. And at HDFC AMC, we have set a mission for ourselves which is to be the wealth creator for every Indian. To be the wealth creator for every Indian, we believe this 3, 3.5 crore number can go up substantially over the next several years and the acceptance of mutual fund, as the preferred saving vehicle — investment vehicle, and within that I think more and more people accepting SIP as the way to create balance over a period of time gains acceptance. And we want to lead from the front. I hope that answers your question.

And there would be several other opportunities right? That on the core mutual fund side. Within that, there are opportunities. And other than that, I mean, there are opportunities in managing money for family office space, ultra HNIs, all the other institutional investors on segregated accounts, which is like PMS. We are also looking at AI, building the platform on the alternative investment fund side. And we see a lot of opportunity there, as India grows over the next several years from $3 trillion to $5 trillion economy. We all talk about the financialization of savings. We talk about the digitalization of finance, but even financialization assets is also a very, very big trend and there would be opportunity on the alternative side. Even, I think, serving large global institutions who would have interest in investing in India in equity market and bond market and alternatives. Over the next several years there would be another opportunity, so over the next three, five, seven, 10 years we feel very excited about the opportunity an Indian asset manager with the pedigree like us can have.

Nidhesh Jain — Investec — Analyst

Sure, sir. So I was looking actually from these trends of asset going up, share of direct AUM going up, from those trends, so the growth story of Indian mutual fund industry is, I think very well appreciated. But looking at the current concerns that most of the investors have is how the revenue pool of this industry will grow. You might understand it will grow at a pretty rapid pace, but how the revenue pool will grow and their concern around disruption from let’s say — per se from direct mutual funds. Also, we are seeing that our own yields have been coming down as we mentioned that, the lowest yield is around 40 basis points, by book it is 75 basis points. So I think in that context, how are we placed with respect to the revenue pool or profit pool growth for the industry in pricing?

Navneet Munot — Managing Director and Chief Executive Director

See I can give the analogy of the broking industry. I mean, look at the way commissions have fallen over the years. A few years back, people were extremely concerned about the fall in commission rates there, it would have fallen by like what 90% or so. But look at the revenue pool and the profit pool in the last couple of years. So, I think something similar may happen here. And as I mentioned that as a company, we believe there is huge opportunity in front of us. And we wouldn’t like to miss on that opportunity.

Nidhesh Jain — Investec — Analyst

Sure, sure. And secondly, sir, what we have seen is that there is a very high correlation of inflows with last 12-month performance, last 18-month performance and because of which actually the investor end up choosing the best performing fund during that period. Not necessarily with the best strategy they keep. And because of which, I think investor also loses out, companies also — AMC also loses out. So is there a way to correct that to create more awareness among the investor community? Or how do we think about that?

Navneet Munot — Managing Director and Chief Executive Director

So to an extent it’s happening, which is reflecting in the table flows into SIPs. And you are right, I mean, of course, the short-term performance does impact, but I think people appreciate when institutions like us have a long-term track record, the pedigree, the process, the investment philosophy, all of that. I think a lot of investors and distributors appreciate that aspect. And we’ll — as an industry, as an institution we’ll continue to work hard on that.

Nidhesh Jain — Investec — Analyst

Sure, sir. Thank you, sir. That’s it from my side.

Operator

Thank you. Next question is from the line of Atul Mehra from Motilal Oswal Asset Management. Please go ahead.

Atul Mehra — Motilal Oswal Asset Management — Analyst

Hi. Good evening, and thanks for the opportunity. Sir, just one question with respect to the fund of fund in GIFT City that we spoke about. So just thinking about it conceptually, like — for us, like we have primarily been a more retail oriented in terms of asset management offering. And we don’t have our own distribution, like most of it is relied on through banks or IFAs or wealth managers. So for a fund-of-fund offering, wouldn’t you see that a wealth manager carry out a fund-of-fund offering by themselves, or the HNI client through the LRS would just go out and buy passes on many of these platforms like a Westgate or something. So, how do we see in terms of earnings for us here, because it’s a more HNI-oriented product and it is also something that the HNIs and the Wealth Manager can do themselves. So maybe if you could talk a little bit about this? Thank you so much.

Navneet Munot — Managing Director and Chief Executive Director

I think that market is very small today. And I think over the next several years as the amount of wealth increases, people diversified more, people look at various opportunities across the world, across asset classes, across different markets. So we will create products which we will invest internationally in GIFT City. The idea here is to attract the LRS capital as well as capital from NRIs. But the broader other idea on these, since you asked about the GIFT City. So the wholly-owned subsidiary, we have created in GIFT City will be our gateway to the global world. We will create products in GIFT, which would help us showcase our domestic investment management capabilities to global investors. And we see a lot of opportunity in this space over the last several years.

Atul Mehra — Motilal Oswal Asset Management — Analyst

Okay. So it’s more from — both from an inbound perspective as well as outbound? So inbound is also an angle you have while you were setting it up, right?

Navneet Munot — Managing Director and Chief Executive Director

Absolutely. Inbound is the larger angle.

Atul Mehra — Motilal Oswal Asset Management — Analyst

Got it. Got it. Got it. Sure, sir. Thank you so much. All the best. Thank you.

Operator

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

Hiral Desai — Anived Portfolio Managers — Analyst

Hi, Navneet. Thanks for the opportunity. Am I audible?

Navneet Munot — Managing Director and Chief Executive Director

Yes, Hiral.

Hiral Desai — Anived Portfolio Managers — Analyst

Yeah. So Navneet, just wanted to check of this INR5,500 crore of investment book that we have, how much of that has been blocked because of regulatory reasons? And on the remaining part can you actively manage it like take a call on the rate cycle, et cetera?

Navneet Munot — Managing Director and Chief Executive Director

No, a very large part of that is invested into our own income funds, so we don’t take aggressive calls on interest rates, or duration, or any such thing.

Hiral Desai — Anived Portfolio Managers — Analyst

Because of regulatory reasons? Or because of the call that you guys have taken?

Navneet Munot — Managing Director and Chief Executive Director

That’s a — I mean, that’s the call we have taken over a period of time, you will see the invest — will have to seed our AI product. As we have mentioned earlier, we are launching a fund-of-fund in Category-2. Over a period of time, we will look at more funds in the App category, and we’ll have a Skin in the Game, and we will be investing there.

Hiral Desai — Anived Portfolio Managers — Analyst

Okay.

Navneet Munot — Managing Director and Chief Executive Director

Otherwise, on the fund side, from a SEBI regulation perspective, I think there is a Skin in the Game, which like a certain percentage of AUM across equity and fixed income funds that get invested.

Naozad Sirwalla — Chief Financial Officer

And so that number is — INR388 crores is what we have to invest as per the SEBI Circular. INR258 crores of that is in equity, and balance INR130 crores is in debt. It’s anyway — it’s part of that disclosure on the website, it’s part of the SEBI mandate which is on all AMC’s websites.

Hiral Desai — Anived Portfolio Managers — Analyst

Okay. Okay. And Navneet, just conceptually to understand. So let’s say you launched an NFO last year, where obviously the pricing was very stiff. Now, currently, we don’t really have an upfront payout, so it would be based in form of trail. So is there like a lock-in period? So let’s say if you’ve launched an NFO, you can change the dealer payout only after a year or you can change it, let’s say, within that year also. Like how does that nuance work?

Simal Kanuga — Head Sales and Investor Relations

So, Hiral, basically what we do is when we go and do a new product, we tend to commit commissions for a period of time. So it’s not something that is changing every year. So we would have liked. And it’s different commission levels for different set of distributors. So there would be certain places where we would have committed for three years, certain places committed for a year or so on, and so forth. So, but yeah obviously, we can’t go and just keep changing the number there, most of the distributors do expect us to give them three years kind of committed trail comings.

Hiral Desai — Anived Portfolio Managers — Analyst

Okay. Okay. Okay, Got it, got it. Thanks a ton. All the best.

Operator

Thank you. The next question is from the line of Abhijeet from Kotak Mahindra Bank. Please go ahead.

Abhijeet Sakhare — Kotak Mahindra Bank — Analyst

Yeah. Hi, good evening. So you made a comment that the market share on the active equities is broadly flat for the last few months. But given your earlier comment that there has been some improvement on the redemption and the gross flows. One would have thought that would have seen some improvement on the market share as well, because the construct of the AUM for us is probably a little more on the balanced side of things, right? Is there something that we are missing in this overall math here?

Navneet Munot — Managing Director and Chief Executive Director

No, sir. Not exactly. See what we said it is the gross flows have improved from where they were and redemptions have gone down, but see for example — our market share is 11.5, so for new flows, net new flows our market share has to be above 11.5 for the share to improve, right? So what we are just stating, if you look at the previous few quarters we were kind of losing share quarter-on-quarter, that is not what has happened in the most recent quarter.

Abhijeet Sakhare — Kotak Mahindra Bank — Analyst

Okay, understood. Got it. That’s the only question I had. Thank you.

Navneet Munot — Managing Director and Chief Executive Director

Sure. Thanks.

Operator

Thank you very much. The next question is from the line of Siddharth, an Individual Investor. Please go ahead. Siddharth, may I request you to unmute your line from your side and go ahead with your question, please.

Unidentified Participant — — Analyst

Hello? Am I audible?

Operator

Yes sir, now you are.

Unidentified Participant — — Analyst

Okay. Could you detail a little bit more about the AIF and the venture capital fund that you’ve launched, about the investments that you’ve made, and what you where looking at investing in through this?

Simal Kanuga — Head Sales and Investor Relations

Sure, sir. So, basically we are yet to launch it. We have filed for, filed a PPM with SEBI. This is going to be a fund-of-funds, which is going to invest in the entire spectrum. More or less half of the funds would be invested in to venture capital funds, and the balance half could be invested into mid-market, so growth funds. Some bit of it might also get into buyout funds. So we are awaiting approval for this product from SEBI. And once that happens, we get into a capital raise mode. Post we raise the capital, we’ll start committing capital to underlying set of funds. We have started the process in terms of meeting up with underlying set of managers. Have started the screening process, and we are just trying to get a HDFC institutional overlay on this whole fund.

Unidentified Participant — — Analyst

Okay. Okay. Thank you.

Operator

Thank you. As there are no further questions, I will now hand the conference over to Mr. Navneet Munot for closing comments.

Navneet Munot — Managing Director and Chief Executive Director

Thank you.

Naozad Sirwalla — Chief Financial Officer

Yeah. Thank you very much. Thanks, everyone.

Operator

[Operator Closing Remarks]