The race for investors' money has just heated up with a local underdog marrying a global giant. BNP Paribas Asset Management, which has assets of over Rs 700,000 crore and a presence in 20 nations, now has a 49.9 per cent stake in Sundaram Mutual Fund.

Gilles Glicenstein, chairman and CEO, BNP Paribas AMC, and T.P. Raman, MD, Sundaram BNP Paribas Mutual Fund, explain to Kayezad E. Adajania why this is a match made in heaven.

What does BNP Paribas Asset Management bring for Indian retail investors?

Gilles Glicenstein (GG): Expect the launch of new and sophisticated products, like structured products. Capital protection funds would be an interesting innovation for the Indian markets if the Securities and Exchange Board of India makes them possible. They're very popular in France.

T.P. Raman (TPR): BNP PAM comes with a lot of global experience across various categories of funds. Using their experience, we will work out the kind of products we can launch in this market. They'll all be retail products; we are not looking at tailoring products for the corporate segment.

What kind of structured products are you looking at?

TPR: A structured product is typically a three- to five-year closed-end fixed income product. Around 20-25 per cent of this scheme's corpus can be used to buy options or take positions in the futures market. The idea is to invest, say Rs 80 out of every Rs 100 we collect in the most highly rated AAA- bonds. This Rs 80 will become Rs 100 at the time the scheme matures, so your capital is more or less safe.

We need to give a better yield than a fixed deposit, so we will invest in such a way that the capital is safe, yet the product gives a better yield than most other investment avenues. As of now, Sebi prohibits us to use the term 'capital protection' or 'capital guarantee'. But we have to work out a formula whereby the customer understands that his capital is safe, and still there is an upside that is better than what other instruments offer.

But don't you already have such a product in your portfolio called Sundaram Value Plus?

TPR: Yes, we launched SVP last year, but it doesn't have a very big corpus. Our new product will be locked into the derivatives segment. At present, there are no open positions beyond three months. If you're talking about a three- to five-year product, you need to buy an over-the-counter derivative product. Such a product doesn't exist in India today.

So we'll have to talk to some banks or agencies that can provide us either the product or an instrument that covers the product. SVP does not have that benefit right now.

Interesting, but GG, you must be aware that India is largely a distribution-led business. Large distributors like banks are one of the major channels for Indian mutual funds. How are you going to prevent mis-selling?

GG: We know from experience that mis-selling is always a risk and take a lot of care to prevent it. I want to be very humble here; you never can be sure that you can avoid it. What we can do on our side is make products that are not ambiguous.

Secondly, we will ensure that products are well-sold. Sometimes, the sales force doesn't understand what a product is all about and tells a story to investors which might not be the truth. So we pay a lot of attention to leaflets and other commercial documents that are given to investors. We take care in what we say and write. Also, remember that the attitude of investors has changed over the years. For example, clients would never have sued the bank or the distributor 10 years ago. Now, that happens.

Will there be a change in any of your existing schemes?

TPR: No. The funds will continue to be managed the way they are. BNP PAM is welcome to add value, particularly in areas like risk-modelling.

Indian equity mutual funds currently charge a maximum of 2.5 per cent as total expense every year, in addition to the entry loads of as high as 2.5 per cent. Can these costs be brought down?

GG: It's hard to say, because there is competition in this area. The way the fees are organised here could change in the future, but you never know. As distribution is very strong here, the balance of power between the fund management and the distributors is almost always in favour of the distributors. So it is very difficult to predict whether the prices will change unless competition pushes them down.

Do you have no-load funds in France? Do you have any plan to start such funds in India?

GG: No, in France, the majority of funds have front-end entry fees. No-load funds are rare. As far as India is concerned, the current structure of funds being no-load only for large-ticket purchases is likely to continue. It will not be possible to ensure the reach of products to customers without substantial investment in marketing and distribution, given the nascent stage of the industry among retail investors.

TPR, your fund house keeps getting in and out of partnerships. Earlier, it was the Newton Group with which you parted a few years back. Now it is BNP PAM. Won't it make it confusing for your investors to identify your fund house? Is there a problem going solo?

TPR: I think the tie-up with Newton was fine from 1996 to 2001. But then it was acquired by Mellon Financial Corporation, USA. At that time, Mellon didn't have an India agenda. So we parted ways amicably and Sundaram Mutual Fund was on its own after that.

But now we realise that there are a lot of global imperatives today: increasing thrust on technology, capital market developments, the economic scenario and India's integration with the global economy where businesses are also going global.

So when BNP PAM approached us, it made sense to us. They are experienced and present in almost all the global markets and, so we saw that they can add a lot of value for our investors. We have an opportunity to launch products that make global sense. We have an opportunity to handle global money, which probably we would not have had otherwise, because nobody knows us in those markets. The BNP platform introduces us to the world.

But Sundaram Mutual Fund has always been perceived as a south India-centric fund. You are not among the strongest players in other markets, like the north, are you? Do you think your association with a global name such as BNP will help you reach more distributors and investors and make you more visible?

TPR: To a degree, yes. The joint venture with BNP PAM, which is a global name, will give us better visibility. But remember, Sundaram is a well-known brand in India. However, if you're asking me whether I'll be able to access NRIs in middle-east countries and so on, then yes, this joint venture will help.

Your own schemes have done very well over the past three to four years. What do you attribute that to?

TPR: The main factors are investment discipline and not straying from the stated objectives. We actively manage, and take intended, but never unintended, risks. We also study every company before investing; our fund managers visit companies regularly.

Now that you have a foreign partner, would you launch foreign funds?

TPR: Definitely, once the regulations are clear and if our investors show such an appetite. We'll create a feeder fund, raise money in rupees and give it to BNP PAM to manage, for investment in dollars or euros abroad. We don't understand those markets so comprehensively.

The Equity Edge
60 per cent of Sundaram BNP Paribaso' assets lie in equity funds
Scheme Name	1 Year	2 Years	3 Years
Sundaram Growth	38.3	45.4	50.7
Sundaram India Leadership	39.9	49.4	N.A.1
Sundaram Select Focus	48.9	47.6	49.4
Sundaram Select Midcap	59.6	74.6	74.2
Sundaram SMILE	17.3	N.A.2	N.A.2
Category average	27.2	43.8	47.7
1Launched on 18 June 04  2Launched on 21 Jan 05 Source: mutualfundsindia.com