L&T enters ‘turbulent’ mutual fund business without an edge

With its foray into the asset management space, L&T has taken a bold step even as the mutual fund industry is undergoing one of its most challenging transformations ever

When global engineering and construction giant Larsen & Toubro Ltd’s (L&T) financial services arm L&T Finance had acquired the assets of DBS Cholamandalam Mutual Fund in early February of last year, it was at a time when the stock markets were in a freefall. DBS Cholamandalam, along with others, was limping along, unable to sustain business operations.

L&T Finance has now officially launched its mutual fund operations, in an environment that is not exactly the most welcoming for a mutual fund business. Regulatory changes in the last year have left the industry licking its wounds, with distributors getting cold feet over selling mutual funds and retail investors simply shying away from the volatile stock markets.

Responding to Moneylife’s question on how L&T justifies putting money into this business at this juncture, YM Deosthalee, whole-time director and chief financial officer, L&T said, “It is not that we are entering into the mutual fund business. We are in the financial services business and therefore we need to offer services to customers in order to be able to retain the customer. This is very critical. From that perspective, it is important to take care of their investments. That is the philosophy behind acquiring this entity. Yes, there are challenges. But ultimately if the products and services are innovative enough to make their presence felt in the market and deliver returns to the customer, then these challenges can be overcome.”

Asked about L&T’s strategy to attract retail investors, Sanjay Sinha, chief executive officer, L&T Mutual Fund remarked, “We already have an investor base of about 1.1 lakh. We are pleased to tell you that in the exit option, not even 3% of these investors chose to leave. Therefore, we have a lot of confidence that we can expand on this base. Also earlier, we did not have a sizable distribution network. Now, we will be present in about 80 locations together with L&T Finance. We will also be able to connect to a larger number of distributors. Thereby, our ability to attract a larger segment of retail investor population is now stronger.”

L&T plans synergies with its existing financial services businesses to provide a suite of products catering to retail as well as corporate investors. For this, it plans to leverage its existing distribution presence and its customer base across the spectrum of L&T Finance businesses.

However, L&T can easily draw a blank with this strategy, as it lacks the sort of business edge that banks possibly have in marketing and selling mutual funds. Banks derive significant strength from their robust distribution network and are more aggressive when it comes to pushing financial products. As such, mutual funds are products that are sold, not bought.

Although the fund house plans to expand its network and distribution base substantially in the coming months, it will not be an easy task to attract investments. L&T Mutual Fund will mostly rely more on its brand equity and trust to gain a foothold in the industry. It will also take strength from the expertise of Mr Sinha, regarded as a sound fund manager within industry circles.

L&T Finance also plans to launch its general insurance operations soon, subject to regulatory approvals.

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    Ramniklal S Rana

    10 years ago

    We have applied for Redemtion of Mutual Fund on 7.9.2010. Details are as under

    L & T Hedged Equity Folio 225545 / 37

    L & T Tax Saver Fund (G) Folio 171132 / 25

    So far we have not recd any information about refund cheque.

    kindly expedite.

    Ramniklal Sunderlal Rana


    1 decade ago

    Thanks MK for the info. L&T has the same confidence (arrogance?) that HUL has about selling foods, ITC has about selling garments and Kumar Birla has about telecom or Microsoft has about net search...Management depth and marketing/distribution expertise in one business does not have much relevance in another


    1 decade ago

    The erstwhile Dbs Chola now L&T MF has to pull up its socks in order to revamp its existing sales team, as i hear that the sales team remains the same. Me being a distributor who had distributed DBS Chola Mf products never did get any call from the higher ups for the last one and a half year, so if L&T is to continue with the same sales team then????


    1 decade ago

    Mutual fund business is an unnecessary distraction for L&T. It is a thankless job. Assets is not correlated to performance which is correlated to markets. In fact, what has L&T done in a sector, where opportunities for growth was much more solid - software?


    1 decade ago

    I feel a solid brand name lik L&T known for their excellence in every sphere they are in will lend a lot of credibility to the Fund. This will in the long run (if the performance of the schemes are good) will help in raising assets. Distribution challanges remain for L&T as is for any other fund house.

    R. Balakrishnan

    1 decade ago

    L&T is smart. Using its brand which enjoys a good retail reputation. Build, operate and sell (wholly or partly). Sooner it finds an equity partner, who will make the finance business free of cost to L&T the better.
    It also shows that without ownership, professional management can take a company from shipping to bottle caps to road building to money lending...

    RBI’s directive may help clients earn more from savings accounts

    With the central bank of the country mandating all banks to compute interest on savings accounts on a daily basis, account-holders will reap better rewards from their deposits

    The credit side of your passbook will soon show much healthier figures, instead of the measly amount your savings deposits earned until now. The Reserve Bank of India’s (RBI) recent directive to banks to start calculating interest rates on such accounts on a daily basis from 1st April will bring cheer to millions of savings account-holders in the country.

    Under the new system, banks will now calculate interest on your savings account on daily balances, replacing the current archaic system where banks compute interest on the lowest available balance held between the tenth and the last day of the month.

    The current system is no less than a rip-off for the common man, as banks have become used to getting low-cost funds at the cost of hapless savings account holders. This is how it used to work: Suppose you held Rs20,000 in your savings account at the end of the 10th day of a month, subsequently withdrawing Rs15,000 at the end of the month, you would only earn interest on the lowest balance in your account for the entire month—in this case, Rs5,000. As such, your account will be credited with Rs175.

    However, under the new system, even if you have withdrawn Rs15,000 at the end of the month, you will get interest not only on your account balance on the last day of the month (Rs5,000), but also on the daily balance held for the first 29 days of the month. In this case, the interest will add up to Rs682.50.

    For banks, though, this will obviously raise the cost of funding. Banks with higher proportion of CASA (current account and savings account) deposits in their funding sources will get hurt the most. Margins will get squeezed unless the RBI decides to act on the bankers’ call to reduce interest rates on savings accounts. This is highly unlikely, however, as it would defeat the very purpose of RBI’s depositor-friendly stance in this matter.

    Speaking about the impact of this move on banks, SSN Murthy, senior vice president, Indian Banks’ Association (IBA) said, “The interest payment will now be high for banks. We are asking for some reduction in interest rate. We are trying to either continue the old procedure or are asking for a reduction to 2.5%.” He also added that it would likely result in a rise in liquidity for banks as people will put money into savings accounts to get the benefit of more interest payout.

    Although the central bank had proposed this move two years back, banks had asked it to postpone the same citing unfeasibility due to lack of computerisation. Now that majority of the banks are well-equipped with computers, RBI has finally asked banks to implement the decision from 1st April. Customers are unlikely to be fooled this April Fool’s day.

    However, banks may still try to circumvent the new regulations by attempting to reduce the interest rate chargeable on daily basis through some subterfuge. In such a scenario, depositors may still find themselves short-changed, unless the RBI takes a hard stand on the matter.

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    10 years ago


    santosh patel

    1 decade ago

    its still not clear what amount we will get and what is the rate of interest on daily basis so will u please clear it


    1 decade ago


    R Balakrishnan

    1 decade ago

    My understanding is that Banks are going ahead. The present average cost of savings works out to between 2.4 and 2.8 percent per annum. Banks have approached the RBI to reduce the rates from 3.5 to 2.5 percent. Most likely that will happen.
    World over, savings account do not pay interest. If you have a check book, then no. Otherwise yes. But we are different and like this only!

    Shoeb kadri

    1 decade ago

    I liked the article and story coverage a lot,Would like more elaborated report from Moneylife,I think this will get implemented siting "Aam Admi" budget this year,Banks would be forced to change their calculation method,It's a good move.


    1 decade ago

    Banks never asked RBI or others when they increase the service charges, though the value of the service is marginal not comensurate with the charges they levy. Private and Foreign banks are the worst offenders with charging a heavy (dis)service charge when the minimum balance (Not a small amount that too) is not maintained.

    K Narayanan

    1 decade ago

    What RBI would do if they don't pay.There is direction to the banks to issue pass book to SB account holders.While old generation pvt sector and public sector banks give passbook the new generation pvt sector banks care a damn about the same.Try getting the pass book from them and you deserve to be listed in the guinness record books.As per latest reports the banking ombudsman recd 69117 complaints during 2008-09.Is it possible to attend to such a large complaints.They are mainly relating to unsolicited credit card,loan over phone,unsolicited insurance policy issuance and debit of the premium,excess billing .No responsible person to answer,It is all in public domain.What RBI has done.Nothing.Peanlise the MD of the bank for unsolicited card and insurance policy issuance,Stop issuing license to such bank.Or nationlise the banks.The service may be poor but at least the loot will not be there.In our country if you allow free run to new generation banks sooner or later they will loot the customers and they know how to purchase the RBI officials,govt agencies and politicians,Don't be enamoured by the excellent service.It is not a symbol of efficency but the eventual looting of your money


    1 decade ago

    Is the saving a/c int rate will come down?

    Gammon Infra wins arbitration against NHAI, to get Rs161.50 million

    GIPL has won the arbitration award (Rs161.50 million) against NHAI for refusal to pay early completion bonus for two of its road projects

    Gammon Infrastructure Projects Ltd (GIPL) has won the arbitration award for payment of early bonus from the National Highway Authority of India (NHAI) for two of its road projects. NHAI is expected to pay a bonus to GIPL for the early completion of two projects—Rajahmundry Expressway and Andhra Expressway. 

    “The arbitration has been unanimously decided in our favour,” said Parvez Umrigar, managing director, GIPL. While the NHAI has been struggling to fast-track the completion of its road projects, two of GIPL’s road projects were stuck in the arbitration process, awaiting realisation of the bonus amount for early completion.

    The payment for these projects commissioned in 2004, ran into a dispute following NHAI’s refusal to pay the bonus amount.

    The Rajahmundry Expressway project involved widening and strengthening of the 53-km stretch between Dharmavaram and Tuni in Andhra Pradesh on National Highway (NH-5), connecting Chennai and Kolkata.

    GIPL had achieved the commercial operations date (COD) for this project on 20 September 2004, seventy days ahead of schedule. For this project, GIPL expected a bonus of Rs115 million from NHAI for early completion.

    The Andhra Expressway project involved widening and strengthening of the 47-km stretch between Dharmavaram and Tuni in Andhra Pradesh on NH-5.

    The project achieved COD on 30 October 2004, thirty days ahead of schedule. The bonus expected from NHAI for this project was Rs46.50 million.

    Though the arbitration order has been unanimously decided in GIPL’s favour, NHAI has been given a period of 90 to 120 days to honour the order. “It now depends on them (NHAI) whether to abide by it or challenge it in a court,” added Mr Umrigar. The case has been under consideration since three years and the arbitration order has also spelt out a penalty of interest to be paid.

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