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.