31st January 2012

WF: How did you begin your journey as a financial advisor and why did you choose the financial advisory line - which was not obviously a very popular profession in Amravati?

Mahesh Gattani: To be honest, I had failed in English in my 12th standard. So the six months that I had between October and March when the 2nd session of first year was to begin, I worked with an MRF franchisee for 500 rupees per month. 1992 was also the year when Mr. Manmohan Singh became the commerce minister and there was a boom in the equity market. A lot of good public issues were in the offing, Essar Oil, Reliance Petroleum, Shree Cement and so on. So I applied to become a public issue sub broker with the Suresh Rathi and Co (brother of Anand Rathi of Anand Rathi and Co) which is a Jaipur based stock broking company. I not only received the sub-broker code immediately but also the application forms for distribution. Like the news paper drop boys, I used to drop the public issue forms door to door. Three months after the public issue closed for the respective companies, I earned my first brokerage of Rs.3200. Subsequently, I undertook many public issues and brokerage at that time ranged from 1.25 to 2% on the higher side. Then, I got my second brokerage cheque for Rs. 6000. I was still working with the MRF franchisee. Then I thought when this business is so lucrative and there is no capital requirement, I should look towards expanding it. So for six months, I worked hard and simultaneously completed my B.Com. Later I also completed first year of LLB.

Amaravati is a very small market and I developed it. My investors then started suggesting to me that when I was selling primary market public issues to them, I should also enter into the secondary market where they could sell shares post the issue. I decided to enter in the secondary market as a sub-broker, because at age 19, I felt inadequate about installing a V-SAT and becoming a broker on my own in my town. I started selling off shares of my investors and I earned brokerage on sharing basis. By the age of 19, I was thus into IPOs as well as secondary market broking.

In 1994, Kothari Pioneer released an advertisement in our local paper that they needed a district representative. I applied for the position and I was appointed for Rs. 250 per month. My responsibilities were to appoint agents for Mutual funds across the Amravati district, and also handle banking applications and transfer the funds to Chennai. My journey continued and public issues flooded in the market in 1994. Then all of a sudden, market started heading southwards from 1995 to 1998.

I however continued to do good business for Kothari Pioneer - particularly in their Pension Plan. My remuneration from Kothari Pioneer became Rs. 500 in 1996. This way, I developed the mutual fund business. In 2000, market boomed mainly because of IT rally. Those were the golden days and market crossed 6000. My investors started acknowledging that I had asked them to put their money in Mastergain of UTI in 1997 where their 10000 became 30000 and in Franklin Bluechip and Prima Funds, where their investment had become 60000. So my business started growing.

By 2000, I had started issuing contract notes for broking transactions in the name of my firm - Balaji Investments and I bought a shop in the heart of the city and grew my business.

WF : You often give your clients even today, your own example of the power of SIPs....

Mahesh Gattani : Yes, I started my SIPs in Franklin Bluechip, Tax Shield and Pension Plan in 1996 - Rs. 1000 per month in 3 names. Later, from 2004, I started investing Rs. 5000 per month in each name. My father was initially not very happy with SIPs - he preferred earning regular interest. But, I kept up the SIPs anyway. By early 2008, when I wanted to buy an attractive piece of land in an upcoming area of Amravati, I was able to withdraw Rs. 50 lakhs from my SIPs to finance that purchase. Today, with God's grace, that has also appreciated very well. I am able to show that land today and actually show the power of wealth creation of small amounts of SIPs that are maintained for long term.

WF: What is the size of your business right now and what is the market share that you have in Amaravati?

Mahesh Gattani: My total mutual fund AuM is around Rs. 25 crores. The Amravati market AuM for mutual funds is around Rs. 150 crores. I have around 4300 live folios from over 1000 clients. Apart from this, I also have around Rs. 23 crores of direct equity portfolio of my clients, which I actively advice. In fact, last year, I received the CNBC Financial Advisor Award also.

WF: A 16% + market share of MF AuM in your city, 1000+ clients in a small market like Amravati - that's an amazing story! What are some of the lessons you have learnt in this journey?

Mahesh Gattani: The main thing is complete honesty in the advice that I give to my clients. I always look at what my client will make from this investment - not what I will make. Last few months for example, I have been focusing on getting clients to do SIPs in debt funds instead of equity funds. That way, we will build a good corpus, which can be moved gradually into equity at the right time. Clients are putting their faith in me - and I must make sure I give them good advice and act responsibly. Main thing is clients should not get worried about their investments.

Second thing is that it is very hard to differentiate between small and big customers. A small customer who started a SIP years ago today qualifies as an HNI. So, I do not differentiate between big and small.

I have equipped my office in such a way that I am able to meet 20 clients at a time. I use this to speak regularly with my clients and give them my views.

I have also realized that investors often realize the benefit of mutual funds the hard way. Due to short term greed, they sometimes get into direct equity stocks, sometimes even if we try to dissuade them. When they get stuck, they then realize the benefits of long term investing through mutual funds and then get convinced to build wealth on a long term basis. Sometimes, we have to allow clients to learn their own lessons, despite our best efforts in advising them appropriately.

Another big learning for me is that with more and more technology, clients will become more and more aware and the responsibility for an advisor will keep on increasing. Clients will not come to advisors - we will have to go to them.

WF: You also have an active insurance business apart from direct equity and mutual funds. Could you explain what are the kinds of insurance products that you sell and where does that fit into your business plan?

Mahesh Gattani: Initially, I used to focus only on term plans - but not very enthusiastically. Investors were not very satisfied with the term insurance product as they used to believe that they undertook insurance for 25 lakhs and their 7000 rupees went as a premium - but they got nothing for it as nothing happened to them. People would always want that they should get some money back. I used to reply to them that we are paying this 7000 rupees so that nothing should happen to their finances, should something happen to them. But then, they came back and asked me to show them products where I can pay 25000 each year for 25 years and receive one crore in return. So I started recommending traditional plans like Jeevan Anand where one has to pay less than the sum insured.

I have now decided to focus on insurance in a serious way. I have prepared a list of 100 clients who have children in the fields of IT, Pharma, or are professionals. I have made good plans for them. If all goes well, I will qualify for MDRT this March. But, my ambition is that I should be the first Court of the Table qualifier from Amravati ever. We have never had anybody with this distinction from Amravati - I have set myself a target to become the first.

WF : You also have an active commodity trading desk...

Mahesh Gattani : Yes, I have some clients for whom we actively trade in gold and silver futures. I have also started forex futures and now have clients who take positions in dollars.

WF : How do you manage to be active across so many product segments?

Mahesh Gattani : I read a lot, I study these trends. My logic is very simple - whatever the world does, I take a reverse call. When the world becomes greedy, I get scared. When the world gets scared, I become greedy.

WF: Right now in equity, are you scared or greedy?

Mahesh Gattani: In equity right now I am neither scared nor greedy at a market level. I am focusing on select stocks which have fallen very steeply - even some stocks with high debt levels. These are where I expect the big turnarounds - especially some in the infra space.

WF: Coming back to mutual funds, SEBI seems to be very keen to get MF distributors to earn fees from clients rather than commissions from AMCs, as a way to eliminate conflict of interest. How practical is it to expect that investors will pay you fees in your market?

Mahesh Gattani: I will give you a small example. On 1st August 2009, upfront brokerage of 2.25% to distributors was abolished. By end of March 2010, I raised 43 bills on my investors for transactions done between Aug 2009 and March 2010 - they were a mix of HNIs and retail investors. You will not believe that the very next Saturday, over 30 out of these 43 clients - even HNI investors whose portfolios were one crore plus, came to my office with the fee cheques.

Now, let me come to the bitter truth - which I know many of my fellow distributors may not like to hear. I believe that Mr. Damodaran and Mr. Bhave are God's messengers and the whole distributor scenario is something where I find an analogy with Shree Bhagwad Gita. I believe that many distributors have been unfair to the investors and there has been a lot of conflict of interest on their part. So, God has punished them through his constituents in the form of Mr. Bhave and Mr. Damodharan Ji. This is a fact and this is the bitter truth.

When I raised those bills - I only raised 43 bills. I wanted to see whether I am supposed to survive only on a 0.5% trail. I am now not charging fees. I am currently getting sufficiently compensated through commissions. But, it gives me a lot of confidence to know that should commissions go down more, I may be able to seek fees from my clients. My personal view however is that trail commissions should be increased to enable good quality distributors to build AuM and enjoy the fruits of their efforts. In our business, we need patience. Even if you set up a shop, you will have to invest in buying space, furnishing it, buying stocks, employing people and then promoting your shop until customers start coming and buying. That also requires patience.

WF: What are your plans for Balaji Investments for the next three years and where do you want to reach?

Mahesh Gattani: I want to build up the debt funds side of my business the way I have built the equity side. If I am only in equity and the market does not perform, my investors will lose. So, I want to create a balance. I am aspiring, especially with a focus on debt funds, to reach the Rs. 100 crore AuM mark in the next 3 years. The other big focus is on insurance - I would like to ensure that all my clients are adequately covered and that their children's plans are taken care of. And, I want to become the first Court of the Table qualifier from Amravati.