Jitendra Agarwal completed his Chartered Accountancy in 1992 and started helping clients with their taxation and accounting in Jaipur, Rajasthan. Most of his clientele comprised High Net worth Individuals (HNIs) who were dealing in exports and manufacturing. Besides taxation, Jitendra’s clients often sought his advice for investing their surplus cash. Jitendra used to refer his clients to banks for investments. “The funds where my clients had invested did not outperform the benchmark. I compared them with my portfolio which was doing comparatively better. I noticed that there was a lot of churn in the bank and they didn’t have client interest in mind while selling/churning funds. They focused on their targets,” recalls Jitendra.
At a crossroad
Jitendra thought of shifting gears by starting his own mutual fund distribution practice as he discovered there was a huge dearth of independent advisers who would guide clients according to their goals. This gave birth to Kukku Consultants in 2003. His wife Kusum Agarwal also stepped into the business by starting insurance advisory. Due to her dedication, Kusum reached the top league of distributors in insurance by bagging Top of the Table four times and Court of the Table thrice. She is among the top Insurance Distributors in Jaipur. Today, Kukku Capital has a team of 40 operating from Jaipur. Interestingly, all their clients have been acquired from referrals; they don’t have any marketing/sales team for business development.
Jitendra’s clients were pleasantly surprised to find their portfolios performing way better than they were managed by bank relationship managers. This gave them an assurance that Jitendra is not only an ace tax advisor but also a great financial planner. Not surprisingly, his business grew by leaps and bounds within a short span of time as references poured in. From 2003 till 2006, his mutual fund assets under advisory grew by 300%. The bull run also helped. His clients also realised that investing in equity funds will only help them grow their wealth and create a powerful alternate source of income.
Fund selection
Talking about his product selection methodology, Jitendra says that he mostly recommended his clients diversified equity funds when he started his practice. “We studied the portfolios well because the scheme names did not accurately convey the scheme’s investment strategy before the recategorisation regime. Each fund within a particular category was run with a different mandate across different AMCs. Comparing funds across different categories and AMCs was a herculean task. Thus, understanding the underlying portfolio played a key role in scheme selection,” explains Jitendra.
Jitendra is of the view that the recategorization rules introduced by the Securities and Exchange Board of India in 2017 came as a breather. “SEBI recategorization norm has ushered in a lot of transparency and ease of identifying and choosing funds for distributors/advisers as well as investors. Each fund house has multiple products within the same category. We can choose funds based on the scheme name as it clearly reflects the portfolio composition.”
PMS versus mutual funds
In 18 years of his distribution journey, his firm has built assets under advisory of Rs 700 crore in mutual funds. They also deal in other products like Portfolio Management Services (PMS), Alternative Investment Funds (AIF) and corporate bonds but their core competency is mutual funds. In Budget 2020, Finance Minister tweaked the taxation rule by making dividends taxable in the hands of investors and abolished dividend distribution tax (DDT). Jitendra notes that the changes in taxation has made investing in direct equity PMS less lucrative as compared to mutual funds. “Earlier, companies were paying Dividend Distribution Tax (DDT) and dividend of up to Rs 10 lakh per annum was tax-free. All transactions carried out up to one year are considered short-term capital gains which is not the case for transactions done by the fund manager in a mutual fund holding. Further, dividends from stocks are now taxable in the hands of investors as per their tax slab. Those earning Rs 5 crore or more end up paying tax as high as 43%. On the other hand, dividends received by mutual funds are tax-free as they are registered as trusts. If we opt for growth option in mutual funds, then only long-term capital gains tax is applicable if you redeem after one year,” observes Jitendra.
He believes this rule will help make mutual funds a more popular vehicle among HNIs and UHNIs.
Need for a nest egg
Jitendra believes that retirement planning is not given due importance in India. He feels that people need to plan for their golden years well in advance. Most of his HNI clients are looking to build a second stream of income which ringfences them from any risks arising from loss in business. “We have developed an investing formula in which our clients invest around 30% of their annual income for five years which remains invested for ten years. Over the end of ten years, this corpus will start generating income similar or higher than that the clients are earning currently from their businesses/profession.”
He explains the importance of retirement by sharing the cultural shift India has been witnessing for the last few decades.
Jitendra observes that each family had at least 10-15 family members and there were two to three earning members in a joint family system. With the start of the nuclear family tradition, family sizes have shrunk and more members including women have started contributing to family income. Further, he says that the life expectancy of people has increased due to advancements in healthcare and technology. This has increased the time span of the retirement period. “If a person retires at 60 and lives till 80, you have to fund expenses for twenty years. In the earlier era, our wants/goals were minimal. Today, our wants/goals have increased thanks to globalisation and the spread of mass media and social networks. Our lifestyles have changed, people crave material things to satisfy their aspirations. Further, there is a steady rise in inflation over the years. These changes necessitate retirement planning”
Jitendra says that planning for retirement should be done by everyone, irrespective of whether they are entrepreneurs, self-employed, HNIs or salaried individuals.
New kid on the block
With the proliferation of products across categories, fund houses are taking a leaf out of the global trends like social impact and Environmental, Social and Governance (ESG) investing by bringing such themes for Indian investors.
Jitendra is of the view that while ESG has good potential in India, Indian investors are yet to warm up to such a cause. “As India progresses towards its environmental commitments and the awareness about ESG investing spreads among investors, ESG compliant companies will get a premium valuation. Also, we need to be certain that the portfolios of ESG funds are true to label.”
Another trend that is clearly visible is the rush towards passive investing. The clamour for passive funds has increased in developed markets because active funds are struggling to outperform the benchmark. “In India, the case is different as fund managers are able to generate outperformance. Active and passive will complement each other and there is a lot of alpha to be generated in a developing market like India, especially in the mid and small cap segments at least for a decade,” notes Jitendra.
Road Ahead
Jitendra wants to be a one-stop-shop for all financial needs for clients. His goal is to create a digital platform for delivering all financial services for his clients which are currently executed through physical mode.
Jitendra and Kusum have two sons. Archit, the elder one is pursuing MBA from INSEAD, France while the younger son Akshat has recently qualified as a Chartered Accountant. Akshat will start learning the ropes about the business from Jitendra.
