Birla Sun Life Mutual Fund, India’s fifth largest, is looking to increase the proportion of its equity assets to total assets from 16 per cent to 25 per cent in the next few years. CEO A BALASUBRAMANIAN, speaks to Neha Pandey and Joydeep Ghosh on wealth creation and impact of regulator arbitrage. Excerpts:
Are you happy with the industry’s debt-equity mix?
The equity portion could be much higher than the current exposure, somewhere around 25 per cent, for the industry as a whole. However, fixed income assets cannot be ignored, too, as they cater to the regular income needs of the conservative investor class. We believe this pie will continue to grow.
What is Birla Sun Life’s mix?
Our equity portion is roughly 16 per cent. Some of the bigger players have around 25 per cent. With our recent drive in creating awareness for our schemes, we would expect our equity assets to come closer to the top five industry average sooner than later.
Why have inflows in equities suffered?
The Indian investor does not realise the importance of wealth creation over the long term. Today, we are still talking about only five per cent penetration. In comparison, insurance penetration is much more, because people are seeking protection for themselves. But beyond a point you don’t need protection, you need wealth.
There is a regulator arbitrage because MF distributors have to negotiate their commission, whereas insurance agents are being paid as per the product specifications. How is this impacting the industry?
Regulator arbitrage is narrowing. While it exists today, it may cease to be there tomorrow. But investment decisions cannot be made on the basis of regulator arbitrage. Both investors and sellers have to decide what is best for them over the long run. Sellers cannot advise on the basis of commissions.
The industry is paying an upfront fee and higher trail commissions. How will it impact balance sheets?
This is a temporary phenomenon. The question is how much the fund house will be able to pay and for how long. It could be one year or more… but these numbers are variable in nature and will get revised.
In the past six months, stock market valuations have shot up significantly. What is your outlook on markets?
In the long term, for a three-five-year period, things look quite positive. For one, the overall economy’s confidence level is on the right track, in terms of the industrial production numbers. Second, interest rates are likely to be supportive. Third, the policy initiative from the government will be more favourable.
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Will there be a spike in interest rates in the near future?
Despite inflation concerns, rates will not go up in a hurry unless there is a significant growth in credit off-take. The numbers to be watched are the bank credit numbers, which are quite low now.
What would you advise a new investor?
If you want to invest in equities, have a five to 10-year perspective. If you double the money in three to five years, one should be happy. Today, global investors are looking at India as it offers them growth substantially higher than the global growth. In such a scenario, even Indian investors should hold on to their conviction and stay tuned to the market. Going by the thumb rule, returns should be nominal GDP plus 6 per cent. So, in case of a 7 per cent growth and 4 per cent inflation, the nominal GDP would be 11 per cent. The returns would be around 17 per cent per annum in a normal scenario.
On the debt side, where should one invest?
One can invest in income and gilt funds with a two-three year horizon. Income funds are quite dynamic because the fund manager takes a view on interest rate movements regularly. But FMPs (fixed maturity plans) can be avoided, because rates are quite low.