UK Sinha, other than being the chairman of the country’s fourth-largest fund house, is on various panels, including the recently-formed committee for rationalising foreign institutional investments. He tells Vandana he has asked the finance ministry to frame a mutual fund policy. Excerpts:
Things were not hunky dory for mutual funds (MFs) in 2009. What is your outlook for the industry?
The outlook for this year is very challenging. The regime prevalent till July 2009 has been disturbed in a manner that affects the asset management industry negatively. If it had been done for the financial sector as a whole, the situation would have been different. But it has been done only for the asset management industry. The trend that has emerged is that distributors have started selling other products.
Do you think the ban on entry load will create a transparent and more investor-centric industry in long term?
It will not, the reason being that only one piece of the puzzle has been tackled. There are three-four pieces. The ban on entry load should have been combined with an investor campaign. There is no distributor regulation today. So, investors’ choices are getting limited. If there is no level-playing field, the industry will continue to shrink, not because of poor performance but because others are able to attract investors more effectively. One has to look at how the industry has grown in other parts of the world.
Now, if you look at other parts of the world, what the Securities and Exchange Board of India (Sebi) has done is in the interest of customers, provided you do not give other products the option to keep functioning in the same way as they are functioning today.
In the UK, for example, the Financial Services Authority has said that from 2011, it will introduce a product combining pension, insurance and mutual fund. Since this has not been done in India, people are migrating to other products.
Despite the fact that a dozen players want to set up shop, there are others who are exiting. Is consolidation inevitable?
I am of the view that consolidation should happen. It makes economic sense. But in India, people get attached to their ventures and do not admit failures. I am aware of only two cases where it has happened. Another reason is that opening a mutual fund is easy in India. You need only Rs 10 crore capital. An insurance venture, on the other hand, needs a paid-up capital of Rs 100 crore plus asset-based additional top-up. Except UTI, there is no serious player which has no other business besides mutual funds. So if they are not making money in mutual funds, they are making money elsewhere. That is why I say that the industry is full of non-serious players.
Is there a case for raising the regulatory cap?
Yes, but that would be a haphazard way of doing things. Sebi or the government should look at a policy for mutual funds. Today, the question is what space should mutual funds occupy. Which savings should flow to the industry? What is the expectation of the government from this segment? All these have not been articulated. The role of mutual funds should be delineated. I remember that a finance minister used to tell the media that he wants retail investors not to buy and sell securities directly. He said he wanted them to come through the MF route. He was making an important policy statement. Similarly, mutual funds are not for daily churn and time has come for the government to rethink the role of MFs vis-a-vis pension and insurance industries. Globally, the MF industry has grown on pension money, which is not allowed in India. The MF industry is getting more and more marginalised. I have written to the finance ministry asking it to draft a mutual fund policy.
How do you plan to leverage the T Rowe Price brand and expertise?
Just like us, it does not have any business other than asset management. It is driven by investment professionals, not owned by a particular business house. We believe that T Rowe Price has a lot of international money that can come to India. Their future investments into India will be routed through us, including the foreign institutional investment (FII) money. We plan to launch an offshore fund in the next two-three months. We also plan to launch an international fund for domestic investors.
You are on the panel for rationalising FII investments. What are the issues you have looked at?
We are trying to submit the report by April. We met recently but I cannot comment on the contours of what transpired at the meeting. We are seeking feedback from FIIs as well. The terms of reference are aimed at reviewing the existing policy on foreign inflows other than foreign direct investment. The panel will study the arrangements related to use of participatory notes and suggest any change in policy, if required.