MF industry has growth potential but talent a concern: CEOs at BFSI Summit

The mutual fund (MF) industry has a 25-year-long history of creating wealth, and word-of-mouth publicity of its performance will take us to the corners of Bharat, said senior executives at the Business Standard BFSI Summit 2022 on Thursday.

“Today, 27 per cent of equity assets under management is from outside the top 30 cities. More than 45 per cent of MF portfolios are also from smaller towns and villages. We still have a long way to go. But with technology on our side, it is possible," said Navneet Munot, chief executive officer (CEO), HDFC MF.

Technology has been the key enabler for MF growth in recent years. With the emergence of online investment platforms, the reach of MFs has multiplied. The regulations have also made it easier for them by allowing the online onboarding of new investors.

“Technology has been a great ally. Whether somebody is located in Mumbai’s Malabar Hills or the extreme corners of the country, everybody has access to the same tools. People are also more technology-friendly,” said D P Singh, deputy managing director and chief business officer, SBI MF.

Radhika Gupta, CEO, Edelweiss MF, cited the success of the industry’s ‘MF Sahi Hai’ campaign in creating awareness. 

“We have become a part of pop culture. I have come across this tagline on various television shows. A lot of investors have come in after the pandemic. We need to ensure they stay on. The first experience is often the most defining one,” she said.

 MF executives believe the debt offering of MFs offers a lot of scope, but the industry has not done enough to popularise fixed-income products.

“Indians prefer non-volatile assets. MF debt offerings are superior to any other fixed-income instrument out there. There is a need to educate people about the potential of debt MFs,” said Nimesh Shah, CEO, ICICI Prudential (Pru) MF.

“On the lines of ‘MF Sahi Hai’, we need to have a ‘Fixed-Income Bhi Sahi Hai’. Equity is good for wealth generation, but there is also a need for regular income generation. Debt funds have that potential,” said A Balasubramanian, CEO, Aditya Birla Sun Life MF.

Singh said there is a need to highlight the tax-efficiency angle of debt MFs. 

“Debt MFs are not just about returns. They are also about tax efficiency. As an industry, we have not properly pitched debt funds to retail investors. The awareness on debt has lagged,” he said.

Munot highlighted the fact that the growth of debt MFs will not just benefit investors and the industry but the country at large. 

“Policymakers must realise that the growth of the corporate bond market is crucial. This can only happen if debt MFs grow. Over time, India will have to borrow huge sums to fund the growth of the country and a deep bond market is essential for it,” he said.

Debt MFs offer low commissions to distributors and it has been one of the reasons behind the poor penetration of debt funds. The CEOs say that distributors should not look only at commissions since debt fund distribution has business growth potential.

Even though the margins are low, the volumes can be high. MF distributors should focus on onboarding customers — whether it happens through equity or debt.

“As an MF distributor, if I have the wallet of the customer, my propensity to convert him into an equity investor will also be greater. Banks are already doing it. They find it easier to sell equity funds because they have investor money. Debt funds can increase the scale of MF distribution. The biggest distributor in the country will be the one who can distribute debt funds well,” said Shah of ICICI Pru MF.

Industry leaders said that finding the right talent will be a challenge, considering the competition from other wealth management verticals like portfolio management services and alternative investment funds. 

In the recent past, some star fund managers like Prashant Jain and Madhusudan Kela have left the MF industry for other verticals.

“Times have changed. Alpha generation is getting tougher with rising efficiency in the market. We will need the best talent to outperform,” said Nilesh Shah, CEO, Kotak MF.

Shah of ICICI Pru MF said the way forward is to maintain a large pool of analysts. 

“We have never recruited a fund manager from outside. Fund managers have shifted and we have always had the talent to fill in. This helps maintain continuity in performance,” he observed.