'Fidelity insists on long-term investment'

Will Fidelity change the way mutual fund houses do business in India? The world's largest mutual fund house, with assets over $1.2 trillion under management globally, Fidelity has set a few riders in its maiden scheme in India, which distributors say will change the way mutual funds do business here.

A leading mutual fund distributor, who recently got empanelled with the fund, said on conditions of anonymity, "Fidelity has put stringent exit loads for investors and has conveyed to the distributors that they should not entertain investors who churn their portfolios very often." Business Standard caught up with Ashu Suyash, head of business at Fidelity Fund Management, in a telephonic interview over the weekend to get the fund's perspective and how they plan to succeed in India.
Excerpts:

Fidelity seems to be extremely selective in terms of appointing distributors and till now it has appointed only 90 distributors, of which 30 are institutional distributors?

We are extremely careful in selecting distributors as we are looking at a long term partnership with them. We are keen to build a strong service proposition for them (the distributors) and their clients. Appointment of distributors is an ongoing process and the number of distributors we work with will increase as we scale up our operations and go to more cities.

Fidelity has made its very clear that its wants only long-term investors. Distributors suggest that an investor would be debarred from investing into the fund if he churns his portfolio more than twice a year. How will it work if the onus will be on distributors to encourage only long-term investors?

We believe that equity as an asset class will outperform in the long run as against other asset classes. The objective of the fund is wealth creation and hence an investor who stays invested for a longer period of time will benefit.

If the investor churns his investment in the fund too often, existing investors will get affected as the fund manager will incur costs in liquidating stocks to take care of these redemptions. To protect investors' interest, we have put a one per cent exit load, if the investor opts to exit within six months of making the investment.

The message we want to convey is that we do not want to encourage investors with a short-term view. Internationally, Fidelity has a practice where they retain an option to debar investors who churn their portfolio quite often, and we plan to adopt all our international best practices in India as well.

There is a clause in your offer document which says investors putting in less than Rs 50,000 and not through a recognised bank will have to get their credentials verified, at a cost of Rs 100-150 to the distributor. This is something being done for the first time in India. What do you plan to achieve with this?

There are plans as such of verifying investor identity. We have asked for PAN card details for all our investors. Sometimes the process of identity verification may result in costs which may have to be borne by the distributors. We are keen to comply with all the applicable Sebi regulations.

Will Fidelity launch a sector-specific fund in India? How much is the fund looking to mop up from its initial public offer?

Internationally, we have launched sector-specific funds. The choice to launch a sector fund will depend on investors' need and appetite over a period of time.

Currently, we are looking forward to the successful closure of the initial launch of our first fund, Fidelity Equity Fund. We want to make sure that this fund finds a core position in the asset allocation of the investing community and would like to grow the fund on a continuous basis.