'Investor diversity gives a stable long-term business'

Fidelity Fund Management, the Indian arm of Fidelity International, has recently launched its India Growth Fund.

Ashu Suyash, managing director and country head, Fidelity Fund Management, who oversees domestic Indian assets under management amounting to more than Rs 9,500 crore spoke to Priya Nadkarni on a range of issues including Sebi's recent concept paper on entry loads, retail business and the subprime crisis. Excerpts:

Where does most of your business come from?

Nearly 90 per cent of our business comes from the retail customers. Our products are more equity centric and are marketed through various distribution channels spread across different locations.

The institutional investors do not participate much in equity. Hence investor diversity helps a lot as it provides a stable long term business.

Do you have a distributor centric model?

That's right. We predominantly work through distributors. More than 96 or 97 per cent of our business comes from the distributors, including banks, broker dealers and national distributors.

How do you see Sebi's concept paper that says that investors who invest directly in mutual funds do not have to pay the entry load?

A good point that is often missed is that Sebi actually has a much larger cap on entry loads, but market forces have driven down the entry loads to the region of 2.25. The regulation permits 7 per cent.

The distributors should have the flexibility to price the entry load depending on the category of investors because this would create a framework for more investor participation.

Given that the penetration of mutual funds in India is less than 2 per cent, we need to focus on the distributors.

There is a need to move away from the one-size-fits-all approach to one of flexibility, both with AMCs and distributors.

Are you also a registered foreign institutional investor with Sebi? What has been your strategy as an FII?

Fidelity Worldwide is. A number of our funds invest in India and are registered as FIIs with Sebi, but these are global projects.

There is no single strategy, as investment decisions concerning India are taken by the individual fund manager. There is no policy at the company level that says x per cent should go to India because these are not proprietary investments.

How much exposure does your firm have to subprime?

We are a company whose funds remain by and large invested in equity. Whatever impact there is on equities will anyway flow into mark to market.

So we do not see a big impact.

On the fixed income side, a lot of the impact was taken into account and discounted. From what I understand, our cash funds haven't faced an issue at all, which is where you might see the first effect. So we haven't seen any major outflow or downgrading of our funds.