The mutual fund (MF) sector is confident long-term investors would benefit the most. Short-term volatility notwithstanding, MFs are among the most-transparent investment vehicles. That was the consensus at the Business Standard Fund Cafe in Mumbai on Thursday. The chiefs of six leading fund houses said they were confident of MFs becoming the preferred choice for financial sector investors. Excerpts:
On new players’ sustainability and growth in AUM
A BALASUBRAMANIAN: The compound annual growth rate (CAGR) of the MF sector is 19.8 per cent; for the insurance sector, 20 per cent. The average deposit growth has been nine per cent. I think the sector has done a fabulous job of growing its assets. There is a study by the National Research Council (NRC) which says of the 220 million households, 10 per cent invest in financial assets and within that 90 per cent have assets in postal savings deposit and in monthly income schemes. The balance is invested in capital market assets. That indicates the kind of opportunities there are.
MILIND BARVE: We have a 24 per cent household savings rate and very low penetration of capital market products, which includes MF and insurance. From that perspective, I think India is an obvious market to be in. But it is not a market which is just a sitting duck. It requires a lot of hard work. You start a business and you became a part of the growth of the sector. If the awareness of a fund product is very low, you need to create a reasonable record of its investment performance and you start getting recognised by investors and distributors.
NIMESH SHAH: We are relative return givers, not absolute return givers. If the market goes down 20 per cent and the fund goes down 10 per cent, that's outperformance for us. Investors don't understand this; they always look for fixed-deposit (FD)-plus returns.
On initiatives to increase awareness
SUNDEEP SIKKA: First, as the Association of Mutual Funds in India (AMFI), we have done 1,000 investment camps across the country and a majority of these were in small cities. The biggest challenge is two per cent of the national savings is coming into the capital markets and 98 per cent in other financial assets. I can’t comment on the next six months. But I am sure in five years, the total size of the sector is going to be bigger than Rs 20 lakh crore.
ASHU SUYASH: A very important initiative is 200 districts have been identified. These are beyond the top-15 cities and we have tried and ensured each asset management company (AMC) adopts a few. No two AMCs have been given a district. Not only is there going to be the usual campaigning and advertising in these districts but also an obvious effort to bring more distributors to enroll the youth to pick this up. Not as full-time but at least as part-time.
DEEPAK KUMAR CHATTERJEE: The insurance sector has a large number of distributors, while the active MF distributors are less. There is going to be a change in the way the MF products are sold. There is a distinction between those selling and advising. More distributor business could shift to the advisory side. If people see value, they will happily pay.
On the minimum net worth criteria
BARVE: I genuinely believe all the players are as serious as the top 10. My sense is the amount of capital is not the only indicator of its seriousness. We need to fund the losses till you break even. So, to my mind, some smaller players have done very innovative things on product development. A different way of looking at it is the Rs 10-crore minimum capital required was prescribed many years ago. If you put the inflation number, it is Rs 40 crore or so. So, whether the Rs 10 crore needs to be inflation-adjusted is what I think we should look at.
Tax-free bonds vs MFs
ASHU SUYASH: Completely exiting MFs to invest in tax-free bonds is a bad idea. One can just look at revisiting asset allocation. One has to take a call on locking in a large sum of money for the long term when the returns are not expectational if adjusted for inflation.
A BALASUBRAMANIAN: Tax-free bonds are to channel investments into long-term infrastructure projects. Eventually, it will have an positive impact on the overall economy. The question is whether an investor should put 100 per cent of their investments into that, when equity as a long-term asset is also tax-free.
On product offerings
MILIND BARVE: We have a proliferation of products and strategies that appeal to sophisticated investors. If you cannot connect with investors, what's the use? Some complications are inevitable but for a new investor, the offering has to be simple, like an equity diversified scheme or liquid scheme in debt. As investor awareness grows, we can handhold them with complex products.
NIMESH SHAH: Sometimes, if you remain invested, some of the funds may or may not make returns in this environment. We cannot be cribbing about volatility; we have to make volatility our friend. In fact, a series of funds have been created with play on the volatility which the sector is promoting in a big way. There are a series of products that take advantage of the volatility.
SUNDEEP SIKKA: Systematic investment plan (SIP) as a concept was successful. So was micro SIP, which helped overcome the mental block of investing in equities. Investors started with a small sum and started investing in bigger quantities.
