With the mutual fund industry under the grip of tighter set of regulations now, Ravi Gopalakrishnan, executive director and chief investment officer, Pramerica Mutual Fund, tells Krishna Merchant that distributors have started moving to higher revenue products like insurance, stock-broking and portfolio management services. Edited excerpts:
Mutual fund (MF) assets slumped in June due to the outflow of money for 3G licenses and advance tax. With the recent rate hike, do you think investment returns in MFs will remain muted?
The 3G and advance tax money led to an outflow of money from debt funds, but had a minimal impact on equity funds. As past investments are replaced by the current higher-yield papers on maturity, we expect a gradual improvement in returns of short-term funds. New Securities and Exchange Board of India (Sebi) guidelines, if implemented from August, may have a short-term impact on specific funds, but higher rates should benefit investors in the medium term.
According to Sebi data, MFs sold equity worth Rs 4,000 crore in July. Do you see this trend continuing?
The MF industry has been going through tough times of late due to changes in regulations. Even though the market rose 4.5 per cent in June, equity funds saw net sales dropping due to distribution apathy towards MFs.
Distributors have rather moved to higher-revenue products like insurance, stock-broking and portfolio management services. They are not serving small investors, as it is just not economic anymore.
What is your outlook on equity funds?
If you look at the global environment, Indian equities are among the most attractive asset class. However, global concerns over economic slowdown and credit crisis in Europe persist. In such an environment, we will see greater investments flowing into India, which may lead to robust returns from the equity markets.
Year-to-date, we have seen over $9 billion flow into India and the stock market has been one of the best performing markets in the world. Hence, we are very positive on equity returns in the coming months.
