Need to attract household savings: Lotus AMC chief

Lotus India Asset Management Company is the latest entrant in the booming mutual fund sector.

A joint venture between Fullerton Fund Management Group (wholly-owned by Temasek Holdings, Singapore) and Sabre Capital Worldwide, Lotus AMC made a good beginning after its maiden scheme mopped up Rs 1,067 crore last month.

Ashutosh Joshi caught up with Ajay Bagga, the 38-year-old head honcho of Lotus AMC. Excerpts from an interview:

The Indian mutual fund industry is sitting on assets worth more than Rs 3 trillion. Many global players such as Credit Suisse, UBS, Pioneer International are keen to garner a pie of this business. As a fund manager, who has entered the business only recently, how do you see the trend?

I think you have to view it from different perspectives. One is the penetration of the industry. Every year, household savings amount to about Rs 700,000 crore.

But since 1993, the sector has barely managed to mop up Rs 341,000 crore. This is one-ninth of total bank deposits. Even LIC (with Rs 550,000 crore) alone fared better than the whole industry.

The sector is still in its nascent stage, under-penetrated and under-served, not getting the market share it deserves.

In global terms, US GDP is $13 trillion and its assets under management (AUM) is $10 trillion. India's GDP is Rs 780 billion and our AUM is nearly Rs 65 billion. So, there is lot of scope for other players.

The real competition is not between mutual funds but together they are competing with cash and bank deposit balances. Household investment in gold and realty is many times higher than their MF exposure. This means there is higher opportunity for us to grow and new players can find space easily.

Regulators expect the fund industry to provide stability to the capital markets. But, in fact, the fund industry is seen lacking stable money. Which are the areas, where the industry needs reforms?

We badly need pension reforms to bring in stable money into the market. Our pension reforms report is stuck since the last five years. The Bill is pending in Parliament. It is an area, which will bring long-term retail money into the market. Second, we need insurance. We want much broad-based insurance investment. We need to open this sector to foreign players to get lot more capital.

Mutual funds also need structural changes such as allowing realty and gold funds. India invests Rs 300,000 crore in realty. Our gold stocks are the biggest, we have to channel household savings more into mutual funds.

These are few issues, but they cannot be addressed overnight. Once the issues are addressed to, you will see stable money coming and mutual funds playing influential role in the capital market like foreign institutional investors.

Given the present performance of economy and its reflections in the stock market, where do you see the Rs 3 trillion worth assets with mutual funds headed for in next 2-3 years?

It will go up roughly three times. At present, we own $65 billion worth assets, which can easily cross $200 billion by three years. The number of players will also double from today's 30.

Lot of firms will go for consolidation, lot of Indian fund houses will add new partner or sell off their business to foreign partners. On PMS front, there will be many new entrants, wealth managers taking care of peoples' investments.

The market regulator has suggested qualifications for fund managers...

I welcome this move. You can have a licensing certificate for fund managers. Industry body and the regulator should work together for evolving such a licence.

Anyways, at the end of the day it is up to the person himself to focus on the work and take prudent investment decisions. Licensing can go up to a certain extent, after that it is the fund manager and the AMC trustees to run the fund.