Sanjay Sachdev, chief executive officer, IDBI Principal Mutual Fund
IDBI Principal Mutual Fund may not be among the biggest mutual fund managers in the country, but it is making its presence felt through innovative marketing efforts. Recently, the fund launched an income fund focused on Trusts which collected about Rs 25 crore.
Overall, the fund manages about Rs 1500 crore under 11 fund schemes. And most of these schemes have been consistent in outperforming their respective benchmarks.
Its equity fund IDBI Principal Growth Fund posted a return of 22.91 per cent against a Sensex return of 6.39 per cent over the past one year and its Income fund gave a return of 14.20 per cent during the same period. Sanjay Sachdev, chief executive officer, talked about his funds and some issues facing the industry.
How has your Trust benefit fund performed?
We have seen a great deal of interest in the product. Trusts are generally conservative and they have to go through an approval process before investing in new avenues. We are managing about Rs 25 crore in the fund as of now from 700-odd investors, but we have commitment for about Rs 100 crore.
What is it that makes the Trust fund better than a plain vanilla bond fund?
The fund is positioned very attractive and the value we provide here is critical. This fund is targeted at the long term investors and is the lowest cost fund in the country. No other bond fund is as cost effective.
In regular bond funds, there is generally a meshing of short-term and long-term investors. In some sense, the long-term investors cross-subsidise the short-term investors. This makes it difficult to offer the same cost advantage as in case of long term funds. But we offer funds in all shapes and sizes!
Besides, our index fund is also offered at very low cost and has a track record of maintaining the lowest tracking error for the past 14 months in a row.
Broadly what kind investors are there in the Trust fund? Given that most Trusts were investing substantially in the Unit Trust of India (UTI), do you see some of these investors turning to you?
There are all sorts of investors and that includes UTI investors also. We had contacted about 17,000 investors across the country. It is difficult to say how many are UTI investors.
As far as the profile of these investors is concerned, we have a whole variety of institutions such as housing societies, religious and charitable trusts, educational trusts and non-government organisations and so on.
Have you witnessed any change in investor preferences over the past one year or so?
Yes, there is strong sense of conservativeness in the investors' approach. They are a lot more risk averse. There is more awareness and they are asking us many more questions. And debt funds are becoming more and more popular with retail investors.
In fact, we have a investor base of about 1,60,000 and that's largely in debt-based funds.
In the past five months alone, we have collected around 20,000 new customers.
We have about 15 centers across the country and our collections are coming mostly from the smaller cities. Today, I would say about 65 per cent of business comes from non-metro cities.
Rebating by intermediaries still remains an unresolved issue. Given that the players recognise that this will hurt the industry in the long run, how is this being tackled?
We need a separate regulator for the distributors. Even in the US, the Securities Exchange Commission does not regulate the intermediaries. There is the National Association for Securities Dealers (NASD) which regulates brokers. Banks have their own regulatory body. So we also need something on similar lines -- may be a self-regulatory organisation as far as distributors are concerned.
What about marketing through post offices? Has it really taken off? How are the collections from there?
Well, we are using post offices only to facilitate investments from distributors and investors. And we are very happy with the way it has taken off.
Our objective is to deliver consist returns over the long term. We don't want to be number one this month and number 25 next month. We would much rather be a number four this month and a number three next month.
Do you think investors understand and appreciate the rankings provided by various fund rating agencies?
Yes, they do. But what we need, which we do not have right now is, an agency to rate asset management companies. When I give my money to somebody, I need to know the financial stability of the company.
For instance, I would much rather put my money in the State Bank of India than in some smaller and financially unstable bank. The same is the case with mutual funds.
But wouldn't you agree that investing in funds is different from putting you money in bank deposits. In the case of banks you are looking for safety, here you are looking for returns...
No, financial stability of a mutual fund company is equally important when looking at mutual fund investments. We need to rate fund companies based on overall quality of fund management, their ability to deliver returns and financial stability.
Is there a case for index investing in India given that our markets are inefficient?
Most investors don't realise that risk and rewards go together. If a fund is generating superior returns, it is taking an equivalent amount of risk. When the market goes up, you don't need a fund manager.
It is only when the market is sliding the role of a fund manager is important. The most important task is to minimise losses. Now the point is that active fund managers try to beat the index, but may not succeed all the time. The logic for investing in index funds is that it is difficult to outperform the market consistently over the long haul. Actively managed funds should be considered as short-term kickers. We see merit in active funds as well. That's the reason we run an actively managed growth fund.
With the benefits exchange traded funds (ETFs) offer, don't they look a shade better than index funds?
I would not agree. The difference lies in the fact that ETFs are for speculators and index funds are for regular investors.
What about the slew of dynamic asset management funds entering the market. Do they make sense for investors?
It makes sense if you are in the flavour of the month business. It's risky to sell such products, because investors don't understand such products yet.
The strategy of these funds is to take huge bets, which could go right or wrong. Investors may be in for surprises if they are not fully aware of the product.
In fact, we don't even believe in sector funds because it defies the logic of diversification which is the crux of mutual fund investing.
