 "H N Sinor")
H N Sinor, chief executive of the Association of Mutual Funds of India (Amfi), doesn't rule out more mutual fund players shutting shop. In an interview with Chandan Kishore Kant, Sinor, whose term as head of the industry body ends in December, talks about how the 45-member Indian mutual fund sector has evolved in the past four years. Edited excerpts:
You took charge at Amfi in early 2010, when the mutual fund sector was going through turmoil. How do you see the situation today, months before the end of your term?
The day I came here, I observed a big divide between big and small players. I looked into whether there was adequate representation on the board for smaller asset management companies (AMCs). The first thing we did was to change the articles of association and increase the number of directors on the board to 15, about a third of the number in the sector. Today, of the 15, eight represent small and medium AMCs. In the past four years, the divide between big and small has narrowed considerably. I don't say it has gone down altogether. In the current environment, smaller players might feel it is difficult to compete. But that is the case with all sectors, whether banking or asset management.
Do you think Amfi has evolved into a strong body?
Yes. We have evolved into a better and dominant body. We have acquired importance, as far as regulators and members are concerned. The market regulator has given us importance, which has enabled Amfi to participate in a lot of discussions. There was hardly any issue for which Amfi wasn't consulted, either formally or informally. Amfi has always been made a partner in most Sebi (Securities and Exchange Board of India) initiatives.
Wasn't this the case earlier?
Earlier, the experience wasn't as pleasing; often, it was highly disruptive. Many sectoral practices and systems were made to undergo major changes. We have been able to address many of the ills in the system.
The requirement of higher net worth hasn't gone down well with the sector. What are your views?
About three years ago, there was a huge issue around money market mutual funds. As a result, regulators across geographies started debating the need for higher net worth. The impact of this was felt in India, too. Sebi has mandated higher capital of Rs 50 crore. There are certain legitimate arguments in favour of this. Initially, at the advisory committee meeting, it was agreed the net worth would be increased from Rs 10 crore to Rs 25 crore; later, it was set even higher, at Rs 50 crore.
India can't remain isolated from global risks. On the issue of seriousness, some of our own members disagree. But you have to realise due to lack of capital in the past, some AMCs had to wind up. Initially, there was resistance. Today, most small AMCs have agreed to increase the capital to Rs 50 crore.
Some AMCs have also exited the business. Do you expect this trend to continue or do you feel there is space for 100 AMCs?
Those who weren't interested have sold out. But to have 100 more companies will be a tall order. When compared to our GDP (gross domestic product), the sector's asset size is negligible. There are reasons for that. As long as inflation and interest rates on bank deposits are high, you won't see much traction on the asset management side. When interest paid on deposits falls to three-four per cent, you will see the mutual fund business pick up. About 100 AMCs is a utopian idea. I feel we will see some smaller AMCs going out. In the next five years, we might be left with only 25-30 players. It won't be a surprise.
Don't you think the sector is too focused on distributors?
Ultimately, it is the investor's money with which we are doing business. Therefore, we should never lose focus on investors. Mostly, I see people in the sector talking largely about distributors. I want to keep away from this. The question is whether or not I am giving investor a proper deal. Sometimes, we lose focus on investors by giving too much attention to distributors. Gradually, we need to clean the system.
How are cities beyond the top 15 faring?
There has been a considerable improvement, following Sebi's incentives for garnering assets from beyond the top 15 cities, announced about 18 months ago. Retail investment in equity, balanced and equity linked saving schemes (ELSS) has increased. From such towns, assets under management in the equity segment have increased from Rs 65,000 crore to about Rs 1 lakh crore. In terms of folios, the number increased from 18.3 million to 19.8 million, a rise of 1.5 million in 18 months.
