June 1, 2012
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May 31, 2012
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There is an obsession with AUM and that is where one gets de-focused when we talk about mutual fund industry. It is not so that only No. 1 gets money and No. 2 does not. Going by that logic, if only No. 1 has to get the money then there would have been no industry anywhere. I think that’s not the right way to see it. We, as a fund house, have been focused on adding more and more retail investors and creating wealth for them. What we did in the last 5-7 years has resulted into one of the largest retail bases with around 70 lakh investors, which includes 20 lakh investors through Systematic Investment Plans (SIPs). As long as we are able to keep getting new retail investors to the industry, there is nothing to do with the ranking.
It’s not the question of blaming anyone. Seventy per cent of industry’s assets are institutional while rest is retail. Institutional money will continue to be a function of liquidity in the economy. Ultimately that money parked with mutual funds has to be used for projects as and when the capex is there. Liquidity will have an impact on the AUM of the industry, but that is not our core focus. Our liquid money, as a percentage of our total AUM, is at an all time low. We are trying to replace corporate money with retail investors. Sixty per cent of the Indian household savings is with the banks. It’s going to change. When will it change? I don’t know but what we are trying to do is to be ready to grab the opportunity whenever this change happens.
We should stop seeing the industry from a quarterly or half-yearly perspective. A lot of things are being done from a long-term perspective, say 5-10 years. We need to focus and launch simple products for investors so that the household savings in India can be moved into mutual funds. As an industry, we are at a very nascent stage, with less than 2 per cent of the population investing in mutual funds. This industry has potential to become five-ten times bigger in the next 10 years. There is a clear slowdown in the industry. In the last 2-3 years, because of market conditions, investors have not made money. Since 2008, it has taken lot for the industry to reconcile and get used to new business models. And the new business models are bit more expensive because we have seen a break down in the distribution network. What I mean is the link between the AMCs and the investors, lot of distributors are out of the industry which has pushed up cost of acquisition (of investors). From longer term point of view, volumes will compensate the falling margins and we need to have volumes as it is becoming a low margin game.
We have applied to EPFO as we planned to get Nippon Life as a partner. Nippon will be taking 26 per cent stake. We are in line with the rules and regulations and one would appreciate the fact that this is the largest FDI deal in the sector. We are in the process of taking those approvals. Deal was finalised, MoU was signed and share holding will change only after getting approvals from all the concerned authorities. I am sure we will see the deal getting cleared. Competition Commission of India (CCI) already has cleared this and I don’t see any problem from EPFO.
India has yet to see the potential of asset management space. A lot of foreign players are seeing much more in India than may be the industry itself. Every new foreign player coming in clearly explains that their global footprint is incomplete without India. So in India where 2 per cent of the population is investing in mutual funds far less than what they put in bank deposits, I believe there is a scope for 100 more AMCs to come. Every AMC will need to develop its niche and work out its business model. Industry is going to become far more bigger from here. It’s too early for us to discuss about the number of players, as right now industry can grow manifolds from here.
The industry has changed a lot from 2008 till now. Every shareholder and the management has to sit down and work out its own business plan. This industry definitely requires lot of patience from sponsors than what it used to have earlier. For a long term point of view it will be profitable but it will require lot more investment. Mutual fund sector needs shareholders’ patience, long term vision and execution capabilities to be successful. This industry is going to be big and profitable in times to come in the long run.
We are not looking at the short-term period of one or two quarters. We will keep investing in this time too. We are investing heavily on technology to increase our reach and reduce our transaction costs. We will keep investing for future. Short term cycle should not impact the long-term vision. There can be problems in short-term, but that does not stop us from investing for long-term. We are getting ready for the big opportunity, whenever it comes, and we are investing in all respect of our business.
May 24, 2012
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May 23, 2012
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Another fund from the international fund category that has done well with 11.70% is ING Global Real Estate Fund followed by Birla Sunlife International Equity Fund with 6.92% yearly return. “This may not be a great entry point in these funds, as global macro economic scenario is not encouraging and rupee is at a low against USD. Any positive move in rupee against USD, may wipe out returns offered by these funds,” add Hiren Dhakan.
May 22, 2012
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May 21, 2012
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How would you describe the current state of affairs in the Indian MF industry?
The Indian mutual fund industry has immense growth potential, and if aided well by technological advancements and increased awareness, MFs can be a major contributor to the overall Indian economy. However, it appears, the industry has not learnt from its past mistakes. The industry still seems to be operating on an asset gathering mandate, and not an asset managing one; the focus of the industry still seems to be driven by business agendas and not on building a community that is truly concerned about its investors; market share and “piece-of-the-wallet” concerns still precede issues like investor safety and delivery of risk-adjusted returns. The fund industry is still in a learning stage, though unfortunately, it seems to forget its earlier lessons all too soon
The MF industry, a few years ago, had set tall targets for itself. How far are we from achieving those targets?
Targets are necessary. It’s not just about achieving them, but more about moving in that direction. Rather than meeting a number, the industry should focus on becoming absolutely investor-friendly – right from the time an investor starts understanding about mutual funds through to the entire experience of helping him create wealth. Better regulations, advanced technology and conscientious managements will help in moving towards this aim.
Why should retail investors invest in funds when the future of many fund houses itself is in doldrums?
When you choose to invest with a fund house, you should ascertain its background well so that you can be sure of the future of your investments. In times such as now, retail investors should choose to get convinced about the investment philosophy of a fund house before investing in it, rather than get convinced by brilliant marketing gimmicks or aggressive distribution strategies. Investors must take care to choose their fund well.
If a fund is like a prospective life partner, a fund house is like its family. If you have solid family background backing your chosen partner, it reduces the scope of unwanted future uncertainties. However, the size of fund or a fund house has little to do with its performance. When you look at performance, consider consistent track records rather than spikes in returns, especially in the short term. A consistent fund will probably provide you with greater comfort in times of volatility as compared to a one-year star performer.
What do you think is the future of relatively smaller and newer fund houses?
The skepticism about the future of smaller fund houses is sheer speculation. Smaller fund houses will continue to do well in the coming years just like their larger peers. The Indian mutual fund industry has a bright future for transparent and ethical fund houses that are truly concerned about investors and focus on investor security and on delivering risk-adjusted returns, irrespective of their size or their years of existence.
Do you think the industry will consolidate in the coming years?
While the law of economics suggests consolidation, which would reduce costs greatly, different fund houses have different needs and objectives which might not sync favorably with such an approach. For all you know, several fund houses may not even go for consolidation; the moment they see their business becoming unviable they may just exit the business. This may be the case for foreign fund houses operating in India. Domestic fund houses again will not consolidate their business; they will try to survive the bad times… They will wait for a gain in their valuations before finding a partnership deal with some other player wanting to start an AMC business in the country.
In current times, when survival of the fittest holds water, what steps have you taken to ensure your existence? What are your strategies to sustain this business?
We are a different fund house. Being the only direct-to-investor fund house, we are constantly exploring new avenues to reach out to our investors and spread what we call “the Quantum way of investing”. Here again, the online medium would be our strength as we look to reach out to the base of over 100 million online Indians and bring them a better way of creating wealth over the long term. Some of our best ideas are a simple implementation of our investors’ feedback.
Do you think it is time the industry explored newer investment avenues – beyond equities, fixed income and gold?
Investors today are saturated with schemes. Investors are also paranoid about opaque markets, the disappointing corruption reports and repetitive scams. It thus, is the responsibility of the industry to collaborate to re-instill faith in investors, not by increasing the number of investor awareness programmes, or by launching new ad campaigns to promote this message, but by simply stepping away from the wallet-share game and retrospect on how they could best be asset managers working for the benefit of the end investor.
What is your advice to retail investors with respect to investing in mutual funds and equity markets?
The purpose of investing in MFs is to have a professionally managed portfolio of products that suit your requirement. An investor has a few basic requirements: one, create wealth over the long term for which you need an equity scheme; two, save tax for which you would need an Equity-Linked Savings Scheme; three, need to have some cash in reserve in case of an emergency for which you will need to look at a debt/liquid scheme; and four, need to counter equity exposure for which you could opt for a Gold ETF. These are the basic products that an investor needs to have, and not the hordes of schemes that clutter his portfolio.
May 18, 2012
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