These are testing times for the mutual fund industry. Amid dwindling returns, the number of folio closures in the equity segment has been on a rise. Jaideep Bhattacharya, managing director, Baroda Pioneer asset management company, in an interview with Puneet Wadhwa, says investors are not moving out of the industry; they are shifting from one asset class to another. Edited excerpts:
How do see you the global economy and markets, including ours, panning out over the next 6-12 months, given the recent developments?
Events in the US and Europe have had a trickle-down effect, as far as India is concerned. Both economies are showing some improvement from some of the challenges they were facing earlier, and people now realise the Euro zone needs to stand tall and steady.
From an Indian markets' perspective, there has been volatility, but people have moved on from one asset class to another. While equity mutual funds have not managed to retain investors, the fixed income side has seen a lot of investor interest. I don't think a large number of investors have completely moved out of the market, given the uncertainty. But they, of course, want a lot of other things to settle down.
We feel with the valuations being attractive, it is a great time for the retail investor to enter the market with a three- to five-year horizon.
What has been your investment strategy at Baroda Pioneer?
Our strategy, essentially, has been to stay invested in the market. On the debt side, we have grown quite aggressively. We have not only improved our market share in the last quarter, but also the rank. A large amount of this has been through investment through the debt route.
Which sectors and companies made it to your investment list in the equity segment?
Each fund and fund manager has a different objective for the funds he manages. In the diversified equity scheme, where we have our flagship fund, we still feel the information technology (IT) and pharma sectors have some steam left. Banks continue to remain an important pillar of growth for the economy.
Fund houses are losing their equity retail investors at a fast pace, data suggests. What do you think is the root cause for this? Do you think this could change?
Well, people are moving out of equity and, hence, there is a decline in equity folios. At the same time, one must also see where that redeemed money is going. We have seen people are moving from equity-related products to debt-oriented schemes or a hybrid platform. So, they are not moving out of the industry, but are changing from one asset class to another.
The primary reason for this shift has been returns from equity schemes are not living up to their expectations. Having said this, depending upon one's time of entry into the market, as well as the levels, people have made some positive returns.
Is there more institutional interest in the debt segment, or do you see retail participation, too?
Besides institutional interest, we are seeing a lot of participation from retail investors and small and-medium enterprises (SMEs) for parking their funds. What is heartening to see is SMEs might not have the best access to treasury or cash management; a large number of these are looking at options to invest their surplus cash.
On the equity side, however, we have seen lower appetite. But a large number of people are accessing equity markets through systematic investment plans (SIPs). I am sure in the next three months, we will continue to see more traction, as far as the SIP numbers are concerned.
Investors who started SIPs more than three years ago are sitting on losses. What do you suggest they do?
In a market like India, where financial literacy is not very high, people need to be in the market, rather than time the market. So, the best way for them to enter the markets is through SIPs. For investors in this segment, it is important to ascertain their investment objective, which is usually long-term in nature. So, in that context, I don't think the goals change in a hurry.
Over the last 25 years, equity markets have given returns of 14-16 per cent. Outliers would be 7-24 per cent on either side. In such an environment, we don't have any other asset classes that can give you similar returns. Thus, it is imperative one has exposure to equity and alternate asset classes.
What about gold as an asset class?
As an asset class, gold is something most Indians understand, and so is real estate. A huge amount of traction in gold is because Indians understood gold better than any other product. I would suggest retail investors maintain 5-10 per cent investment in gold in their portfolios, especially in a tradable format.