Flows will be driven by hope of economic recovery: Vinay Tonse of SBI MF

In a Q&A, the MD-CEO of the fund house shares its journey to the top and his views on the cost of investing

Equity schemes have turned the corner in terms of investor flows, says Vinay Tonse, MD & CEO, SBI Mutual Fund. In an interview with Chirag Madia, Tonse shares the fund house’s journey to the top and his views on the cost of investing. Edited excerpts:

While equity markets have rallied, investors continued to pull out from equity schemes last financial year. Do you see this trend reversing this fiscal?

The trend has already started showing signs of reversal. We are seeing green shoots and flows into equity funds for the months of March and April have been positive. Additionally, we believe investors have learnt from last years’ experience and have now started understanding that they should not disturb their investments prematurely as markets in the long-term have an upward trend. Going ahead, we believe that flows would be driven primarily by expectations of economic recovery and abundant market liquidity.

Why are we seeing so much interest in passive products? Also, fund houses have launched several new fund offers (NFOs). Is there scope for costs to drop further in passive schemes?

Every investor should have a diversified portfolio not just in terms of asset class but also fund management style. It is a natural progression for investors to go for passive funds once they have a well-diversified portfolio of active funds. We feel the underperformance of active funds is a short-term phenomenon as Indian markets have not yet fully matured, providing ample scope for active stock picking. We have also started seeing some improvement in performance of active funds. On the cost part, the cost of passive funds is fairly rationalised, and we don't see them coming down further.

In FY21, SBI MF managed to cement its No. 1 ranking. How did it manage to do that? What will your long-term strategy for the fund house be?

Being No. 1 is a natural outcome of having the strong parentage of State Bank of India, a long track record, strong performance and a robust team. We have worked on all the blocks to reach the top rank and will continue to do so. As a company, we aim to make the capital market products available to every household and be wealth creators for people in all segments and geographies across India. Our vision is to be the most trusted and respected asset manager not just in India but globally.

Market regulators endeavour to bring down the cost of investing. Will this impact profit growth for the industry in the long run?

Industry profit growth will definitely be impacted in the short run. However, the industry is still in a very nascent stage in India and the scope for growth is enormous. We believe that higher volumes and cost optimisation over the long-term will make up for the lower profit growth in the short-term.

What are the key challenges the industry faces right now?

Despite increased participation in financial products over the last few years, a proper understanding about the right price and suitable investment products for a particular investor profile are still missing among most investors. Increasing awareness about product suitability has been and remains the key challenge the industry is facing currently.

SBI has announced plans to list SBI MF. When will the listing process start?

The decision of when to list the company would also largely rest with them.

Investors have preferred solution-based products the past few years. Do you see a shift in investor behaviour?

Investing in solution-oriented schemes automatically ensures an investor remains invested for a relatively longer period. This also enhances the visibility of wealth creation for investors. There has definitely been a shift in investor behaviour towards solution-based and long-term investing. The increasing adoption of solution-oriented schemes will enable investors to be financially ready for some of the key financial goals in life.

The market regulator has announced a stream of new regulations. How does it help the industry and investors? How do you see the latest norms on compensation playing out?

All the new rules that the market regulator has been announcing are aimed at protecting investor interest and improving their investment experience. This will also help increase investor confidence in mutual funds as “go-to” investment solutions for all their financial needs. The regulation around compensation of key personnel is a bit complex in its current form and we believe some clarity will emerge in some time.

What is the current status with the portfolio of Franklin Templeton MF. Do you foresee any risks due to the second Covid-19 wave?

There has been substantial progress on Franklin Templeton portfolio, and we are on track and are working towards providing investors with optimal returns. As far as the second wave of Covid-19 is concerned, we do not foresee any impact of the same on the process.

What should the investment strategy of the investors be at this point of time?

We cannot have a one-size-fits-all concept. A good investment strategy varies based on one's investment horizon and risk appetite. Looking at the current market scenario, we believe new investors can look at Hybrid Funds and in particular Debt Hybrid Funds as they endeavour to provide optimum, tax-efficient returns. Debt Hybrid Funds provide some stability in returns through the debt exposure and a kicker--though with a little bit of risk-–through exposure to equities.