We're going to see more of medium-term products offered to clients: Suresh Soni

Interview with MD, Deutsche MF

 

The new debt tax regulation announced in the Union Budget is an opportunity for the mutual fund sector to focus on offering more on medium-term to long-term investment options, believes Suresh Soni, managing director of Deutsche Mutual Fund. In an interview with Sneha Padiyath, he talks about this, investor awareness programmes and the steady return of retail investors. Edited excerpts:

Has the segment moved on from the initial disappointment with the new debt tax regime?

The industry was taken aback by the announcement, since debt MFs play a key role in the corporate bond market. Fixed income MFs account for nearly 35 per cent of daily trading volumes in corporate bonds and are one of the largest holders in the bond market. At a time when the sector was looking at further developing the corporate bond market, this is a setback. Many investors have put money into medium to long-term fixed income investments like Public Provident Fund accounts or tax-free bonds for 10-15 years. But in MFs, a large chunk of flows came into one-year fixed maturity plans (FMPs).

The new tax regime is an opportunity for the sector to work on offering medium-term and long-term investment options, since there are significant tax benefits available to investors.

Are you expecting to see huge redemptions by the end of this financial year?

We are not expecting any significant redemptions in the market but those invested currently would weigh their options and to that extent, there could be some impact on the existing FMPs that come up for maturity. While the sector has started offering a roll-over option or the extension of FMPs in existing funds, one can see some withdrawals from these funds.

Are clients willing to roll over or do they want to exit from the schemes completely?

This is an option that fund houses have offered to clients and the figures till date indicate a positive response.

How do you plan to deal with redemptions, with more than 60 per cent of your assets under management coming from debt funds?

Deutsche MF has a range of products, with FMPs accounting for about 20 per cent of our portfolio, broadly in line with the sector. We have a range of open-ended products for investors to choose from and plan to further increase our offering by introducing some new products across equity, debt and hybrid segments.

With a higher tax on debt products, are you looking at expanding the equity portfolio?

Any expansion will depend on investment opportunities and to bridge the possible product gaps in our portfolio. At present, we are evaluating launching funds across equity and medium to long-term fixed income categories.

At the sector level, is there a move to broaden the equity product base?

The sector would like a little more of client flows into equities. The possibility or the prospects improve with the equity markets looking up and an overall positive environment. On the fixed income side, the sector focus will tend to move a little away from one-year FMP kind of products to more slightly medium-term products. One will see the sector coming out with more three-year products.

How is the district adoption programme progressing? Questions have been raised about the audience at such investor awareness programmes, that there seem to be more distributors present than investors at these events.

As directed by Sebi (the capital markets regulator), the entire sector came together to adopt certain districts to conduct investor awareness programmes. Deutsche MF's investor education initiative has met with considerable success and we believe a large number of investors have benefited. This programme is evolving and the sector is also learning as it walks down this path on how to improve it. At the camps we conduct, we have a system of creating a rigorous database of attendees. At times, to reach out to more, we might take the help of intermediaries to invite them. But the audiences are of investors who have turned up to learn and understand about the investment options.

With equity markets turning around, are you seeing higher retail participation yet?

We are beginning to see retail participation increasing again, after a continuous decline in folios. It is refreshing to see retail folios actually begin to increase. That is an indicator of better things to come and points to the positive outlook on the part of the investor.