The past year has seen an influx of new investors putting their hard-earned money into equities. What was unique this time round was that the investors chose to invest in stocks directly rather than opt for the mutual fund route.
The mutual fund industry is unfazed by this trend and has dubbed it a bull market phenomenon. Mutual funds will remain the top choice for Indian investors because of the transparency, low cost and the variety of investment options it offer investors, a section of top MF honchos said at the Business Standard BFSI Insight Summit on Tuesday.
Vinay Tonse, managing director & CEO of SBI MF, the country’s largest mutual fund, said the current bull run called for caution as it could tempt investors to pick stocks that are not fundamentally sound. “Who doesn’t need mutual funds? If you look at the products and solutions that we offer, right from a novice to an evolved investor would do well to invest in MF schemes. The industry has done a wonderful job of converting savers into investors over the last many years,” he said.
“MFs have gone through many cycles, seen all the ups and down that the market has to offer, and has emerged as one of the most trusted and reliable vehicles for investors in the country,” added A Balasubramanian, managing director & chief executive officer, Aditya Birla Sun Life MF, adding that new investors that had entered the market in the past year had seen only one side of the market.
According to Balasubramanian, the industry formed about 15 per cent of the GDP and had played an important role in channelising savings into the capital market as well as emerging as a strong countervailing force to foreign money that is often volatile.
DSP MF’s managing director & CEO Kalpen Parekh said MFs offered a range of products apart from traditional equities and bonds, including commodities and international equities, which could be suited to anyone from retail investors to corporates to bank treasuries. “That is the kind of range that MF plays to. No doubt the run rate of account opening has been higher for the broking industry in the past year but we can learn from that. As more broking accounts open, these same accounts can be used to open ETF accounts as well. The runway is long and I am confident that we will fulfil the diverse objectives of a diverse set of investors,” Parekh said.
Navneet Munot, managing director & CEO at HDFC MF said mutual funds could be used by anybody who is a saver and who needed to invest whether it was to park for emergency needs, or income generation or long term value creation. “MFs are highly regulated and intensely scrutinised. The recent trend is both a challenge and an opportunity. If we can focus on investor education and teach investors the importance of time, patience and discipline, and make similar user interface available to investors as is available on broking apps we will be able to attract investors,” he said, adding that 30 lakh folios had got added in the September quarter.
Radhika Gupta, managing director & CEO, Edelweiss MF, said: “The game is not in opening accounts. The success is in keeping people invested through cycles. That is the battle we have to win.”
A number of fintechs are gearing up to get into the mutual fund space. The MFs chiefs didn’t see this as a threat but as a means to improve the industry’s penetration to far-flung corners of the country.
“The more (number of players) the merrier. We are today urban centric and we have to reach out to every pin code of India. Doing that will require a collective effort from all players,” said Nilesh Shah, managing director, Kotak Mahindra MF.
The honchos said that the key to reach out to millennials was to speak in their language, make products available digitally, build newer products and engage them on various social media platforms. “Our investment will have to make money but they will also have to impact society positively,” said Shah.
International funds are gaining currency among investors in the last two years. The MF chiefs, however, believed that it was important that investors wet their feet in Indian equities first and turn to international equities for diversification, and as a means to create dollar assets and invest in companies or businesses that are not available in India.
“Equity investing is about buying the best businesses in India and across the world. Investors should ideally avoid an either, or approach and can look at building hybrid portfolios with a mix of domestic and international equities. There are overseas companies that are growing at faster rates than that in India. Countries go through cycles and building a multi-country portfolio can help reduce volatility,” said Parekh.
Despite the growth of passives, active schemes still formed a large part of the portfolio for the top fund houses. More and more asset managers were offering passives in their portfolios as a means to diversify their product basket and offer investors a wider bouquet. “There are times when I want standardisation and times when I want customisation. The industry should focus on building good products in both active and passive,” said Gupta.
"I am fine with the growth of passives. But too many funds are funnelling their money in a few stocks. I would like broadbasing of stocks to happen and the money going into a broader index of 200 to 500 stocks instead of just the top 50," added Tonse.