2nd January 2012

WF : Reliance MF has been at the forefront of a number of innovations in 2011 - including Gold Savings Fund, FAST, InvestEasy and now the ATM Card. How do you evaluate response so far for these initiatives? What are your plans to build on these exciting new initiatives? What kind of scale do you expect these to reach in 2012?

Sundeep : Our objective in launching these innovations has always been to bring simplicity and ease of investing in mutual funds to retail investors. Currently only 3 per cent of Indian population invests in mutual funds and awareness is very low. Our aim and vision is to take mutual MFs to every household.

To this end, we have launched products like Reliance Gold Savings Fund that will appeal even to investors who do not invest in mutual fund as this is an opportunity for them to invest in an asset class such as gold without the risks associated with buying physical gold, easily without the need for a demat account. In such a short span of time, Reliance Gold Savings Fund has over Rs 2500 cr and this is proof that it has gained acceptance with investors. We were the first in the industry to launch a Gold Savings Fund which enabled investors to invest in gold without the need to have a demat account.

FAST has been built around sound financial planning principles and also helps partners in advising investors and making the shift to financial advisory, which is much needed in the industry today.

The Reliance ATM Card is poised to be a game changer as introduces the concept of using liquid funds and other MFs linked to an ATM card, facilitating paperless redemption is posed to change the way how MF investments are used by the retail investor.

With the change in investing environment, the MF investor is far more mature today and wants more value. We are confident that these products will find acceptance with investors and are working towards building awareness of these solutions.

WF : Equity confidence is badly shaken - and it seems to be more internal rather than external issues. What is your prognosis for equity markets in 2012 and what are likely to be the key drivers?

Sundeep : The last year has been extremely challenging no doubt. Though there is likely to be some volatility in the near term, I believe there is limited downside to Indian capital markets.

However things have come to a standstill. We need quick action from the government and policy makers to encourage capacity expansion and the growth from the private sector to start.

The last 15 months have been extremely challenging. Investors are unsure about where the markets will go and are hesitant to invest into equities.

Our view would be that have faith in the economy, this $1.5 trillion economy is definitely going to be 5 trillion or 6 trillion.

However, not investing in equities will result in investors missing out on the India growth story. Therefore, one should continue SIP investments with a view to long term wealth creation.

Investors have matured considerably with regard to the principle behind investments via SIP. Investors do realise that these are challenging times in a growing economy like India and this situation is not going to continue forever.

WF : Is 2012 likely to be the year of the income fund? What is your prognosis for fixed income markets in 2012 and what are likely to be the key drivers?

Sundeep : Debt funds are certainly going to be good bets for 2012. Currently GOI secs are trading at their 3 year high levels making them an attractive investment option. In light of the above, we expect yields to peak out in near future if RBI pauses rate hikes.

Weak economic growth might impact government's revenue going forward which might increase the fiscal deficit leading to additional supply of GOI secs to fund the fiscal deficit. Such additional supply in GOI secs might restrict an immediate sharp fall in yields but at the same time increased demand due to Open Market Operations (OMO) buybacks of GOI Secs, increased FII limit and higher GOI secs holdings by commercial banks will give the much required support to GOI secs yields and help improve liquidity situation.

There is good enough demand in short to medium tenor corporate bonds from both global and domestic investors in light of very high running yields, moderating rate hike expectations and limited supply of bonds by good rated corporates.

However one must not forget that Debt as an asset class is also subject to volatility and one should diversify investments according to investment horizon and risk appetite.

From an investment perspective, duration funds such as dynamic bond funds, income and gilt schemes, short term funds and medium to long term FMPs depending on investment horizon and risk appetite.

WF : What steps are you proposing in 2012 to get better retail traction for fixed income funds?

Sundeep : Long term retail debt is a very important segment. We recognized this a few years back and have been steadily growing our share in this segment.

The current environment too is favouring investments in long term debt. In the past awareness about Fixed income was low however this is changing. We are stepping up our awareness efforts

WF : Business confidence within the distribution business is plunging to new lows - falling markets, falling volumes, falling margins and increasing regulatory intervention being some of the current issues. How do you see the road ahead for fund distribution?

Sundeep : We are confident that, despite the challenges, fund distribution in India will evolve into a more efficient format.

There is negligible penetration for Mutual Funds in India hence opportunity is tremendous. Advisory services based on financial planning concept are gaining importance by the day and distributors too have realized the importance of adopting comprehensive financial planning practices to help investors achieve their goals . One could clearly see our conviction in this fact ,when we launched FAST (Flexible Asset Selection Tool) last year, a unique 360 Financial Solution that is a handy tool for distributors to move into an advisors role.

Most of the current retail mutual fund investors have been acquired during equity NFO's and have been repeatedly sold only NFO's , there is clearly a need to advise them into other asset-classes like debt, liquid & gold to diversify their investments. At the same time, promoting simple products like systematic investment plans will help retail distributors to penetrate deep into rural markets and take mutual funds to every household in the country.

Ultimately, whatever is the mode, these initiatives culminate into developing long-term and healthy assets for the distributors and the industry at large .

WF : Many advisors are worried that a trail based revenue model may come under threat over the coming couple of years, due to regulatory intervention. In your own judgement, can your distribution partners continue to plan on building a trail based business model? If you were to try and do some crystal ball gazing, what kind of a revenue model do you see as sustainable in the distribution business?

Sundeep : As mentioned earlier, as long as distributors work towards creating long-term assets for themselves, the revenues would consistently flow . The route they use for building this asset-base will help them shape an appropriate business model for themselves.

WF : What product segments within the MF category would you ask distributors to focus on in 2012, in a bid to increase sales momentum?

Sundeep : Our focus is clearly retail investor. Hence we have launched a strong value proposition for the retail segment as this segment has the most diverse needs. We will be focusing on SIP insure, Long term retail debt and Reliance ATM card as we believe that this will be key drivers for 2012.

WF : What are your plans at Reliance MF for 2012?

Sundeep : We will continue to be focused on retail investor and keep launching new innovations and product features that incorporate simplicity and ease of use as that is the important ingredient to increasing mutual fund penetration.