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WF: Your ELSS campaign is very different from others - rather than pitching tax savings, it encourages investors to feel happy and proud of being taxpayers. What is the thinking behind this unique positioning?
Pradeepkumar: Our ELSS campaign is a natural progression of our company's vision of being the bridge to responsible investing. Paying tax has always been perceived as a necessary evil. We believe that paying tax is a way of contributing to the development of the country and one should feel proud about it. At the same time, saving tax by investing in eligible products is a legitimate right given to all citizens because investment in tax saving instruments also contributes to the welfare of the nation indirectly. Hence, our ELSS campaign emphasizes the thought of "Pay Tax" and "Save Tax".
WF: A central corporate theme for your AMC is "responsible investing". What are the contours of responsible investing and how does it manifest itself in the way you position and manage your funds?
Pradeepkumar: We have always been propagating long term investing. Having said that, we also advocate that "invest when you can, use when you want but stay invested if you don't need". Being money managers to a large number of retail investors and especially a lot of first time investors in mutual funds, we feel it is our fiduciary responsibility to make sure that our investors have a positive experience of investing in mutual funds. Our focus has always been on generating good risk adjusted returns, avoiding fund strategies that may have limited shelf life and may result in suboptimal returns to an investor. For example, we have stayed away from sector specific funds. In our view, sectors have the tendency of running out of steam at some point in time. There has been enough experience of investors losing out when they stayed invested for a long time in sector funds.
WF: With 1 crore SIP accounts and a much larger proportion of equity inflows coming from SIPs rather than lumpsums, it appears that investors are becoming a lot more responsible in their investment approach. Is this a fair conclusion that can be drawn? What more should we aspire for and do as an industry to promote a more responsible approach from investors and fund houses?
Pradeepkumar: A stellar 49% rise in SIP accounts over FY 2014-15 is definitely positive from all aspects. From the industry's perspective, it gives us the comfort that the industry is progressing in a very healthy manner and from an investor's perspective, a large pool of disciplined investors will help to stabilise the market and yield better results.
As an industry, we should collectively work on reducing the mortality rate of SIPs in addition to aiming for higher growth rate of new SIPs. Deepening penetration in tier 2 and tier 3 cities needs to be done by broadening the distribution network. In my view, it is very important for retail investors to obtain good quality investment advice while investing in funds. The industry has lost a lot of investors owing to unpleasant experience after investing in mutual funds. The industry has around 65000 active distributors supposed to be catering to about 50 crore working individuals, which means one broker to cater to approximately 7700 investors. These numbers clearly show us the big gap that needs to be bridged. To further improve the penetration of mutual funds, the experience of investing in Mutual Funds has to be easy and convenient. Technology can play a big role in this.
WF: What is the status of KBC's exit from your fund house? When do you expect the rebranding to be complete? In what ways will things change as a consequence, for your investors and distributors?
Pradeepkumar: We have received the clearance from SEBI for the proposal, and by end of September 2016, we expect that we will be through with the formalities related to KBC's exit. After that, Union Bank of India will hold 100% stake in the fund house. Our sponsors and we are committed to growing the business further. As far as our investors, distributors and other partners are concerned, we expect no change. We shall endeavour to deliver better performance and more efficient service.
WF: We are now witnessing a debate in the industry on whether banks (especially those which also have fund houses within the group) should have a more open architecture than they are. What is your position on this debate? From an investor's point of view, what do you see as the key risks in the present arrangements?
Pradeepkumar: We do not subscribe to this debate because most banks have tie ups with multiple AMCs. Banks primarily target their own client base for cross selling other products like mutual funds and insurance which is quite natural. That is the way the bancassurance model works across the globe. Customers of a bank are likely to have greater comfort while buying products of companies associated with that particular bank. Hence, for a bank, setting up a mutual fund is one more step towards providing all financial products under one roof. In fact there is a counter argument that from an investor's point of view, if a bank disregards its own mutual fund products and recommends a third party product, it may be perceived merely as an attempt to generate commissions.
WF: What are your product, sales and marketing plans for the rest of this fiscal year?
Pradeepkumar: Going forward, we will be trying to complete our product basket. SIP will be a key focus area. We believe in the concept of linking an SIP with a goal, and accordingly, we have rebranded SIP as Strategic Investment Plan (SIP), Home Investment Plan (HIP) and Education Investment Plan (EIP). SIP as a product suffers from high premature closure ratio since many investors tend to discontinue their SIP when the market turns bad. By giving a tangible target and an emotional connect, we expect that over a period of time there will be longer tenure SIPs with lower pre-closure ratio.
We are keen to step up our engagement with the Independent Financial Advisor (IFA) community. We have empaneled a significant number of IFAs this calendar year and shall be engaging with them more actively.
WF: Markets continue to scale up due to induced liquidity, and some experts are beginning to worry whether valuations are running ahead of fundamentals, especially in mid and small caps. What is your overall sense on markets over the next 12 months and what do you see as the key drivers going forward?
Pradeepkumar: The Indian equity market has a lot of positives going for it currently due to which foreign as well as domestic investors are favourably inclined. Starting with a confidence in the Indian Economy itself on account of the following factors:
Growth: On an absolute as well as relative basis, the Indian Economy is expected to do well driven by Government Initiatives (Make in India, Infrastructure Focus, Ambitious Mega Projects like the River Linkages, Clean Ganga, Roads, High Speed Trains Etc.) and consumers boosted by a buoyant services economy, good monsoons (important for a buoyant rural economy) and the pay commission recommendations. Reforms: The Government has been addressing a lot of issues which have been plaguing the economy starting with the Electricity Reforms, addressing the Bad Loans Issues plaguing the Finance Sector and the big one being the introduction of the Goods and Services Tax (GST). The Government's Finances have been strengthened by low oil prices and falling subsidies.
In such a conducive environment it is natural for the small and mid-sized companies to show maximum growth. Many of these companies over the last couple of years have pared down their debts to almost negligible levels, which makes them relatively less risky from the leverage point of view.
Valuations have run up significantly and there is a possibility of a small correction which can be a time correction or a price correction in the short term. However, from a one year perspective, we are positive on the small and midcap sector more than the large caps.
The key drivers will continue to be growth and liquidity which we believe could continue to be abundant over the next one year.
The views expressed or statements made in this document are purely the views of the author and do not necessarily represent the views of either the Company or its affiliates. The views expressed or statements made in this document are as of August 2016, and can change without any notice.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
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