People associated with mutual funds should not worry about their future growth as this business would emerge much stronger in a post covid-19 era, say industry leaders
The mutual fund business is most resilient compared to other businesses like travel, hospitality, manufacturing and automobile industry. For instance, hotels and airlines have seen little or no earnings due to the lockdown. However, the MF industry would continue to get new business as many people have realized importance of financial savings and investments.
We spoke to a few industry experts to understand why they think mutual fund is most resilient business compared to other businesses and why distributors should not worry about their future in this business.
Here is what they have to say.
A Balasubramanian, MD and CEO, Aditya Birla Sunlife Mutual Fund
The MF industry provides strong support to corporate India through equity and debt capital. In fact, many people have realized that mutual funds have strong risk management processes, high disclosure standards and transparency. Over the years, the industry under guidance from SEBI has been constantly revising policies in the best interests of investors.
In addition, the MF industry has educated a lot of investors through IAPs and works closely with the government to help it meet divestment target. Also, the MF industry has been doing great work in favour of nation and hence, needs to be recognized and appreciated.
I strongly believe that the MF industry is well-positioned to regain its growth momentum and has a combination of resilience and agility to deal with the post covid 19 world.
Ajit Menon, CEO, PGIM MF
The hierarchy of need chain has changed with coronavirus pandemic. After Roti, Kapda and Makaan (food, cloth and shelter), people will now prefer buying insurance policies for protection and may look at mutual funds for savings. They will surely reduce their non-discretionary spending in future.
In my view, mutual funds fit in immediately after insurance in the new need chain.
Another thing that would help the MF industry is its transparency. In terms of transparency, mutual funds score over other financial products by a wide margin.
Finally, the growing awareness about mutual fund would add to its popularity. In fact, RBI, in 2017, found that educated people having surplus money would explore market linked products like mutual funds to invest their money.
Distributors should focus on risk management aspect of their business to grow their business in a post covid era. They should not concentrate their assets in select schemes; instead they should diversify their offerings by adding products and services like insurance, tax planning and so on to grow business.
DP Singh, ED and CMO, SBI MF
There is no denying that the current financial year will be a year of muted growth for the mutual fund industry. Also, many investors would move to safer asset classes like debt funds to ride the difficult times.
However, the MF industry would continue to get support from retail investors through SIPs. This is evident from the fact that the SIP discontinuation has declined despite heightened volatility and weak economic sentiments.
In addition, the unattractive interest rates on bank FDs and other such products would encourage investors to explore mutual funds for higher risk adjusted returns.
Considering these factors, I strongly believe that the MF industry is more resilient than other sectors.
Further, distributors should not worry about their future in MF distribution business. As we all know that many professionals have been facing difficulties due to shut down of businesses, delay and cut in salaries and so on. However, MF distributors would continue to get regular cash flows in the form of trail commission. In my view, distributors will have to ensure that they bring new business to keep their earnings intact.
Swarup Mohanty, CEO, Mirae Asset
After demonetization, the corona pandemic has once again made many people realise the importance of budgeting, managing expenses and savings.
Now, it is up to the MF industry to position their offerings in line with investors requirement.
While there is no doubt that earnings of people would be affected post corona, they would reduce their discretionary spending to set higher sums for future security.
Another factor that has helped the MF industry is essential service status given by the government of India. While many sectors like manufacturing, automobile and so on have been shut down due to nationwide lockdown, the government has put the MF industry in line with healthcare to ensure that people continue to get an opportunity to invest. We have to realize that we have become an integral part of people’s lives.
In terms of distribution business, I strongly believe that just like demonetization brought financialization of savings, corona pandemic has created demand for good financial advice.
Before covid-19, people used to spend on their needs (essentials) and wants (non-essentials) before investing their money. With the corona pandemic, people have realized importance of savings, investing and creating an emergency corpus. Hence, many people would require guidance from distributors to manage their cash flow and invest their money.
In future, only two things will matter – financial goals of investors and the person who is helping them achieve their goals. Simply put, if financial goal is a star, financial consultant is the rock-star.
However, distributors should upgrade themselves with knowledge and infrastructure to cater to the dynamic needs and goals of investors.
