Inability to talk in investor’s language and the disconnect between AMCs and investors remain major challenges for the industry.
Leading mutual fund CEOs Milind Barve (HDFC), Nimesh Shah (ICICI Prudential) and Sandesh Kirkire (Kotak) deliberated on growth, challenges and opportunities for the mutual fund industry at the Next Advisors Annual Event recently held in Mumbai.
The major challenge for the industry is the difficulty in communicating the merits of mutual funds to investors. “Earlier distributors sold NFOs which had no track record. Over the past four years our industry has got sanitized. SEBI has made mutual funds a beautiful product for the investor. People look at the past returns while investing in a fund. The index is today at the same level where it was five years ago. But the market is much cheaper today than it was some years ago. You should buy what is available cheap today. We need to educate investors about this which is a challenge,” said Nimesh Shah.
Apart from this, Nimesh also pointed out that AMCs and investors are not on the same wavelength. “There is a huge disconnect between what AMCs think and what investors perceive. If funds have performed well AMCs are happy but the common man is looking at the actual returns. We believe our products are simple but investors don’t necessarily think so. A lot of financial education is required. More importantly more advisors are required in the industry.”
Sandesh Kirkire stressed on the need for the industry to move from product based selling to portfolio based approach by practicing asset allocation. “We need to move from product based selling to portfolio based selling. The market has not gone anywhere in the past five years but SIPs have done better during the same period. But this needs to be communicated to investors,” said Sandesh Kirkire.
Nimesh Shah observed that the way AMCs are evaluated by distributors and investors is vastly different in India compared to western countries. “Investors in western countries look at fiduciary responsibility, risk management capabilities, corporate governance standards and the processes of a fund house. Their focus is not on the star fund manager or the past three year returns. They even look at how the top management of mutual fund is remunerated.”
The panelists were hopeful that the industry will make good progress in increasing penetration in B-15 cities. This is something which SEBI chief U K Sinha urged the industry to focus on in his speech at the recent CII Mutual Fund Summit. Many large AMCs have already enrolled the new cadre of distributors in B-15 cities who are being offered higher commissions due to the increased TER. “There is enough evidence that people from B-15 cities are interested in mutual funds. The growth will not show up dramatically in a short span of time. There is a reasonably good incentive for distributors to sell mutual funds in these towns,” said Milind Barve.
On the issue
of SEBI’s plans to set minimum net worth for fund houses, Milind Barve observed
that while capital requirement can be one of the symbols of seriousness but it
may not be the only way to establish the seriousness of an AMC. Nimesh Shah
felt that the more serious players would invest more in creating awareness which
in turn would attract more investors.
