Expecting interest rates to
decline over the next 12-18 months, Suresh Soni, MD & CEO, Deutsche Mutual
Fund believes investors will do well to consider medium to long term bond
funds.
You are currently the 13th
largest fund house by AUM as on Sep 2014. What are your aspirations?
As Deutsche Mutual Fund completes 11 years of operations, it is satisfying to have won the trust of a large number of investors and distributors. We want to stay focused on delivering superior investment performance to our investors. The business growth will follow. To this end, we have further strengthened our equity and fixed income fund management team during the year. We are taking initiatives to enhance customer and distributor engagement. We believe staying focused on investment results and customer engagement will lead to a sustainable growth in the business overtime.
How have the changes in tax structure of debt funds impacted your business? How have you recalibrated your business to overcome this challenge?
While the industry is disappointed by the tax change, we believe that despite the changes in tax structure of debt funds, there is an opportunity for the industry to work on offering investors’ medium/long term investment options. There are significant tax benefits available to investors who invest in debt mutual funds for more than three years.
Deutsche Mutual Fund has a range of open-ended products for investors to choose from and plans to further increase offerings by introducing some new products across equity and hybrid funds. Recently we launched DWS Arbitrage Fund and DWS Corporate Debt Opportunities Fund. We have also seen encouraging response from investors to our 3-year close-ended FMP and hybrid funds. For our existing FMP investors we are offering an option to roll-over on maturity.
Your fund house has very few equity schemes. Is this a conscious effort to be a largely debt player?
Deutsche Mutual Fund has a range of products for investors to choose from across equity, debt and hybrid funds. In the past few years, we have focused on fixed income funds keeping in mind the market environment and investor appetite. In equity, we have 4 domestic funds and 2 overseas fund of funds. Our flagship DWS Alpha Equity Fund has completed 11 years and delivered strong investment performance. Recently we launched DWS Arbitrage Fund, an equity arbitrage scheme and have seen strong investor interest. As a fund house we look to launch new funds only when we see a product gap and a compelling investment argument. We will consider launching appropriate funds to further provide investment options to our clients.
You have refrained from
launching closed-end funds when your peers are seeing this as opportunity to
get investors to participate in equities.
Are you also planning to launch a closed end equity fund?
We are always on the lookout for opportunities across the
investment plane which will cater to investors’ appetite. The decision to
choose an open or closed-end fund is primarily based on investment objective. At
an opportune time, we may consider launching a closed-end equity fund.
Your PAT increased to Rs. 17 crore in FY13-14 from Rs. 10 crore the previous year. What contributed to the growth? How do you see FY14-15 in terms of profitability?
In a challenging macro environment it is good to be running a well-capitalized, profitable and financially sound business. We have built a team of experienced managers locally who are linked up well with our investment team globally. This allows us to leverage our global resource base without incurring significant costs. All of this along with a motivated and highly productive team and prudent cost management has allowed us to create a profitable and growing business.
Europe focused funds have taken a beating recently. What is your reading of the situation and when do you think the European economy will recover?
- After the recession in 2013 we
still expect the Eurozone to grow by 0.7% in 2014 and by 1.2% in 2015. Reason
for the slower than expected recovery are geopolitical tensions
(Ukraine/Russia, IS terror, Ebola) and their impact on investor sentiment as
well as the slow-down in global macro-economic activity.
- Nevertheless, Eurozone purchasing
manager's index (PMIs) stays above 50, which points to moderate growth.
Periphery countries like Spain, Portugal and Ireland have improved
competitiveness and passed reforms leading to higher exports, FDIs, increase in
employment and also to a recovery in domestic demand.
- The central bank policy remains
highly accommodative, with low rates further supporting risk assets.
- The decrease in oil prices should
work like a tax cut.
All in all, the recovery remains intact. What we said in Q1 and Q2 remains true. We still see a gradual improvement in the economy. Reforms are on the way, European Central Bank (ECB) remains supportive, currency becomes a tailwind and we see first signs of an improvement in credit demand. Talking about equity markets, the valuations remain attractive and earnings/margins catch up potential is massive. European equities remains a very good long term buying story.
Which market (debt or equity)
looks attractive to you at this juncture?
We have seen significant improvement in macro environment over the last year. Real interest rates are beginning to turn positive. We expect bond yields to soften by 25-50 bps over next 12-18 months. This coupled with improving credit outlook makes a strong case for fixed income investments. With improved growth outlook, equity markets look promising in the medium to long term (3 -5 year view)
Within the debt funds category, which scheme category would you recommend to investors to invest at this juncture?
As we expect interest rates to decline over the next 12-18 months, we believe investors will do well to consider medium to long term bond funds. High accrual income and improving credit outlook makes a strong case for corporate debt funds from a medium term perspective.
