How was 2015 for UTI?
It has been a year of milestones. We crossed Rs. 1 lakh crore AUM last year. After several quarters, we started gaining market share rapidly. We achieved this because of our focus on closed end funds (both in equity and debt). We launched a lot of FMPs, hybrid funds and capital protection funds which helped us grow.
As part of our Swatantra initiative, we are reaching out to investors through eight more newspapers. Also, we have started campaigns on radio and a TV channel. So we accomplished a lot in many areas in 2015.
The AUM of balanced funds has increased substantially. Do you see this category gaining more traction in 2016?
There are two kinds of investors. One category of investors wish to do the asset allocation themselves and the second category of investors want the fund managers to take care of asset allocation. Typically, the latter invest in balanced funds.
First-time MF investors should start by investing in balanced funds. If you are a long term investor you should consider pure equity funds. If you want to generate regular income, invest in debt funds.
We believe that the market for balanced funds will be limited because a majority of investors prefer investing in equity funds.
You are doing a lot of IAPs. What kind of feedback do you get from investors? What are their concerns?
People are hungry to learn about investing, which is evident by the attendance in IAPs. It is not just about conducting a 30-60 minutes session. It’s an experiential gain. Investors need to experience volatility in order to emerge as savvy investors. The key is to remain invested during volatile times. Investor education is a continuous effort.
Mutual funds offer so many choices for investors. So investors take time to appreciate the nuances of various products.
We see it as a long term commitment to market. We get to see the results only after a few years. For instance, SIP concept emerged in late 1990s. It is only after decades that we are seeing healthy inflows in SIPs.
What are your plans for 2016?
We have taken several initiatives in 2015 and we want to build on them. We want to leverage the digital space, which is our first priority. When we talk about digital it is not just about improvising our app or website. It is about finding a way to engage with the new segment of audience who are reluctant to interact face-to-face. The new generation expects to get messages through the digital medium. This aspect is also visible in the advisory business with the emergence of Robo advisors. So the challenge for the industry will be to cater to this new audience. Another area which we want to explore is payment banks.
Apart from this, we want to build on our investor awareness initiatives. We want to take these programs to the hinterland. So we are exploring if we can do our IAPs in regional languages.
How much inflows do you get through the digital channel?
If we include inflows from banks, we get 30-35% business from the online channel. If we exclude banks, then it is around 5%, which is same for the industry as well. Whether the money flows through direct or distributors, investors will adopt the digital channel to invest in mutual funds.
For instance, few years back, the industry was getting majority of inflows through cheque. Now, the money comes through NEFT, RTGS and IMPS. So we want to provide this convenience in transaction to all our channel partners, IFAs and investors. So the digital trend will only accelerate from here.
Mutual funds will be soon sold through e-commerce platforms. Do you see this taking off in a big way?
The idea is good but we haven’t thought through as to the kind of challenges we will face on e-commerce platforms. The problem is that mutual funds are a push product. Nobody gets up in the morning and says I want to invest in mutual funds! In such a scenario, just facilitating sale through e-commerce platforms may not suffice. The challenge is to engage with the online community.
We require PAN to invest in mutual funds. If most of the people buying on these platforms are students who don’t have PAN, how will you engage with them? So we have to understand how these platforms engage with different segment of customers.
MFs are receiving good inflows in equity funds. Do you this momentum will continue?
I think we have just scratched the surface. The inflows which we have seen in the last four quarters in equity funds are not substantial.
The inflows are linked to the expectations from markets. As of now, even if experts are not bullish on India, we are yet to see someone saying that he/she is bearish on India. So there is some level of optimism in the market.
So we hope that the inflows will continue not just for a few quarters but for a longer term. Indians are overinvested in real estate and gold so the money has to flow to equities. If India’s GDP continues to grow at 7% and we continue to have a higher savings rate it will eventually help mutual funds get more inflows. So we believe the inflows in equity funds will remain robust.
Has the recent Amtek episode shaken the confidence of investors in debt funds? Some say that mutual funds should compensate investors for losses. What are your views?
SEBI will come out with a set of guidelines for fixed income funds. Every time you go through a crisis, the system actually evolves and becomes stronger. We can recall several instances in the past where regulations have actually helped the industry.
For instance, liquid funds cannot buy residual maturities of more than 90 days. This has given a lot stability to liquid funds. This is the reason why HNI and corporates are attracted to liquid funds.
Similarly, after the 2008 crisis, FMPs have had to match the scheme maturity with the underlying paper. So the industry has actually learned from these experiences and become more robust. So I expect similar things to happen in the credit side as well. We believe that in a growing economy credit is a very exciting space to be in. It will be unfortunate if we don’t leverage credit for the benefit of investors.
India is yet to realize its true potential on the debt side. We believe that the regulatory framework will help grow the fixed income market.
Coming to the issue of compensating investors, we believe it is not fair to expect AMCs to compensate for the losses incurred by investors. If mutual funds start giving assured returns to investors you have to create some corpus for losses. If that happens, the returns to investors will go down. If we offer assured returns then there’ll be no difference between mutual funds and banks. In a pass through vehicle the risk and reward are passed to investors.
Many players are offering online platforms for distributors. How will the industry promote MF Utility in this competitive space?
MF Utility was launched just a year back. Every product goes through its learning curve. AMCs, distributors and investors have to learn to leverage MF Utility more effectively.
Today, there is growing demand for online access. So a lot of platforms have mushroomed. So it is a fairly competitive market. Whoever has the best offering will win and all the platforms are evolving.
A desktop version is no longer adequate. Investors today expect that they should be able to invest through smart phones. This is a challenge for all platforms. So I think different segments will evolve and each platform will have its own set of investors. We should give choices to investors and let them decide what is best for them.
