As Indian mutual fund assets grow, there will be a fall in the proportion of funds beating their benchmarks, says Kunal Kapoor, CEO, Morningstar Inc. In an interview with Ashley Coutinho, he says the industry could probably see a shift to solution-based offerings such as lifecycle funds over time.
Edited excerpts:
Indian mutual funds have seen sizeable inflows this year, buoyed by systematic investment plans of over Rs 5,000 crore every month. The total size of the industry now stands at over Rs 21 lakh cro with equity assets of over Rs 7 trillion. What changes do you foresee for the industry as it grows in size – for manufacturers, distributors and investors?
With increasing competition and scale, manufacturers should be able to focus more on lower cost products such as ETFs. The industry could probably see a shift to solution-based offerings over time, akin to developed markets such as the US where offerings such as target date funds or lifecycle funds are fairly common.
For the distribution industry two to three major changes could be expected. One is a shift from commission to fee-based remuneration. Developed markets such as the UK have made this shift and, in the US, we’ve recently seen the introduction of the Department of Labour regulations with a focus on advisors’ fiduciary responsibility towards investors. In India, this shift would need to be balanced with the need to increase the penetration of mutual funds among retail investors.
