Tuesday, December 20, 2011

Allowing MFs to manage pension funds will spur retail participation.

With a flat fee structure, large customers question distributors on the charge: Ashu Suyash of Fidelity
Having put in two decades in banking and financial services business, Ms Ashu Suyash, Country Head-India, Fidelity Worldwide Investment, strongly believes that the best way to increase retail participation in India is through mutual funds handling pension money. In a one-to-one interaction with Business Line she speaks on issues concerning the mutual fund industry, from distributor due diligence to investor awareness. 

In these volatile market conditions, do you find investors being a little wary of foreign fund houses?
Today track record counts; it's not about being local or foreign. At the end of the day, I would say today's investors are by and large the tech-savvy category as awareness among investors remain poor. A good thing is that our share has gone up this year. There is no doubt that an SBI mutual fund will have the rub-off of State Bank of India, the parent.

Has the AMFI investor awareness programme been successful?
We are seeing better awareness. My observation is the domination is still by the large cities. But, if you look at flows – the new money that is coming in – you are beginning to see an increase there. We are in an environment where market volatility is very high. So the same customers who put in Rs 20,000 may invest only Rs 10,000. It is a very long haul but awareness is improving.

You have been repeatedly talking about the awareness. What stops the industry from stating that it deploys 100 per cent of the investor money?
Let us first understand that we cannot communicate directly on issues such as yield on debt or equity performance. Hence, the ability to present our case to the customer is pathetic.

Has the industry represented its case on this to SEBI?
SEBI has a view on it. But, look at the kind of disclaimers we have to give. When I advertise “All my funds outperform my benchmark,” it is has to be in a table that customers do not understand. I am not permitted to state all my funds outperform the benchmark. Whereas all insurers are free to state their case with a standard disclaimer that “Insurance is the subject matter of solicitation.”

One of the reasons I have been advancing for mutual funds managing pension funds is because it is the best way to educate customers as they will automatically track their investments. This is exactly the way in most markets. Hong Kong's mandatory Provident Fund is like that.

So you have approached SEBI on this?
We have been saying this for about seven years. It is not just that mutual fund industry players want it. There is huge benefit for the end customer, even from a government perspective. That is indeed the most sensible way to increase participation of the retail investors in the capital markets.

How will the distributors' decision to opt-in or opt-out of charging transaction charges affect the business?
After the entry-load was removed, most distributors are not charging their customers. Collecting Rs 50-100 is very, very cumbersome. In some ways, transaction charge earlier did make it easy. Now, with a flat fee in place, large customers question distributors on the charge and why it should not be waived.
Moreover, there is no material benefit for those who call on customers. It only works for those signing on customers through mass mailing.

The brand recall for your tax advantage fund is high. Is the category itself popular?
We are one of the few players who advertise throughout the year. The reason we have got good franchise on the tax fund is that it has a great track record and is widely distributed.
Today our flagship Fidelity Equity Fund is about Rs 3,250 crore and the tax fund around Rs 1,150 crore. On a stand-alone basis, the performance of the tax fund is very good.

Has cost of retaining talent gone up?
No, I would not say that. I would have said that in 2007. Again, I will not say supply exceeds demand. It is important to retain talent, because cost of hiring, training and making them deliver is very high.

Will the RBI guideline asking banks to reduce exposure in mutual funds affect you much, since 70 per cent of your AUM is equity?
No. We have always looked at fixed income for raising stickier money than the 2-day, 7-day kind of money. We target longer-term assets and launched the short-term income fund in December last year, which has grown from Rs 200 crore at launch to over Rs 800 crore now. Importantly, most of it has been from individual customers.

As a global player, do you find discrepancies in Indian regulations?
It does happen once in a while. But over the last decade, the Indian capital markets have really stepped up infrastructure and policies are truly world class.
For instance, proxy voting came here only now. But we have always had it in other markets as a core part of our fiduciary responsibility. But that does not mean you cannot do it here and SEBI does not bar you from following it.
So, we do tend to follow best practices from across the world and that sometimes frustrate people dealing with us.
A recent good example is distributor due-diligence which has just been introduced by SEBI, whereas we always did it. Our distributor empanelment process was long drawn and questioned for the time spent on it. Now, I think it is understood that you have to go through it.

Source: http://www.thehindubusinessline.com/markets/article2729414.ece?ref=wl_companies

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