The strategy that investors should adopt at the current
juncture, the IDBI Mutual Fund's plans for market penetration and the future of
the fund industry are some of the issues that Debasish
Mallick discusses with ET.
When can we expect the market sentiment to improve?
The debt overhang in the western countries is likely to continue for a long time. If it does, it will have a major negative impact on the global market sentiment and sentiment will decide the course of the markets. FII investments are also not likely to go up in India any time soon, especially with uncertainty about the domestic economy and doubts over the reforms programme. Other emerging countries are also likely to give better returns. On the domestic front, inflation has started to ease a bit, though there are concerns that it is temporary and may go up again. Core inflation will have to correct in some time. This is the lag effect of all the 13 rate hikes that we were so critical about. After a clear view emerges on inflation, the RBI is likely to tinker with the rates. I don't expect an interest rate cut soon and we may have to wait for some more time. When it happens, it will improve the market sentiment, even though volatility will be the order of the day.
How will the earnings season pan out for India Inc?
It's good that the domestic market is large because, for the Indian corporates, it means lesser dependence on the overseas market. However, over the past four months, inflation has increased the cost substantially. While raw material costs have gone up, the markets for these products have not been vibrant. People have deferred major purchases over the past quarter. This may be reflected in the current earnings season. The margins for the Indian companies are not likely to be healthy in this quarter.
What strategy should the investors adopt?
At all times, the investor should maintain a prudent asset allocation with a mix of debt, equity and gold. The extent of allocation in these asset classes should depend on individual needs. At the current juncture, it would be wiser to be invested more in debt than in equity. Within debt, one should have a variety of products as rate movement should not be taken for granted. At the same time, equity should not be written off for one could take a call on these after some time.
Which particular products would you recommend to investors now?
Investors could consider the IDBI Mutual Fund's Regular Cash Flow Plan under its MIP scheme. One could start a SIP under the growth scheme for a period of five years, or put in a lump-sum investment. On completing at least five years of continuous investment or accumulating at least `5 lakh under the scheme, you can switch over to the dividend option, which will give you returns for life. It acts as a second income or cash flow for life. This product is targeted at the retail investor and is available at all IDBI Bank branches. In the past year or so, since the launch of this scheme, we have been one of the few fund houses that has paid a regular dividend.
The fund industry has lost out in the past 2-3 years. How can it be revived?
There are two sides to this story-AUMs and number of folios. Ideally, one should be connected to the other, but this is not always the case. A large part of the AUMs has shrunk primarily because corporates have found better avenues to invest in. Perhaps, when the rates become more favourable, corporate money will start flowing back into the industry. This will be a cyclic process-at times mutual funds will attract more money, and at other times, banks will garner more attention. We have to work towards minimising the damage, that is, look for ways to ensure that the product remains buoyant at all times. The other more fundamental and permanent problem is the RBI regulation restricting bank investments in the fund industry. We'll have to learn to live in a situation where bank money will be less important in the system.
Coming to the decline in folios, it is essentially a retail story. Retail investors always come into the picture when the industry is offering good returns. Right now, the sentiment is negative. This is again a cyclical phenomenon. There is no doubt that lack of interest is a cause for concern. A mutual fund company cannot sustain itself unless it has a good retail base because that is the only stable money. So retail money in both equity and debt segments is very important. Then again, it has more to do with the market sentiment at any given point of time. What we can ensure is products for all seasons. Once we have a sufficiently wide product base, along with a good distribution network, then retail money may be more sustainable.
When can we expect the market sentiment to improve?
The debt overhang in the western countries is likely to continue for a long time. If it does, it will have a major negative impact on the global market sentiment and sentiment will decide the course of the markets. FII investments are also not likely to go up in India any time soon, especially with uncertainty about the domestic economy and doubts over the reforms programme. Other emerging countries are also likely to give better returns. On the domestic front, inflation has started to ease a bit, though there are concerns that it is temporary and may go up again. Core inflation will have to correct in some time. This is the lag effect of all the 13 rate hikes that we were so critical about. After a clear view emerges on inflation, the RBI is likely to tinker with the rates. I don't expect an interest rate cut soon and we may have to wait for some more time. When it happens, it will improve the market sentiment, even though volatility will be the order of the day.
How will the earnings season pan out for India Inc?
It's good that the domestic market is large because, for the Indian corporates, it means lesser dependence on the overseas market. However, over the past four months, inflation has increased the cost substantially. While raw material costs have gone up, the markets for these products have not been vibrant. People have deferred major purchases over the past quarter. This may be reflected in the current earnings season. The margins for the Indian companies are not likely to be healthy in this quarter.
What strategy should the investors adopt?
At all times, the investor should maintain a prudent asset allocation with a mix of debt, equity and gold. The extent of allocation in these asset classes should depend on individual needs. At the current juncture, it would be wiser to be invested more in debt than in equity. Within debt, one should have a variety of products as rate movement should not be taken for granted. At the same time, equity should not be written off for one could take a call on these after some time.
Which particular products would you recommend to investors now?
Investors could consider the IDBI Mutual Fund's Regular Cash Flow Plan under its MIP scheme. One could start a SIP under the growth scheme for a period of five years, or put in a lump-sum investment. On completing at least five years of continuous investment or accumulating at least `5 lakh under the scheme, you can switch over to the dividend option, which will give you returns for life. It acts as a second income or cash flow for life. This product is targeted at the retail investor and is available at all IDBI Bank branches. In the past year or so, since the launch of this scheme, we have been one of the few fund houses that has paid a regular dividend.
The fund industry has lost out in the past 2-3 years. How can it be revived?
There are two sides to this story-AUMs and number of folios. Ideally, one should be connected to the other, but this is not always the case. A large part of the AUMs has shrunk primarily because corporates have found better avenues to invest in. Perhaps, when the rates become more favourable, corporate money will start flowing back into the industry. This will be a cyclic process-at times mutual funds will attract more money, and at other times, banks will garner more attention. We have to work towards minimising the damage, that is, look for ways to ensure that the product remains buoyant at all times. The other more fundamental and permanent problem is the RBI regulation restricting bank investments in the fund industry. We'll have to learn to live in a situation where bank money will be less important in the system.
Coming to the decline in folios, it is essentially a retail story. Retail investors always come into the picture when the industry is offering good returns. Right now, the sentiment is negative. This is again a cyclical phenomenon. There is no doubt that lack of interest is a cause for concern. A mutual fund company cannot sustain itself unless it has a good retail base because that is the only stable money. So retail money in both equity and debt segments is very important. Then again, it has more to do with the market sentiment at any given point of time. What we can ensure is products for all seasons. Once we have a sufficiently wide product base, along with a good distribution network, then retail money may be more sustainable.
What are the emerging trends for the mutual fund industry?
The next phase of growth will be centred on the retail segment and market penetration. The competition in this space is very intense. Also, the divisions between financial services entities are becoming increasingly blurred. For instance, there is an overlap of products across banking and insurance. So the competition between fund houses may also come from players in other segments. Regulation will also start getting blurred and could lead to a more level playing field, resulting in fiercer competition. This could lead to an increased product penetration.
Your fund house derives strength from IDBI Bank's branch network and reach. How else do you plan to penetrate the market given the lack of distributor interest?
Our main strength is indeed the IDBI Bank platform with around 950 branches, of which 650 are distributing our products. We also have about 3,500 IFAs empanelled with us and, of late, our product pick-up has increased from this segment. Besides, we have tied up with six major banks to sell our products and, in the future, we will consider smaller banks as well. We are now at a stage where we are gaining credence in the market and have a strong brand name. As regards the distributors, we believe presenting the right product at the right time to the distributor is more important than monetary incentivisation. So we are not giving incentives that are out of sync with the industry practice as it will not help us penetrate the market on a sustainable basis. We are trying to focus on the relationship, product, performance and network.
The next phase of growth will be centred on the retail segment and market penetration. The competition in this space is very intense. Also, the divisions between financial services entities are becoming increasingly blurred. For instance, there is an overlap of products across banking and insurance. So the competition between fund houses may also come from players in other segments. Regulation will also start getting blurred and could lead to a more level playing field, resulting in fiercer competition. This could lead to an increased product penetration.
Your fund house derives strength from IDBI Bank's branch network and reach. How else do you plan to penetrate the market given the lack of distributor interest?
Our main strength is indeed the IDBI Bank platform with around 950 branches, of which 650 are distributing our products. We also have about 3,500 IFAs empanelled with us and, of late, our product pick-up has increased from this segment. Besides, we have tied up with six major banks to sell our products and, in the future, we will consider smaller banks as well. We are now at a stage where we are gaining credence in the market and have a strong brand name. As regards the distributors, we believe presenting the right product at the right time to the distributor is more important than monetary incentivisation. So we are not giving incentives that are out of sync with the industry practice as it will not help us penetrate the market on a sustainable basis. We are trying to focus on the relationship, product, performance and network.
Source: http://economictimes.indiatimes.com/opinion/interviews/invest-in-various-types-of-debt-since-you-cant-take-the-rate-movement-for-granted-debasish-mallick-ceo-md-idbi-amc/articleshow/11664232.cms?curpg=2
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