He could be termed the angry gentleman of the mutual fund industry. UK Sinha, chairman and managing director of Unit Trust of India is not known to mince words. In a free wheeling interview with ET, he does not flinch from criticising the unhealthy industry practices that have again surfaced, following the recovery in the markets. At the same time, he is supportive of equity fund managers’ cautious approach during the recent rally, even if it meant missing out on returns. Mr Sinha is upset about the fact that current regulations give an unfair advantage to insurance companies when it comes to mobilising funds.Has the mutual fund industry learnt its lessons from the meltdown (in the money market segment ) of October 2008?
I wish the lessons had been learnt. But I don’t think so that has been the case. The support provided by the government and RBI in October (2008) was in the context of the larger financial system, and not to bail out any particular scheme or any particular mutual fund. The lessons that mutual funds should have learnt from this turmoil is: not to grow assets (under management) at any cost and not to invest in low quality paper. Till around December, the industry was cautious. After that the old practices have begun. Fund managers are again buying assets (under management) — they are paying distributors and corporates to buy assets — there are stories of how structured deals are happening once again.
I wish the lessons had been learnt. But I don’t think so that has been the case. The support provided by the government and RBI in October (2008) was in the context of the larger financial system, and not to bail out any particular scheme or any particular mutual fund. The lessons that mutual funds should have learnt from this turmoil is: not to grow assets (under management) at any cost and not to invest in low quality paper. Till around December, the industry was cautious. After that the old practices have begun. Fund managers are again buying assets (under management) — they are paying distributors and corporates to buy assets — there are stories of how structured deals are happening once again.
What is the solution to these problems?
Sebi is already asking for more disclosures, but these (disclosures ) have to be made more stringent. Details such as how much of group (companies’ ) money has been invested , who are the investors, how much of it is retail money and how much of it corporate, have to be made. Also, what are the type of papers the scheme has invested in..... that disclosure is not happening on a regular basis. Sebi should also see if the investments being made are in line with the objectives of the scheme. My next point is that the growth we are seeing of late has mostly come from corporates and banks. I don’t think the growth is on sound lines. Retail money is still not coming in, and the whole industry has to work towards it seriously.
You mentioned that MFs are once again becoming aggressive. But there is also evidence that they are becoming over cautious, at least where equity is concerned . For instance, most equity schemes missed out on the recent rally by choosing to stay in cash. If fund managers have been cautious in their equity investments , I will defend it. Because since its bottom in March, the market has gone up 70%. I would be uncomfortable with such a swift rally in such a short time. If you look at the last 14-15 years, there have been 4-5 bull rallies. If you divide the rise (in indices) by the number of trading days, the average growth (per day) works out between 0.2% and 0.4%. In the latest rally, it has already crossed 0.7%. So if a fund manager is being cautious, I would think he is doing the right thing. Maybe, he should communicate his views to the investor. If a mutual fund investor expects 70% returns in eight weeks, he is better off investing by himself, he should not expect that from a mutual fund.
There is a perception that the mutual fund industry is fast ceding ground to the new crop of private insurance companies, in terms of asset mobilisation.
The problem is that the difference between a mutual fund and an insurance product has narrowed down considerably . The insurance industry is now selling more and more of investment products — very small component of insurance and very large component of investment, be it children’s plan, pension plan, ULIPs. But the rules of the game for MFs and insurance companies are different, be it disclosures, publicity, guaranteed returns, commission structure and KYC requirements. Different rules for different products are acceptable, but not different rules for the same products.
The mutual fund industry is in deep trouble because of this. If a mutual fund makes a claim, we also have to mention that ‘past performance is no guarantee of future returns.’ We cannot offer assured returns , we cannot get a celebrity to endorse our products. KYC rules are more stringent for investments in mutual funds, than for those in insurance products, or while opening a bank account. PAN card is a must for even mutual fund investment worth Rs 5 while it is not needed for investing up to Rs 50,000 in insurance products. It is hard to appreciate the assumption that people with doubtful intentions (referring to terrorists and money launders) invest only in mutual funds and not in insurance products , or that they do not open bank accounts.
Sebi is already asking for more disclosures, but these (disclosures ) have to be made more stringent. Details such as how much of group (companies’ ) money has been invested , who are the investors, how much of it is retail money and how much of it corporate, have to be made. Also, what are the type of papers the scheme has invested in..... that disclosure is not happening on a regular basis. Sebi should also see if the investments being made are in line with the objectives of the scheme. My next point is that the growth we are seeing of late has mostly come from corporates and banks. I don’t think the growth is on sound lines. Retail money is still not coming in, and the whole industry has to work towards it seriously.
You mentioned that MFs are once again becoming aggressive. But there is also evidence that they are becoming over cautious, at least where equity is concerned . For instance, most equity schemes missed out on the recent rally by choosing to stay in cash. If fund managers have been cautious in their equity investments , I will defend it. Because since its bottom in March, the market has gone up 70%. I would be uncomfortable with such a swift rally in such a short time. If you look at the last 14-15 years, there have been 4-5 bull rallies. If you divide the rise (in indices) by the number of trading days, the average growth (per day) works out between 0.2% and 0.4%. In the latest rally, it has already crossed 0.7%. So if a fund manager is being cautious, I would think he is doing the right thing. Maybe, he should communicate his views to the investor. If a mutual fund investor expects 70% returns in eight weeks, he is better off investing by himself, he should not expect that from a mutual fund.
There is a perception that the mutual fund industry is fast ceding ground to the new crop of private insurance companies, in terms of asset mobilisation.
The problem is that the difference between a mutual fund and an insurance product has narrowed down considerably . The insurance industry is now selling more and more of investment products — very small component of insurance and very large component of investment, be it children’s plan, pension plan, ULIPs. But the rules of the game for MFs and insurance companies are different, be it disclosures, publicity, guaranteed returns, commission structure and KYC requirements. Different rules for different products are acceptable, but not different rules for the same products.
The mutual fund industry is in deep trouble because of this. If a mutual fund makes a claim, we also have to mention that ‘past performance is no guarantee of future returns.’ We cannot offer assured returns , we cannot get a celebrity to endorse our products. KYC rules are more stringent for investments in mutual funds, than for those in insurance products, or while opening a bank account. PAN card is a must for even mutual fund investment worth Rs 5 while it is not needed for investing up to Rs 50,000 in insurance products. It is hard to appreciate the assumption that people with doubtful intentions (referring to terrorists and money launders) invest only in mutual funds and not in insurance products , or that they do not open bank accounts.
Are you hopeful that the regulators will do something about this anomaly?
Maybe they will. In Budget 2008, the finance minister had announced that KYC requirements would be made uniform across all categories of financial products. That has not happened till now. Why?
Insurance companies claim that mutual funds are now paying the price for not having built their distribution network beyond the top tier cities.
I agree with that. That is the reason why UTI is still looking to expand its reach despite having a presence in most major districts. From 71 branches last year, we are up to 139 branches now and looking to add another 50 branches by the end of this financial year. But it is a fact that the industry in general has not tried to reach out to investors, and was content with a presence in the top eight cities.
Insurance companies claim that mutual funds are now paying the price for not having built their distribution network beyond the top tier cities.
I agree with that. That is the reason why UTI is still looking to expand its reach despite having a presence in most major districts. From 71 branches last year, we are up to 139 branches now and looking to add another 50 branches by the end of this financial year. But it is a fact that the industry in general has not tried to reach out to investors, and was content with a presence in the top eight cities.
How has been the response to the micro-pension offerings of UTI? Are you satisfied with it?
No. I had thought it would be a big success. That has not been the case. We had invested lot of our time and money in to it. But we have barely crossed Rs 1.25 lakh in the last three years. I was expecting a much larger participation.
No. I had thought it would be a big success. That has not been the case. We had invested lot of our time and money in to it. But we have barely crossed Rs 1.25 lakh in the last three years. I was expecting a much larger participation.
Will you continue to promote this product?
Yes I will. We are seeing some minor successes. The problem is that there is not enough awareness about pension products. My complain is not against the low income background. My complain is against people having a reasonable income, and who are part of the organised sector. Even they are not going for it on a voluntary basis.
Yes I will. We are seeing some minor successes. The problem is that there is not enough awareness about pension products. My complain is not against the low income background. My complain is against people having a reasonable income, and who are part of the organised sector. Even they are not going for it on a voluntary basis.
Posts
No comments:
Post a Comment