In an exclusive interview with CNBC-TV18, Dhirendra Kumar, Chief Executive Officer, Value Research Online, discusses the upcoming mutual fund NFOs (New Fund Offers) and give his outlook.Q: After some time there are quite a few NFOs (New Fund Offers), which have opened up. Do you think this will meet with a lot of interest and subscription from the general public because flows into mutual funds after recent regulation changes have been quite tepid?
A: No, I don’t think that the good days are back yet. I don’t think investors are getting as excited about NFOs as they used to be in second half of 2007 or early 2008. Also the economics of selling funds has changed, as we don’t have the earlier kind of incentives, which will drive a fund salesman or an advisor to get after investors to persuade them to invest. Apart from that, I think there have also been marked change that we don’t have plain vanilla funds, which pretend to be different and they are being launched. The fact that the quality of NFOs are clearly differentiated except for this asset mutual fund, which is launching a plain vanilla equity fund and Securities & Exchange Board of India (SEBI) has also put some brakes on NFOs by asking that how it is different from earlier funds and asking demanding funds to differentiate from their existing funds. That is one, the economics has changed. So I don’t visualize that the mutual funds will actually come back with the same force as they came a year and a half back.
A: No, I don’t think that the good days are back yet. I don’t think investors are getting as excited about NFOs as they used to be in second half of 2007 or early 2008. Also the economics of selling funds has changed, as we don’t have the earlier kind of incentives, which will drive a fund salesman or an advisor to get after investors to persuade them to invest. Apart from that, I think there have also been marked change that we don’t have plain vanilla funds, which pretend to be different and they are being launched. The fact that the quality of NFOs are clearly differentiated except for this asset mutual fund, which is launching a plain vanilla equity fund and Securities & Exchange Board of India (SEBI) has also put some brakes on NFOs by asking that how it is different from earlier funds and asking demanding funds to differentiate from their existing funds. That is one, the economics has changed. So I don’t visualize that the mutual funds will actually come back with the same force as they came a year and a half back.
Q: Do you sense general retail investor apathy because there is equal disinterest in the primary market as well, if you speak to a couple of retail investors they are not excited about initial public offerings (IPOs) etc?
A: No, I don’t think retail investors were ever excited about NFOs. Retail investors where we persuaded, mutual funds have sold when it comes to NFOs because you have nothing else and many are trying, investors get excited only when the market go up. This time around the apathy to existing funds sales or NFOs is primarily because the market went up very sharply in a brief period. Most investors are still in a mode of walking away because a large number of first time investors came in 2007 and early 2008 and now they are breaking even. Association of Mutual Funds in India (AMFI) numbers also reflect that there has been a sustained outflow of funds from existing funds, which is primarily from disenchanted investors, who came in mutual fund for the first time, they lost money, now they are recovering and they are thinking of squaring up.
A: No, I don’t think retail investors were ever excited about NFOs. Retail investors where we persuaded, mutual funds have sold when it comes to NFOs because you have nothing else and many are trying, investors get excited only when the market go up. This time around the apathy to existing funds sales or NFOs is primarily because the market went up very sharply in a brief period. Most investors are still in a mode of walking away because a large number of first time investors came in 2007 and early 2008 and now they are breaking even. Association of Mutual Funds in India (AMFI) numbers also reflect that there has been a sustained outflow of funds from existing funds, which is primarily from disenchanted investors, who came in mutual fund for the first time, they lost money, now they are recovering and they are thinking of squaring up.
Q: One fund is from Sundaram BNP Paribas which is a public sector undertaking (PSU) opportunities fund, Religare just closed up one pretty successfully, do you like that theme?
A: Yes it is interesting, it is differentiated but I think that you have a quality universe there. It is possible to build a diversified portfolio but it is not a truly diversified portfolio and it cannot be built because it will have a tilt. The big value unlocking in PSU happens when government decides to sell it off than actually disinvest, it is the resource mobilization exercise and I don’t think anything changes in the company. Not only that the money does not land into company, it goes to either consolidated fund of India or wherever with whatever objective. So I would say that despite a quality universe, I don’t think it presents a compelling choice and it will be a fund for the long haul; I don’t think it is an idea which is slipping away anyway. I would say that nothing stops an existing fund to tilt their portfolios to PSUs if they want to.
Q: What about something like a World Mining Fund from DSP Blackrock? How much of an attractive proposition does that sound like?
A: I think it is a niche fund and it will be an appeal to investors, who have a large portfolio and this is the only novelty in the current range of offerings today. I would say that this is a unique exposure for investors, with a large portfolio can have. This fund actually has a very compelling history and has delivered superior risk-adjusted performance because though NFO, for Indian investor it is not a new fund. I would say that the added dimension of the currency risk dampens it a bit. But for its novelty, it is worth consideration for a large investor, who has a fairly well diversified portfolio spread across all market segments.
Q: Do you think Fidelity’s name will attract investors or this one to you think might just meet with lukewarm response?
A: Fidelity name will attract investors, not only that I think Fidelity will manage its Value Fund with purity. We have a semi-value fund in different shapes, the dividend yield funds about 8-10 of them and the Contra Fund, they approach Value in a different way with a different definition. But there is a contradiction in running a Value Fund in the open-end structure. You will get money then you won’t get value and when there will be compelling value, you won’t get money. Not only that this fund will require patience and the fund mandate is that it will never be more than 10% into cash. So I find that despite this contradiction, statistics show that Value works and Value works over a long period of time whether it works in open-end fund structure, I think the jury is still out.
Q: Is it true that Axis Mutual Fund has become extremely aggressive in the mutual fund market and in that how do you think their NFO will do?
A: Based on my personal experience being Axis Bank customer that this fund will raise money because I haven’t seen the kind of initiatives seen by Axis bankers getting after their customers, with sheer reach of Axis Bank they will be able to do so. This is the only opportunity they can do it because after a point they will be asked question why one should invest. Today they can do without it and they don’t have to answer that. So I think this fund will succeed in raising money and rest we have to see. When it comes to choosing – of course this is the kind of fund where investors have ample choice, investors have a wide array of funds to choose from the diversified equity fund universe compelling history and now we have fund with fifteen-ten year history and atleast 50 of them to choose from.
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