Saturday, March 24, 2012

Stay invested in equities to beat inflation

India and other Asian economies are known for high savings rates of its people (about 36%). However, due to lack of innovation and poor marketing by financial firms, these savings are not translated into investments, says Jaideep Bhattacharya, chief marketing officer of UTI Mutual Fund. He spoke to Neeraj Thakur on the sidelines of the World Marketing Summit (WMS) in Dhaka last week.
In your presentation at the WMS, you mentioned financial inclusion. Please elaborate.
I focused on what we have done in India. We have to see how we can get people at the bottom of the pyramid to also live a life of dignity in their sunset years. We have to make sure that poor people are able to finance their children’s higher education. This is possible only by following a disciplined approach. I have introduced the concept of ‘ICE’(innovation, collaboration and experience).

Innovation means that there are a lot of problems and you need to be innovative for your products to stand out. In a population of 1.2 billion, one has to come out with many products that are innovative.

The next couple of decades are going to be about collaboration. Unlike now, when a big corporation starts from bottom-up, big corporations will have to see how they can work with like-minded organisations that are already focused on the investors and the customers, and add value to the customers in a nice way. And we have also shown how the government, regulators and NGOs can come together and add value to the products and the industry.

Experience is required for the last mile connectivity with the customer. The person who talks to the end customer is of prime importance because through him or her, you can communicate the message and we feel that we need to find the way through which we strengthen the last-mile connectivity.

Where financial literacy is very low, how can you educate people about the financial products?
Yes, in South-East Asia, it takes a long time for people to understand financial products. What I have suggested is that we should use colours. For example: we can use traditional colours like red and green to warn the customers about the risk factors associated with, say, derivatives, insurance or debt products. So, if someone is signing on a red stripe or bar, then he is going to think twice before signing. In case of green, the person might sign immediately.

Wouldn’t colour-coding make it difficult for companies to sell risky products coded in red?
First of all, we have to educate, because every product has a risk attached to it, whether it is a banking product or an insurance product or a mutual fund. What is important from an investor’s perspective is that he should know what is the risk factor in the product.

When you and I sign on a home loan paper, there are about 40 papers that we are supposed to read. Do any of us read those 40 papers? I have never read them. So, someone has to look into the interests of the customers. Companies should look at the customers from a life-time value perspective. For a company, an investor should be for a lifetime, not just for one transaction.

Do you see opportunity for Indian companies in the rest of Asia?
From the people’s perspective and the topography, we understand each other better. A lot of time, we are using the same language. Our cultures are the same; our values are the same. In all the countries of this region, the savings rates are very high. People understand that the social security net is not very strong. Unless you save for tomorrow, you would be in difficulty. If you look at the trade in this region, it is less than 5% of the total global trade. If you look at Europe, it is one-fifth to two-third of the trade. So, we need to find a way through which we can collaborate to learn from each other in different fields. For example, Indians understand micro-pensions because India has been doing it for quite some time. But in microfinance, Bangladesh is so far ahead that Indian can learn from it.

How can the problem of unethical marketing of financial products be tackled?
Sometimes, telling a person not to buy a financial product is also good marketing. If you think this is not the right product for your customer, you should tell him so upfront, even if he wants that product. Corporations should look to add to their business. And values and profits are not something that cannot co-exist. You need to provide value to your customers and investors and in return they will reward you by giving larger percentage of business to you.

What is your advice for retail investors?
After the 2008 crash, there’s a lot of maturity among investors; they have learnt that investment is about achieving long-term goals and not about trading goals. There is no good time for investing, every time is a good time for investing. Valuations are attractive now. Investors should enter the market and stay invested.I believe in the next three to five years, they will make substantial wealth in their portfolios that they would be investing in now.
No matter how much we try, we cannot time the market. But, the way India is poised, over the next few years, it’ll grow at over 6%. And anyone will give his right hand for this growth rate. I am sure even the markets will do well. If we look at the last 25 years, the stock markets in India have given returns between 14% and 16%. This means, as an asset class, equity markets will beat most of the other asset classes. India is a high inflation economy. Any asset class with a fixed rate of return can’t meet the deficit created by inflation. So, we need to stay invested in the equity markets to beat inflation.

What is your outlook on debt funds?
With respect to bond funds and short-term interval funds, we expect that with falling interest rates, these two types of funds will perform. If you look at the liquid category of funds, we feel, it depends upon the liquidity in the market. You know that last week, there have been `1.80 lakh crore of borrowings from the market. So, I feel that unless the corporates have liquidity in the market to borrow, we might not see substantial growth.

What impact will the recent stock market uptrend have on systematic investment plans (SIPs)?
Well, the purpose of investing in SIPs is to diversify the risk. Otherwise, someone could invest directly in the equity market. And people invest in SIPs with specific financial goals. So such goals are long term and they do not change. We will definitely see a spike in SIP sales. But ideally, people should buy SIPs with long-term goals, irrespective of the fluctuation in the market in the short term.


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