“Trustee must ensure that money is managed well”

While the returns continue to remain a challenge due to the volatile markets, the Sebi chairman pulled up several fund houses for underperformance on a consistent basis. “The industry has stagnated over the last five years because of the weak markets and several domestic and global factors,” said Nimesh Shah, MD & CEO, ICICI Prudential AMC in an interview to Sandeep Singh of The Indian Express. Excerpts:

How do you see Sebi's move to pull up mutual funds for underperformance?

I think that it is a very good move. If we are charging a fee and Sebi is allowing us to charge it then we are responsible that the money is invested properly. If some AMC is not able to generate returns then the trustee can give the money to some other AMC. It is the trustee's job to see that there are adequate processes in place so that the money that has been given by the investors is managed well.

What should the investors do during the current volatility in the equity markets?

Volatility is here to stay so the question is can you invest in funds that will benefit from volatility. We want our funds to benefit from volatility and we are focussed on funds that will benefit from it. There is no point cribbing about volatility as it is the new order and you have to adapt to it. I just want to beat the benchmark and be in the top quartile.

What is your investment strategy at these times?

We follow active change in asset allocation between debt and equity depending on the level of the market. Whenever the markets go up the fund will sell-off equity and go into the debt and when it goes down we will buy the equities back. We have introduced a science that it should be based on price to book value. Based on fundamentals, the asset allocation call is taken. My fund manager does not take a call but there is a formula to it which is based on back testing done since 1997. We have come to the conclusion that at what levels of price-to-book ratios are fairly valued, undervalued or overvalued and change our positions based on this. These are statistical arithmetic calls.

What is your take on the distributor regulation?

The regulator has to control any malpractice that impacts the investor in a negative way. If someone is doing a wrong job then he should be taken to task. I think that even if entry load comes, the churning of portfolio will keep on happening because if a distributor earns by churning then s/he will continue with it.

We need to find a way to incentivise the distributor so that s/he looks to build an AUM that creates a good trail income for her/him.

What are the factors that are affecting the mutual fund industry?

As of now the products for investors are good, however in the process of giving good products, somewhere the commercial requirement of the manufacturer and distributors have been slighltly affected and the number of distributors in the business has reduced dramatically.

The industry has stagnated over the last five years because of the weak markets and domestic and global factors and mutual funds are only relative performers and not absolute performers. The big issue is that common man is not investing in mutual funds.

Source: http://www.indianexpress.com/news/trustee-must-ensure-that-money-is-managed-well/966256/0