The Indian mutual fund
industry is currently going through a rough patch. Not only are the industry's
assets under stress, but given the current macro-economic concerns, the
survival of many of the relatively small and new fund houses is under doubt.
With retail
investors becoming more skeptical about the MF industry, the ET
Intelligence Group attempts to address their concerns by asking industry
veterans to give a fresh perspective on investment prospects, and the growth
drivers and factors that are likely to impact mutual funds in India . Edited
excerpts:
Jimmy A Patel,
CEO, Quantum
Mutual Fund
How would you describe the current state of affairs in the Indian MF industry?
The Indian mutual fund industry has immense growth potential, and if aided well by technological advancements and increased awareness, MFs can be a major contributor to the overall Indian economy. However, it appears, the industry has not learnt from its past mistakes. The industry still seems to be operating on an asset gathering mandate, and not an asset managing one; the focus of the industry still seems to be driven by business agendas and not on building a community that is truly concerned about its investors; market share and "piece-of-the-wallet" concerns still precede issues like investor safety and delivery of risk-adjusted returns. The fund industry is still in a learning stage, though unfortunately, it seems to forget its earlier lessons all too soon
The MF industry, a few years ago, had set tall targets for itself. How far are we from achieving those targets?
Targets are necessary. It's not just about achieving them, but more about moving in that direction. Rather than meeting a number, the industry should focus on becoming absolutely investor-friendly - right from the time an investor starts understanding about mutual funds through to the entire experience of helping him create wealth. Better regulations, advanced technology and conscientious managements will help in moving towards this aim.
Why should retail investors invest in funds when the future of many fund houses itself is in doldrums?
When you choose to invest with a fund house, you should ascertain its background well so that you can be sure of the future of your investments. In times such as now, retail investors should choose to get convinced about the investment philosophy of a fund house before investing in it, rather than get convinced by brilliant marketing gimmicks or aggressive distribution strategies. Investors must take care to choose their fund well.
How would you describe the current state of affairs in the Indian MF industry?
The Indian mutual fund industry has immense growth potential, and if aided well by technological advancements and increased awareness, MFs can be a major contributor to the overall Indian economy. However, it appears, the industry has not learnt from its past mistakes. The industry still seems to be operating on an asset gathering mandate, and not an asset managing one; the focus of the industry still seems to be driven by business agendas and not on building a community that is truly concerned about its investors; market share and "piece-of-the-wallet" concerns still precede issues like investor safety and delivery of risk-adjusted returns. The fund industry is still in a learning stage, though unfortunately, it seems to forget its earlier lessons all too soon
The MF industry, a few years ago, had set tall targets for itself. How far are we from achieving those targets?
Targets are necessary. It's not just about achieving them, but more about moving in that direction. Rather than meeting a number, the industry should focus on becoming absolutely investor-friendly - right from the time an investor starts understanding about mutual funds through to the entire experience of helping him create wealth. Better regulations, advanced technology and conscientious managements will help in moving towards this aim.
Why should retail investors invest in funds when the future of many fund houses itself is in doldrums?
When you choose to invest with a fund house, you should ascertain its background well so that you can be sure of the future of your investments. In times such as now, retail investors should choose to get convinced about the investment philosophy of a fund house before investing in it, rather than get convinced by brilliant marketing gimmicks or aggressive distribution strategies. Investors must take care to choose their fund well.
Should the retail investor (today) go by the fund house or
the scheme performance's, especially if the scheme belongs to a smaller fund
house?
If a fund is like a prospective life partner, a fund house is like its family. If you have solid family background backing your chosen partner, it reduces the scope of unwanted future uncertainties. However, the size of fund or a fund house has little to do with its performance. When you look at performance, consider consistent track records rather than spikes in returns, especially in the short term. A consistent fund will probably provide you with greater comfort in times of volatility as compared to a one-year star performer.
What do you think is the future of relatively smaller and newer fund houses?
The skepticism about the future of smaller fund houses is sheer speculation. Smaller fund houses will continue to do well in the coming years just like their larger peers. The Indian mutual fund industry has a bright future for transparent and ethical fund houses that are truly concerned about investors and focus on investor security and on delivering risk-adjusted returns, irrespective of their size or their years of existence.
Do you think the industry will consolidate in the coming years?
While the law of economics suggests consolidation, which would reduce costs greatly, different fund houses have different needs and objectives which might not sync favorably with such an approach. For all you know, several fund houses may not even go for consolidation; the moment they see their business becoming unviable they may just exit the business. This may be the case for foreign fund houses operating in India. Domestic fund houses again will not consolidate their business; they will try to survive the bad times... They will wait for a gain in their valuations before finding a partnership deal with some other player wanting to start an AMC business in the country.
In current times, when survival of the fittest holds water, what steps have you taken to ensure your existence? What are your strategies to sustain this business?
We are a different fund house. Being the only direct-to-investor fund house, we are constantly exploring new avenues to reach out to our investors and spread what we call "the Quantum way of investing". Here again, the online medium would be our strength as we look to reach out to the base of over 100 million online Indians and bring them a better way of creating wealth over the long term. Some of our best ideas are a simple implementation of our investors' feedback.
Do you think it is time the industry explored newer investment avenues - beyond equities, fixed income and gold?
Investors today are saturated with schemes. Investors are also paranoid about opaque markets, the disappointing corruption reports and repetitive scams. It thus, is the responsibility of the industry to collaborate to re-instill faith in investors, not by increasing the number of investor awareness programmes, or by launching new ad campaigns to promote this message, but by simply stepping away from the wallet-share game and retrospect on how they could best be asset managers working for the benefit of the end investor.
What is your advice to retail investors with respect to investing in mutual funds and equity markets?
The purpose of investing in MFs is to have a professionally managed portfolio of products that suit your requirement. An investor has a few basic requirements: one, create wealth over the long term for which you need an equity scheme; two, save tax for which you would need an Equity-Linked Savings Scheme; three, need to have some cash in reserve in case of an emergency for which you will need to look at a debt/liquid scheme; and four, need to counter equity exposure for which you could opt for a Gold ETF. These are the basic products that an investor needs to have, and not the hordes of schemes that clutter his portfolio.
If a fund is like a prospective life partner, a fund house is like its family. If you have solid family background backing your chosen partner, it reduces the scope of unwanted future uncertainties. However, the size of fund or a fund house has little to do with its performance. When you look at performance, consider consistent track records rather than spikes in returns, especially in the short term. A consistent fund will probably provide you with greater comfort in times of volatility as compared to a one-year star performer.
What do you think is the future of relatively smaller and newer fund houses?
The skepticism about the future of smaller fund houses is sheer speculation. Smaller fund houses will continue to do well in the coming years just like their larger peers. The Indian mutual fund industry has a bright future for transparent and ethical fund houses that are truly concerned about investors and focus on investor security and on delivering risk-adjusted returns, irrespective of their size or their years of existence.
Do you think the industry will consolidate in the coming years?
While the law of economics suggests consolidation, which would reduce costs greatly, different fund houses have different needs and objectives which might not sync favorably with such an approach. For all you know, several fund houses may not even go for consolidation; the moment they see their business becoming unviable they may just exit the business. This may be the case for foreign fund houses operating in India. Domestic fund houses again will not consolidate their business; they will try to survive the bad times... They will wait for a gain in their valuations before finding a partnership deal with some other player wanting to start an AMC business in the country.
In current times, when survival of the fittest holds water, what steps have you taken to ensure your existence? What are your strategies to sustain this business?
We are a different fund house. Being the only direct-to-investor fund house, we are constantly exploring new avenues to reach out to our investors and spread what we call "the Quantum way of investing". Here again, the online medium would be our strength as we look to reach out to the base of over 100 million online Indians and bring them a better way of creating wealth over the long term. Some of our best ideas are a simple implementation of our investors' feedback.
Do you think it is time the industry explored newer investment avenues - beyond equities, fixed income and gold?
Investors today are saturated with schemes. Investors are also paranoid about opaque markets, the disappointing corruption reports and repetitive scams. It thus, is the responsibility of the industry to collaborate to re-instill faith in investors, not by increasing the number of investor awareness programmes, or by launching new ad campaigns to promote this message, but by simply stepping away from the wallet-share game and retrospect on how they could best be asset managers working for the benefit of the end investor.
What is your advice to retail investors with respect to investing in mutual funds and equity markets?
The purpose of investing in MFs is to have a professionally managed portfolio of products that suit your requirement. An investor has a few basic requirements: one, create wealth over the long term for which you need an equity scheme; two, save tax for which you would need an Equity-Linked Savings Scheme; three, need to have some cash in reserve in case of an emergency for which you will need to look at a debt/liquid scheme; and four, need to counter equity exposure for which you could opt for a Gold ETF. These are the basic products that an investor needs to have, and not the hordes of schemes that clutter his portfolio.
Source: http://economictimes.indiatimes.com/features/investors-guide/indian-mf-industry-has-immense-growth-potential-jimmy-a-patel-ceo-quantum-mutual-fund/articleshow/13348012.cms?curpg=2
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