In the second part of this interview, Mr. Kirkire and Mr. Shah share their views on the domestic mutual fund industry and offer advice for retail investors.

Pfn: What is your view on the frequent NFO launches every time the market sees a rally?

Mr. Kirkire: I think there are several themes that I mentioned  infrastructure, outsourcing, consumerism that investors must have the opportunity to invest in. So you should have products for these themes that financial literates as I call them, can invest in. Apart from that I don't believe in launching funds for the sake of it.

Pfn: Another criticism levied is that no fresh monies are added to the industry despite the large number of NFOs due to the mis-selling. Inevitably the same money continues to be churned from one NFO to another. Your views¦

Mr. Kirkire: I don't agree with the NFO criticism. Its true that the Indian mutual fund industry hasn't grown as much as expected considering that bank deposits are at Rs 500,000 crores (Rs 5,000 bn) and the mutual fund industry is still Rs 200,000 crores.

As far as NFOs are concerned, they have brought in fresh monies in the system on a net basis. Wrong financial advise/mis-selling is any way an issue that must be dealt with. But the does not mean that launching NFOs is a mistake, unless it's for the sake of launching.

Ultimately a mutual fund is like an FMCG (fast moving consumer goods) company with several products for various consumers. NFOs have brought in a lot of money into the system. But yes there has to adequate awareness created about them.

Pfn: Do you think distributors should shoulder the blame for the unreasonably churn seen in mutual fund investors portfolios.

Mr. Kirkire: There is no doubt that there is churning, which for the sake of it is unhealthy. But it is wrong to lay the blame only on the distributor. In an open-ended mutual fund the idea is to have an investment where investors can enter and exit at a realisable value (NAV). So technically, the churn should not be a matter of concern. If an investor has clocked high profits over a short time frame and wants to exit, he should be allowed to do that. As a fund manager I can't stop him and neither can the distributor be blamed for it.

Pfn: Do you think distributor activities should be brought under closer scrutiny because a lot of large distributors like banks for instance, have come under the scanner for churning mutual fund investments, particularly during an NFO?

Mr. Kirkire: We are already monitoring distributor activities. We know how much money is coming into our fund. We know exactly how much each distributor is getting into each fund. We know the churn each distributor is doing. But we don't know whether he is responsible for the churn or it's the client. There could be clients who may want to exit from the fund on their own to book profits without waiting for an endorsement from the distributor. Frankly, you can't stop an investor from moving from one investment to another.

Pfn: Kotak's done something brave by launching the open architecture Fund of Funds (FoF) which includes some of your peers. Do you think this could send out the wrong signal to investors?

Mr. Kirkire: All the FoFs in the market other than ours are investing only in their own schemes. Ours is a true multi-manager fund. We do not see anything wrong in this neither does it, I believe, send any wrong signals to investors. The endeavour here is to offer best of schemes to our investors. Remember as a manufacturer, we do not own the customers, in fact neither should we aspire for the same. This is because it is the distributor who owns the customer as only he can offer choices to the customer. A multi-manager fund in a way allows us as manufacturers to also offer choices to customers.

Pfn: Is the domestic mutual fund industry ready for close-ended funds?

Mr. Kirkire: We have seen a phase early on when there were a lot of close-ended funds in the industry. I am sure you are aware that a significant portion our financial assets like PPF, NSC, KVP, RBI Relief Bonds and even life insurance are close-ended. As a fund manager it definitely helps because you can concentrate on stock-picking for the long-term without worrying about the liquidity (investors entering and exiting the fund).

Pfn: Do you think the fund manager could get lax because he is secure in the knowledge that he has the money, which is not going to leave the fund for a while?

Mr. Kirkire: The fund manager is always under pressure to perform. Investors are constantly looking at his schemes and comparing them with peers. A slip-up in performance could hurt other schemes from the AMC, both existing ones as well as NFOs.

Pfn: What advice would you offer to a retail investor (both debt & equity) at this stage?

Mr. Kirkire: I think every investor should have an asset allocation plan. And in this plan, age is not a critical factor, it is ultimately the investment objective. There could be a 60-year old investor who is trying to build a corpus over the next 10 years to meet a particular investment objective. Obviously equities will have to form part of his plan because they help build wealth over the long term. Only point you have to keep in mind is that the investment period should be long enough.

One way to invest in equities is through the systematic investment plan (SIP). We believe going forward a lot of money will enter equity markets through this route. Take an emerging economy like South Korea. Early last year the monies collected in SIPs (known as Installment Funds in that country) was about a billion Won (1 South Korean Won is equal to roughly Rs 22). Today that number has swelled to 5 billion Won.

Pfn: Where do you invest your money?

Mr. Kirkire: I am fan of SIPs. All of them are in Kotak Mutual Schemes.

Mr. Shah: I invest though SIPs. From the time I joined Kotak Mutual Fund (from Kotak Securities) all my fresh SIPs are in Kotak Mutual Fund.

Pfn: Who are the individuals who have influenced you the most?

Mr. Shah: I like Warren Buffet for one. The second person I admire is Uday Kotak.

Mr. Kirkire: I joined this group four years back and really admire the individuals who have helped it grow over that period. I have been impressed by their commitment, and the focus on customer satisfaction among other things.

Pfn: What kind of books do you like to read?

Mr. Kirkire: Among the recent ones I like the books The world is flat, Rich Dad Poor Dad and Infectious Greed. The latter is a very nice book based on a term coined by Alan Greenspan during the tech boom. The book documents the larger failures in the global economy due to greed like Enron, WorldCom.

Mr. Shah: I like any book written by Warren Buffet. I also like Peter Lynch's books like One up on Wall Street.

• To read the first part of the interview, click here

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