In a four-fold interview, Personalfn met up with the top brass of Sundaram Mutual Fund, one of the most conservative names in the domestic mutual fund industry. We began by speaking to Mr T. P. Raman, Managing Director, to gauge his views on the domestic mutual fund industry, the trends, the growth potential and how India fares vis-à-vis more developed economies. We subsequently interviewed Ms. Srividhya Rajesh (Assistant Portfolio Manager - Equities) to seek her views on equity markets, her investment strategy, impact of monsoons and elections on markets and her advice to the retail investor.
We also spoke to Mr. Sanjay Santhanam (VP-Marketing) to learn of Sundaram Mutual Fund’s marketing and sales strategy and sought his views on compliance guidelines for mutual funds.
Finally, we rounded up the session by meeting Mr. Sivakumar (Fund Manager - Debt) and got his views on the interest rate scenario, debt funds the retail investor must look at and how income funds can be evaluated.
Pfn: What is your view about the domestic mutual fund industry? Where is it heading?
Mr. Raman: The domestic mutual fund industry is still getting its act together and we haven’t even seen the tip of iceberg (in terms of potential). We have realised that it’s a retail business and that means reaching out to the fixed deposit investor. We don’t have the retail network to get there. But that is the objective and intention. It may take us 5 or 10 or 15 years to get there depending on how soon we can build a distribution network.
The mutual fund industry has not been able to redeem itself since 1999-2000 as a rewarding investment avenue. However, investors have been able to understand the concept of risk-reward a little better than earlier. They know the downside and potential of investing in a debt and equity fund. They appreciate how much they can expect in a good scenario and how much to expect in a negative scenario.
The negative and positive of the mutual fund industry at once, is the fact that less than 1% of the adult population is investing in mutual funds. On the other hand, this means that there is tremendous potential in reaching out to the others (who are not investing).
The domestic mutual fund industry right now is at over Rs 1,000 bn (Rs 100,000 crores) Savings as a percentage of GDP is about 25%. Even if 2.5% of the money is mobilized by mutual funds we are talking about Rs 500 bn (Rs 50,000 crores). Right now if we consider the fact that the industry is seeing a compounded growth (CAGR) of 8-9%, I think about 12% is possible over the next few years and this will grow to 15% or more after that.
Pfn: When you look at developed economies, how do you find India different from the trends prevailing over there?
Mr. Raman: Developed economies are more consumption-driven than India. In India, there is larger savings. But investing in our country is lower, since investing is distinct from savings. In India, people are not well-aware of how risk-return works. When this concept is well-understood by the masses, investing in mutual funds will increase dramatically. In terms of potential, the domestic market is huge. Even international funds appreciate this point and have made plans for the country, especially since their own markets are saturated.
Then there are the 401(k) type Pension Plans. That story hasn’t yet happened in India. When funds like us are allowed to manage pension money, the potential is even larger. Another thing we are witnessing is migration within income levels. Investors are moving from one income level to a higher income level. This results in an increase in saving potential and therefore higher investible surplus.
Pfn: You believe the mutual industry can grow at more than 8%. What is it that is holding it back?
Mr. Raman: The distribution network is the problem. We don’t have a distribution network to service the large investor base. We have a distribution network in major cities and towns, but there are still many towns that are either not serviced or inadequately serviced. For mutual funds to set up a distribution network in these cities can be very expensive. If existing distributors can expand to these areas that would be good. Of course, post-offices and nationalised banks are best placed to cater to investors in these cities.
Pfn: In July last month, we had an Investor Empowerment Meeting where we invited the SEBI and AMFI chairmen to address investor-related issues. Mr Bajpai spoke of funds like ‘real estate funds’ and ‘capital guaranteed funds’. What is your view in this regard?
Mr. Raman: As far as real estate funds are concerned, we are not comfortable being in this business. It’s a business in which we lack expertise. We do not want to get into betting on the escalation of property prices, which a real estate fund is all about. We are fund managers and would like to remain in the financial assets business. Managing real estate requires a different set of skills and expertise. Like software, real estate is a cosmic area. In software too, its difficult to put a value.
Pfn: How does Sundaram Mutual Fund position itself?
Mr. Raman: We are very committed to the mutual fund business. We are here to stay. We have been in the financial services business for a long time and are believers in this business. Our commitment to this business remained intact even after our joint venture partner quit the business. We have a vision to be a significant player in this business and plan to grow organically. We want to be known as one of the best mutual funds, not one of the largest, but certainly one of the best. Asset accumulation is not our objective. That will happen along the way.
Ultimately we understand that being in the retail segment is crucial. Corporate money is parked largely in short bursts and it is invested for the short term in liquid/money market funds. This is the trend world over and its no different in India. It’s the retail money that is here to stay.
Pfn: What kind of books do you like to read?
Mr. Raman: I read a lot of finance books, since it is related to my work. On a personal note, I like to read a book like ‘History of Civilisation’
Interview with Mr Sanjay Santhanam – (VP- Marketing)
Pfn: Being in retail segment is the stated objective of most fund houses. What is Sundaram Mutual Fund done to endear itself to the retail investor?
Mr. Santhanam: First of all, we have removed entry loads on our equity funds for investments upto a certain level. This has helped us garner a significant number of retail accounts. The move in the Union Budget to make (mutual fund) dividends tax-free in the hands of investors has also helped fuel retail interest. What we have done is, we have built on that. We have used several themes like Cricket to draw parallels between investing and the game of Cricket. We believe this is necessary to inform the retail investor. We have used our distributor network to explain to the investors that they have alternatives to traditional investment avenues like Relief Bond, Safety Bond, etc.
Pfn: In the ‘Investor Empowerment Meeting’, Mr Kurian, the AMFI chairman, disclosed that compliance standards in the Indian Mutual Fund industry are top class and comparable with the best in the world. How far do you think we have come in this regard and how does Sundaram Mutual Fund fare on this front?
Mr. Santhanam: We are still disclosing a lot more than we are mandated to. We do not just disclose just the top 10 stocks but the entire portfolio. On the debt side, we do not just disclose the securities but also mention the coupon rate. We also give the average maturities, the duration of the portfolio and the YTM (yield to maturity). We provide this information on a monthly basis. We believe by making available all this information, we are enabling investors make a more informed decision.
From the industry’s perspective, I think there is a need to standardise disclosures. We know AMFI did try to do something in this regard. We probably need to impose this to ensure funds declare information in a particular, standardised format. There is an information overload at this point in time. I think we need to evolve a layout in which this information can reach distributors and investors. Distributors also play a critical role by ensuring this information is made available to the investor in a manner that can benefit him.
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