I’m quite defensive about the opportunity IPOs bring for mutual funds: Ganesh Ram tells BrandSutra

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What would you call the three big learnings over your 20-year career in financial services?

One, if you want to be a successful leader, you need to be inclusive, open to 360-degree learning, and maintain transparent communication with your team. Your team defines your success as a leader. Two, be a change management person. Always look for improving and changing the way things are. Results will be amazing. Three, never stop learning. Find a new job/role, try a new task which you are wary of, and be participative always.

What is the primary objective of MF Utilities India (MFUI)?

For MFUI, formed jointly by all AMCs under the aegis of the Association of Mutual Funds in India (AMFI), the prime objective is to act as a central aggregation system for the mutual funds industry, resulting in reduction of cost for AMCs, creating operational efficiency to Mutual Fund Distributors (MFDs), Registered Investment Advisors (RIAs) and Registrar and Transfer Agents (RTAs), passing on the benefits to investors, and ensuring a level playing field in the industry.

What are the inherent risks that you perceive in the current mutual funds market, and how do you negotiate them? How do you propose to improve processes in the industry?

From the investor perspective, DIY mode is growing, but the risk of investors losing wealth is evident and possible. The majority of DIY investors do not have adequate hand-holding, critical data analysis, and complete risk profiling. This results in quicker redemption and impacts both AMCs and MFDs/RIAs. From the distribution/advisory perspective, the risk is that only 35% of MFDs are active and out of those 14% of MFDs manage more than Rs 25 crore.

The total new MFDs registration has also been drying up. Skill development for MFDs/RIAs is very important to ensure that they provide good advice to investors. On the product side, debt funds are not getting adequate inflows and investors are worried about investing in Debt. Ideally, Debt funds are best to have a balanced portfolio. Good to see inflows are high in equity schemes, but investors need to understand that there is high risk in equity and diversification, balancing a portfolio is the key to create wealth.

What is the level of penetration of mutual funds in India? What is the opportunity there and how can it be realised? What are the challenges?

The mutual funds industry has 2.71 crore unique investors, with approximately 9.8 crore folios, which means there are 3-4 folios per investor. In the last four years, this investor base has doubled, but as per the IT database, we have 51 crore PANs issued (as of June 30, 2021).

This means, we have only 1 MF investor for 21 PANs. There is larger scope for penetration as the industry has done excellently well during the last 3-4 years.

Irrespective of the pandemic, the MF industry has added 12 lakh new investors during Q1 22 as compared to 20 lakh during FY 20-21; number of SIP accounts crossed 4 crore and a record of 21 lakh new SIPs were registered in June, 2021. SIP assets under management are at an all-time high, and now form almost 15% of the total industry AUM, which is a great milestone.

As for opportunity available, there is the gap to be bridged – compared to 150 trillion bank deposits, there are only 100 million MF investor accounts.

There is also a great opportunity to expand investor footprint across SEBI-designated B30 locations, i.e, locations beyond the Top 30 geographical locations. People need to be educated about saving through MFs as early as from high school or college, and within each household. Results of being invested over a long time period needs to be emphasised.

The challenges are: how to channelize household savings into mutual funds, financial illiteracy/ low level of awareness, funds’ performance-related problems and ease and standardisation of some operational processes.

There is a glut of IPOs in the market today. What kind of opportunity does this present to mutual funds?

Even in US markets, there is a glut of IPOs. In India, in a bull market scenario, many IPOs and investors get carried away and have less time or data points to analyse. Investors should understand that investing in IPOs is a calculative risky strategy. Typically, bull markets are flooded with IPOs and not all companies are investment-worthy.

I am quite defensive about the opportunity these IPOs bring in for mutual funds, but interestingly, many AMCs have invested in the recent Zomato IPO, which is a loss-making entity. But to summarise, in India even if there is a glut of IPOs, these are the key watch factors:

· Pricing has been getting more aggressive.

· Post-listing performance has been lukewarm.

· There are valuation concerns and

· There are many key domestic risk factors.

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