A balancing act | Value Research Nimesh Shah, MD & CEO, ICICI Pru Mutual Fund talks about the importance and increasing popularity of balanced advantage funds
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A balancing act

Nimesh Shah, MD & CEO, ICICI Pru Mutual Fund talks about the importance and increasing popularity of balanced advantage funds

The last year has been very encouraging for mutual fund industry as a whole, given the improved participation of retail investors in capital markets via mutual funds. What's heartening this time around has been the growing SIP culture and tenacity of investors to stay invested even during volatile times.

The increased participation of investors from B-15 cities (growing at 30 per cent), when compared to T-15 cities (growing at 27 per cent) and adoption of digital platforms have also been major developments.

The industry witnessed the advent of eKYC, wherein all the details of the new investor are captured from the Aadhaar database. ICICI Prudential AMC launched biometric KYC, which is a first in the Indian mutual fund space. This arrangement ensures that the entire KYC procedure is completed within a few minutes.

Amidst all this, the hallmark of the year 2017 would be the rise of balanced-advantage funds. In fact 57 per cent of the sales have been in balanced-advantage category for the AMC. In the years ahead, we expect the AUM of this category to surpass the collective AUM of the equity category.

Managing return expectations
The increasing inflow into equities is on account of retail investors moving from traditional investment avenues to financial assets. Hence, it is important for the industry to note the lessons from 2007, when sector funds were the most sold product. That came back to hurt several investors in the years ahead and consequently the industry.

Now, in the last three years there has hardly been a meaningful correction, which means investors who have recently entered the market haven't seen a down cycle. In such a situation, we have constantly highlighted the importance of asset allocation and not going overboard on equities. We have advocated investors to opt for hybrid funds, especially balanced-advantage funds, which help an investor take exposure to both debt and equity as debt provides the required cushioning during volatile times.

A balancing act

Risk controls
The risk control is mainly in the form of constant communication with investors and distributors to make investors aware that it's time to be cautious.

Growing clout of domestic funds vis-a-vis FIIs
Over the last three years, the industry SIP book has grown consistently, given the increased participation of retail investors across T-15 and B-15 cities. This has provided heft to domestic institutional investors and has helped act as a counterbalance to foreign institutional investors.

Outlook for equity and debt
The markets have been buoyant but corporate earnings are yet to materialise. In such a situation, we believe market returns have been front-ended, owing to which we have turned cautious on market.

From a one-year view, debt remains an attractive investment opportunity but from a three-year perspective, the return expectations from debt as an asset class have to be moderated.

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