There are two broad trends that we are witnessing - regulatory and digital. These trends are likely to aid passive penetration. Regulatory trends are standardising mutual fund products and segregating the position between distribution and commission on the one hand and advisory and fees on the other. The digital trends are resulting in lakhs of new investors entering mutual funds, making it easier for them to access products more often than not in the DIY mode.
Digital and DIY need simplicity because if you don't know what to buy, the least you can do is to buy the market. This is why we reinvigorated our passive efforts with the launch of index funds based on Nifty Bank, Nifty Midcap 150, Nifty Smallcap 250 and Nifty 500. If a new investor comes in for the first time with no experience or exposure, I think Motilal Oswal Nifty 500 Index Fund is the best starting point in the whole industry.
Impact of new expense slabs
I think any move that makes the product attractive for the end customer - investors in this case - is a good move. There is a temporary impact on AMCs' profitability but the larger concern in my mind is the ability of distribution to scale, enable reach and remain motivated to carry mutual fund products. There are many distributors who feel that their earning from mutual funds is not material and this kind of situation is bound to result in retail investors being under-serviced and everyone chasing the bigger investors.
Risk control in debt funds
We do not have a material fixed-income product offering other than a liquid fund and an ultra-short-duration fund. Hence, we do not take credit or duration exposures. Even within those funds, we have made it very clear that our deployments are largely in the interbank overnight market, bank CDs and treasury bills issued by the Government of India. Our Dynamic Fund and equity hybrid funds do have fixed-income exposure but that is restricted again to government paper, bank CDs, AAA PSUs and the interbank market.
Key challenge
It has always been and it will always be communication. I have been in the industry for 20 years but time and again, I see the same behaviour from investors. The industry got a net equity inflow of over `25,000 crore in the months of December 2017 and January 2018 and at the low point, the industry got a net equity inflow of about `2,500 crore in April 2019 and May 2019. That tells you the story. We are just not able to make investors understand that their current level of confidence has nothing to do with their future returns. If at all, the correlation is inverse.
This article was originally published on December 30, 2019.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
