'Regulatory regime on expense ratios should be kept stable'

Revision of expense slabs by the regulator, the push towards passives, and the anticipated entry of several new AMCs translate into a greater focus on cost. Do you believe there is potential to drive the costs (expense ratios) down substantially from the current levels while still running the business profitably?
Expense ratios need to reflect not just the cost of business but also the potential value addition by the fund manager. I think the current system has the right balance and while SEBI regulations prescribe a cap for each category, wherever there is potential for lower expense ratios in specific categories (like debt and index funds), we have seen the industry move to charging lower than the SEBI caps. Accordingly, I feel that the regulatory regime on the expense ratios should be kept stable. Also, it's not just an issue that affects the AMCs but the entire value chain and stability provides the required visibility that players need to make investments and to grow the business.

How is the increasing proliferation of direct plans and the new age platforms changing the dynamics between the three key stakeholders - the investors, the distributors, and the manufacturers (AMCs)?
At Axis, we have been lucky to be one of the leaders in terms of our engagement and market share in the new-age channels. While there has been a lot of buzz created by fintechs, I feel that we are still in the midst of an evolution in the nature of the engagement and the endgame will only be clear in a few years' time.

At its core, the asset-management business is pretty straightforward and despite all the technology and disruption, what investors essentially want is pretty straightforward - well-defined and simple-to-understand products that are able to consistently deliver on their mandate.

The precipitous fall in interest rates has spelt big trouble for regular income seekers. Do you think the fund industry can better serve this investor segment and in a cost-effective manner? What's your big idea to solve the investors' income problem?
The situation in India follows the same experience that the developed world has been facing over the last decade and there are no simple answers since the fall in the risk-free rate means that investors have to be more open about taking risk if they are looking for higher nominal yields from their portfolios. Taking on higher risk per se does not have to be a worry if investors can take that risk in a calculated manner and appropriate to their portfolio constraints. Total-return funds with some allocation to equity to boost yield and higher-yield fixed-income funds are some of the already existing ideas.

Many people these days take to equity investing by owning the stocks directly. Innovations like Small Case are further catalysing this trend. What implications do you see on the businesses of mutual funds? Can they pose a challenge to the growth story you would envision for the fund industry?
We welcome all the innovation and the market is big enough for all these different players to co-exist. Having said that, we should not forget that fund managers exist because they fulfil a very important function - that of an informed fiduciary that will allocate the investor's money based on a tightly defined mandate and who is answerable to the investor for his or her performance. What we have seen with direct investing is that it tends to be all hunky dory in times like these, when the broader markets are raging hot, but can leave investors confused at the first sign of turmoil and this lack of hand-holding can cause them to take bad decisions in the face of volatility.

Rapid-fire questions:

• Investment guru/manager you admire the most: Charlie Munger
• Business leader you'd like to emulate: Steve Jobs
• Money mantra you swear by: Manage risk, return will take care of itself
• If not a money manager, you'd be: Can't imagine anything else