'Overall value delivered by mutual funds is compelling'

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?
The focus of these initiatives has been towards driving up efficiency and passing on the benefit of scale and lower cost to the investor. This leads to a better net-return outcome. Additionally, an array of passive funds and new entrants helps drive greater innovation and a wider choice, helping further improve the overall investor experience. We must acknowledge that happy customers are vital to growth, and in driving efficiency, reducing expenses and moderating their net-margin expectations, AMCs are investing towards realising the long-term potential of this industry.

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)?
India provides a tremendous opportunity for financial inclusion, and it's good to see various models being explored by different participants so that we can all serve more investors. There is substantial opportunity for the development and co-existence of all such models, given the massive size and width of the opportunity ahead.

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?
Over the last few years, as growth slowed, inflation fell faster than nominal interest rates leading to attractive real interest rates for savers. Now, as the growth cycle picks up and interest rates moderate, savers may be faced with a period of negative real interest rates. Investors may recognise that this is cyclical and therefore transient. Some investors who need to generate positive real returns through this period may need to take some well-calibrated risk. For instance, some long-term investors needing real return have looked at adding a modest equity component to their portfolio through conservative hybrid or balanced advantage funds.

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?
Direct investment in stocks is generally advisable when one has the time and know-how to analyse companies. One needs to also monitor constantly and be able to manage exits. Performance has to be measured objectively on a risk-adjusted-return basis and across a full cycle, not just in a uni-directional bull phase, when it may seem relatively easy to generate gains. In this context, mutual funds have built a successful long-term track record in helping investors achieve their goals - through relatively steady investment performance, transactional convenience, easy liquidity and full transparency. Given low levels of current penetration, while there is adequate room for several alternate models to develop - both direct as well as through mutual funds - the overall value delivered by mutual funds is compelling.

Rapid-fire questions:

• Investment guru/manager you admire the most: Ben Graham, for laying the foundation for so many greats to follow
• Business leader you'd like to emulate: Azim Premji, first for creating enormous value, then by distributing it to society while always leading by example
• The most rewarding financial investment you've ever made: My mutual fund SIPs - simple, effective and hugely rewarding when left alone
• Money mantra you swear by: Keep it simple and flexible - recognising that you can't predict outcomes
• If not a money manager, you'd be: A travel reviewer - the more you travel, the more you learn