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 simple answer to this is yes. But we need to understand why we are saying yes. With the pandemic, one of the most important factors that has happened is the adoption of technology. So, if earlier 40-60 per cent of the business was electronically transacted, today, it is upwards of 90 per cent. Obviously, more business going through online platforms or systems ensures that the costs go down drastically. Along with it, servicing costs also go down significantly. Technology itself has improved over the past two years, which has further helped us drive down costs. To that extent, fund sizes grow when industry AUMs grow. There are also economies of scale that come in.
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?
One has to realise that mutual funds will always have a place in a serious investor's portfolio. It is not easy for any retail investor to buy stocks directly because most of them go by tips or suggestions given by friends and colleagues. However, when you make losses or there is a significant correction, that is the time that the individual investor realises that investing in stocks is not that easy, and it does take an in-depth understanding of micro and macro factors while investing.
My belief is as we go ahead, you will see a mix of both. However, mutual funds will continue to attract the majority of the money. Nonetheless, investors would also like to try certain things on their own and maybe depending on the risk appetite of each person, anything from 10-25 per cent of the investible surplus may be dabbled directly in stocks.
- Investment guru/manager you admire the most: I like to follow some of these people who are not so well-known. They do not claim to be 'investment gurus' but have built a significant amount of wealth by doing the basics, keeping a low profile and focusing on the fundamentals, and there are quite a few of them in the market.
- Business leader you'd like to emulate: Ratan Tata, for three reasons. One, not only is he focused in terms of business, but also he is always looking at how companies will be run in the future. Another very important aspect is the amount of philanthropic work that the company silently continues doing, without the associated chest-thumping, which is praiseworthy.
- The most rewarding financial investment you've ever made: I had invested in a mutual fund in 1998 and forgot about it. And to cut a long story short, that has been one of my best investments. It taught me the biggest investment lesson that irrespective of the ups and downs in the market, if you stay invested for the long-term, you are bound to make reasonable returns over a period of time.
- Money mantra you swear by: The ability to cut losses is as important as making money.
- If not a money manager, you'd be: A travel enthusiast hosting travel shows from across India and the world.