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 Indian mutual fund industry has a long track record of creating alpha for investors. Over the long term, most active managers have outperformed the benchmarks by a good margin, thereby justifying the cost of active management. Also, as the industry grows, automatically the benefit of scale gets passed on to the investors since the expense ratio comes down with growth in AUM.
Passive funds offer market exposure at a low cost and have seen increased participation from investors in recent times. We believe that given the huge untapped potential for the mutual fund industry, there would be ample scope of growth for both active and passive funds.
It is good to see new entrants in the industry. This will offer more choice to customers and help expand the market.
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)?
While there has been a growth in direct plans, distribution partners have an extremely important role to play in creating awareness, bringing in new clients and hand-holding them through market volatility.
Investing is an exercise of forsaking current consumption to achieve future goals. Distributors play a very important role in bringing investors on this path and helping them in the journey towards their financial goals. A vast majority of investors will continue to come to the industry through distributors. However, there will be a section of investors who want to DIY (do it yourself), who will choose direct plans.
Over the last few years, we have seen rapid growth in mutual fund platforms. This has helped expand the market and has attracted new clients and also eased the transaction process. We will see technology play an increasing role going forward for all constituents of the mutual fund industry.
Rapid-fire questions:
- Investment guru/manager you admire the most: Shreekant and Ravi, CIOs in the early part of my career, had a great influence on me. Shreekant made me realise the importance of macros and risk control. Ravi demonstrated how to keep calm in a volatile market and use volatility as an opportunity.
- Business leader you'd like to emulate: As I observe the rapid pace of disruption across industries, I admire groups like Tata, who have built a robust organisation, ethics and value system that has helped the group flourish over multiple centuries across a wide variety of businesses.
- The most rewarding financial investment you've ever made: The SIPs I started about 20 years back. Over time, systematic investing and financial discipline have helped me achieve my goals.
- Money mantra you swear by: 'Volatility is an opportunity spelt differently'. The only way to navigate a volatile market is to take your eyes away from the current events and invest in a manner that will take you ahead six months or a year down the line, rather than trying to predict tomorrow.
- If not a money manager, you'd be: Something to do with money. I guess my Marwari roots are quite strong.
