Noble goals, means awaited
Scale gives disproportionate advantage in the mutual fund industry, says Nilesh Shah, CEO, Kotak Mahindra
By Research Desk | Nov 20, 2015
The top strength of our mutual fund is our people. Our employees stepped in to declare that all their incremental mutual fund investments will be done in Kotak Mutual Fund. We evaluate all our decisions against only one parameter: will it [a decision] help us increase or maintain our clients' trust and confidence?
A lack of scale remains our weakness. Scale gives disproportionate advantage in the mutual fund industry. It helps the big becoming bigger through economies of scale. Our client connect or sell-side support for investments gets adversely impacted by a lack of scale. We have to overcome this limitation by doing it faster than others. In doing faster we have to ensure that we don't compromise on our standards. We became the fastest-growing fund house among top ten fund houses in the September 2015 quarter. We just have to keep doing it every quarter going forward.
From an investment perspective, we have to manage risk and return. We are required to outperform the market. Winning clients' trust and confidence through consistent and superior performance is the biggest challenge that we have to face on a daily basis.
From a business point of view, we face a serious challenge due to our belief of managing funds like our kids. We don't have more funds than what we can afford. We have only one large-cap fund called Kotak 50. We don't have the luxury of having three large-cap funds with three different strategies to ensure that one fund will end up doing well. The Sebi's efforts on consolidating mutual fund schemes are a testimony to our approach. We face the biggest challenge of convincing clients that 'their' returns and fund returns should be the same. Simply evaluating a fund house based on the performance of few schemes is not appropriate.
In the US there is much more diversity in terms of product offering as well as number of players. A higher number of players and products have resulted in excess of 100 per cent AUM-to-GDP ratio in the US as compared to about 13 per cent in India. If India has to expand market, certainly two hands are better than one. However, a compulsory retirement plan like 401(k) and outsourcing of money management by the insurance sector will help the mutual fund industry reach more customers in a rapid way.
Retail investors are the most important reason of our existence. We would like to be the investment manager to every Indian. We would like to be remembered for bringing as many retail investors as possible in financial assets. We take inspiration from the quote: If goals are noble, means will follow.
Watch this space for other AMCs.