MFs grow­ing; face short­age of ad­vi­sors

Banking Frontiers - - Mutual Funds - Me­hul@bank­ingfron­tiers.com

Dig­i­tal ini­tia­tives spur growth:

In­vestors now un­der­stand the ben­e­fits of com­pound­ing in­vest­ments with a long-time hori­zon and value av­er­ag­ing. There is a grow­ing aware­ness that equity is a bet­ter as­set class to deal with in­fla­tion and gen­er­ate re­turns in the long term. Ac­cord­ing to Man­ish Me­hta, head, Sales & Dis­tri­bu­tion Al­liances, Ko­tak Mahin­dra As­set Man­age­ment, the big­gest shift in in­vestor men­tal­ity is the move from phys­i­cal as­sets like real es­tate and gold to fi­nan­cial as­sets. “With low­er­ing in­ter­est rates, mu­tual funds have emerged as a good choice for long term in­vest­ments. The re­cent find­ings of Foun­da­tion of In­de­pen­dent Fi­nan­cial Ad­vi­sors (FIFA) echo sim­i­lar sen­ti­ments and rea­son the need for ad­vi­sory, which is un­der pen­e­trated,” says he.

5 LAKH FOLIOS M/M

The shift from phys­i­cal sav­ings to fi­nan­cial sav­ings is a big trend. Re­cent re­ports sug­gest that in­di­vid­ual wealth in fi­nan­cial as­sets grew around 14% in FY17 and one of the ma­jor growth driv­ers have been mu­tual funds, which clocked an en­cour­ag­ing growth rate of over 35%. Ex­plains Me­hta: “This can be at­trib­uted to the buoy­ant equity mar­ket and in­creased con­tri­bu­tion from re­tail in­vestors. The in­dus­try has been adding over 5 lakh folios month on month (m/m). The SIP in­put value has al­ready reached `60 bn. We be­lieve this trend will con­tinue as more and more new in­vestors ex­pe­ri­ence the ben­e­fits of mu­tual funds. Ko­tak Mu­tual Fund has also been a ben­e­fi­ciary of this trend.”

FLOW TO CON­TINUE

A buoy­ant equity mar­ket and en­cour­ag­ing re­turns across var­i­ous equity strate­gies has helped the in­dus­try see record flows. In­vest­ments have gone into plain vanilla prod­ucts like large cap, mid­cap, multi-cap funds & bal­ance funds. Me­hta feels be­sides the mu­tual fund in­dus­try, in­vest­ments by EPFO into ETFs have also con­trib­uted to the growth. Dis­tri­bu­tion has helped to en­sure flows in these plain vanilla strate­gies and most im­por­tantly through SIP / STP.

Me­hta says he ex­pects this flow to con­tinue as we move into the next fi­nan­cial year. “We have been see­ing some volatil­ity in the equity mar­kets, but we be­lieve these are times when stick­ing to the in­vest­ment dis­ci­pline of SIP / STP will ben­e­fit in­vestors in the long run,” he says.

The govern­ment has been striv­ing for fi­nan­cial in­clu­sion and thanks to Jan Dhan, more num­ber of cit­i­zens are get­ting into the for­mal bank­ing chan­nel.

Me­hta be­lieves this should help pen­e­tra­tion of mu­tual funds into many such new in­vestors.

RIGHT STOCK, RIGHT SEC­TOR

Most mu­tual funds schemes have been gen­er­at­ing al­pha over the bench­mark in­dex con­sis­tently. Gold / real es­tate has been wit­ness­ing a pro­longed pe­riod of time cor­rec­tion and op­por­tu­nity loss.

Me­hta does not think that trend will shift in the im­me­di­ate fu­ture. Since most mu­tual funds fol­low a bot­toms-up stock pick­ing strat­egy, the key to suc­cess for most fund houses will be able to iden­tify the right stock / sec­tor, says he.

TECH FOR DIS­TRIB­U­TORS

Tech­nol­ogy will be a key driver for fu­ture growth. With ex­pand­ing busi­ness, pro­duc­tiv­ity im­prove­ment will be cru­cial for fu­ture growth. Cus­tomer in­ter­ac­tion is no more about one-on-one but one-tomany. Adopt­ing tech­nol­ogy will be crit­i­cal.

“At Ko­tak,” says Me­hta, “we have re­vamped our web­site and in­tro­duced fea­tures like dis­trib­u­tor-ini­ti­ated trans­ac­tion, abil­ity to open zero bal­ance folios on be­half of clients and first time SIP. We have also launched our ‘Go Dig­i­tal’ ini­tia­tive along with a Fin­tech com­pany that helps dis­trib­u­tors in build­ing a web­site/ app. This is the dis­trib­u­tor’s prop­erty where their clients can view their port­fo­lios, ini­ti­ate a trans­ac­tion, etc. This is avail­able at a sub­si­dized cost to the dis­trib­u­tor.”

AD­VI­SORS NEEDED

With low­er­ing in­ter­est rates on small sav­ings schemes/FDs, in­vestors are look­ing at tax ef­fi­cient op­tions within the mu­tual fund space. Fixed in­come has al­ways been per­ceived as safe in­vest­ments by In­di­ans and will al­ways be a pre­ferred op­tion al­beit shift from tra­di­tional FDs to fixed in­come prod­ucts in mu­tual funds may in­crease. The dilemma the in­dus­try is fac­ing is new in­vestors want­ing to know about in­vest­ments op­tions vis-à-vis lack of ad­vi­sors.

Me­hta main­tains that while there are over 100,000 ARN hold­ers, the ac­tive base of ad­vi­sors would be half. With over 60 mil­lion folios in the in­dus­try and cur­rent dis­trib­u­tor base there is gross un­der ser­vic­ing of clients. If we con­sider the B30 towns, the gap widens. He is of the view that this in­dus­try needs more num­ber of ad­vi­sors to cater to the grow­ing needs of in­vest­ment ad­vi­sory.

Ko­tak Mu­tual Fund has seen an en­cour­ag­ing year of growth where com­pared to the in­dus­try growth of 30%, it grew by about 50%. “We hope to con­tinue grow­ing in line or above the in­dus­try with help and sup­port of our part­ners,” says Me­hta.

Man­ish Me­hta ex­pects that the flow in equity mar­ket will con­tinue in 2018-19

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