MFs growing; face shortage of advisors
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.”
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