Our esteemed speakers,
Shreeniwas Kunte, Director, CFA Institute ;
Kailash Kulkarni, MD & CEO, L&T Mutual Fund ;
A Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC ;
Navneet Munot, CIO, SBI MUTUAL FUND ;
N. S. Venkatesh, CEO, Amfi India and Swarup Mohanty, CEO, Mirae Asset India, talks about "How has the MF industry changed in the past one year after various tightening of norms by SEBI?" at Outlook Money Conclave 2020.
#OutlookMoneyConclave #OLMConclave2020 #OutlookMoney #Money #OutlookGroup #OutlookMagazine
Shreeniwas Kunte, Director, CFA Institute ;
Kailash Kulkarni, MD & CEO, L&T Mutual Fund ;
A Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC ;
Navneet Munot, CIO, SBI MUTUAL FUND ;
N. S. Venkatesh, CEO, Amfi India and Swarup Mohanty, CEO, Mirae Asset India, talks about "How has the MF industry changed in the past one year after various tightening of norms by SEBI?" at Outlook Money Conclave 2020.
#OutlookMoneyConclave #OLMConclave2020 #OutlookMoney #Money #OutlookGroup #OutlookMagazine
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NewsTranscript
00:00 So, financial experts and I believe all of us in the room, we all are unanimous on one
00:14 fact that investing regularly in mutual funds is one of the smartest ways to create wealth
00:20 and of course to meet our life goals.
00:22 More and more investors today are taking the mutual funds route to realize their dreams
00:28 and their financial aspirations.
00:30 However, the markets have seen a lot of volatility recently.
00:36 Events like the US-China trade war and the coronavirus outbreak are of course important
00:42 factors which would influence the markets basis how it all plays out in the end.
00:49 And then there is also the impact of various tightening norms undertaken by SEBI over the
00:54 last one year to protect investors from credit risk that arises out of defaults by borrowers.
01:02 They include a cap of 20% that liquid funds can invest in a single sector and stricter
01:08 exit load guidelines among many others.
01:11 What we are going to witness next, ladies and gentlemen, is our first panel discussion
01:16 that will talk about all of this and a lot more.
01:20 It's my absolute pleasure to invite on stage our esteemed panelists.
01:25 Please join me in welcoming them with a very warm round of applause.
01:29 Srinivas Kunte, Director of Content CFA Institute.
01:33 A. Balasubramanian, Managing Director and CEO, Aditya Birla Asset Management Company.
01:42 Navneet Pannod, CIO, SBI Mutual Funds.
01:50 NS Venkatesh, CEO, Association of Mutual Funds in India.
01:56 And Swarup Monty, CEO, Mirai Asset.
02:00 And this panel, ladies and gentlemen, will be moderated by Kailash Kulkarni, CEO, L&T
02:06 Mutual Funds.
02:07 Ladies and gentlemen, please a very warm round of applause for our first Mutual Fund panel
02:13 this afternoon.
02:14 Mr. Kulkarni, over to you.
02:21 Kailash Kulkarni, CEO, L&T Mutual Funds.
02:25 Good afternoon everyone.
02:27 And as you can see, we have a really high-powered panel out here.
02:31 People who've been veterans in the industry.
02:33 So for me to be moderating this, it's a great honor.
02:39 Before I really start asking questions to the participants, just wanted to state some
02:43 facts.
02:44 I'm going to talk about changes in the last one year which SBI has done.
02:48 Honestly, the changes which SBI has been doing have been over the last few years.
02:53 And possibly this is one industry which has weathered every change that has been put in
02:58 front of us.
03:00 Every few years, we say that, oh, this is a big change, this is going to be a big disruption
03:04 to the industry.
03:06 But this industry has only grown from strength to strength.
03:09 I don't know how many of you recollect, but in 2004, which is just about 16 years ago,
03:14 this industry was all of 1.5 lakh crores.
03:18 And then in 2008, you saw that industry become 5 lakh crores.
03:23 And 2015, which is just about five years ago, it reached 10 lakh crores.
03:28 But today it's at about nearly 28 lakh crores.
03:32 And the equity component has also grown primarily in the last five to seven years substantially.
03:39 But we have one person out here, Bala, who's been the veteran in this industry.
03:44 He possibly predates what we call the private sector industry, started his career with GIC
03:51 Mutual Fund.
03:52 And I'd like to ask you, Bala, I mean, you have seen so many changes.
03:57 Forget about the ones which we are talking about in the recent past.
04:00 And yet you have seen this industry only grow from strength to strength.
04:04 Do you really, are you really worried with these last one year changes and how do you
04:07 look at this industry going ahead?
04:10 Yeah.
04:11 Thanks, Kailash.
04:12 Of course, sometimes I jokingly say that regulation came in front of me.
04:17 When I joined GIC Mutual Fund, say we had just started actually, and there was no regulation
04:22 per se.
04:23 Most of the time, I also believe that regulation is actually the outcome of what we have been
04:27 doing.
04:28 It's not the outcome of what we thought, therefore regulation came.
04:32 Why I'm specifically saying this is, in the last 25 years, we all as money managers
04:39 are fund houses.
04:40 We have our own way of running the funds.
04:42 And we have our own principles.
04:44 And in the earlier session, we talked about YTM and other stuff.
04:48 So we had similar stuff starting in '94.
04:52 And then we suddenly realized fixed income market is growing.
04:55 But how do you value the securities?
04:56 Suddenly, the questions were asked.
04:57 Then we said the best way to value securities is current yield methodology.
05:00 Then we said, no, this is not the wrong way to do.
05:03 Then we said YTM.
05:05 So that's the way I think it got evolved.
05:06 So when you start doing these kind of practices, then suddenly regulation wakes up and then
05:11 says that, OK, the size is growing, then we need to look at some of the practices that
05:15 are being adopted by money managers, but they should become a rule.
05:18 See, every time that has happened, it's happened like this only.
05:21 So the last one year, when I actually-- when I did the Amphi Mitchell Fund Summit as a
05:26 chairman in 2017, I think there was an opening remark which came from the chairman that he
05:32 appreciated the industry.
05:34 Then he also put in a word that-- he just put one line that, the industry is growing
05:38 so big, therefore we need to look at the-- the size benefit has to go to the investors.
05:44 And suddenly he started thinking about the scale benefit should reach out to the investors.
05:47 So they thought about higher the size, lower the expenses.
05:53 Lower the size, higher the expenses, mainly to give more money in the hands of people
05:56 of lower size to do the hard work to expand the market.
06:00 And once you reach a certain size, give the benefit to the investors.
06:02 So that's the way I think the progressive relation happens.
06:06 The way I see is the regulation, last one year regulation, my view is not still worried
06:11 because we are still talking about last 25 years, the opportunity is very large.
06:14 So despite we having now grown to 26 lakh crore or 28 lakh crore, we still say only
06:19 4 crore investors are there.
06:20 Even within the 4 crore investors, sometimes we want to be too pessimistic, you can say
06:24 we have only 2.5 crores unique investors.
06:27 If you want to be optimistic, you can say 7 crore investors.
06:30 But still the fact of the matter is the entrepreneurial direction is still large.
06:33 We are still scratching our surface in the smaller markets.
06:36 Therefore, however the regulation comes in, will only, in my view, would expand the market.
06:40 The central fund as an industry is now gaining the institutional face.
06:44 I mean earlier it used to be a small industry size, it is becoming prominent in the eyes
06:50 of investors.
06:51 Therefore, despite all the regulation coming in, I think growth will remain permanent.
06:56 I agree with you.
06:58 I think the size of the industry makes regulators now start looking at this industry like they
07:04 would do for banking or life insurance.
07:07 And clearly they have seen that this has become a large enough industry to have rules and
07:11 regulations around.
07:14 When we look at some of the rules and regulations, although the most talked about has been the
07:18 cut in the TER, there have been far more progressive reforms in terms of trying to grow the business
07:25 earlier beyond the B15 cities and then they changed it to B30 cities.
07:30 They introduced categorization of funds so people don't get confused.
07:34 It becomes simpler for a common man to understand.
07:37 And there have been a slew of other positive regulations from a customer perspective.
07:41 Mr. Venkatesh, you are from Amphi and clearly you interact a lot with the regulators.
07:47 How does the regulator really look at all these changes and what are they doing to make
07:53 the system far more transparent, easier to enter and grow this segment?
07:59 Or do you really believe that this is putting in shackles and restrictions in terms of the
08:05 growth of the industry?
08:07 I would say that the regulator has two roles to play.
08:11 That is, one is relating to ensuring that the safety of the market, the integrity of
08:15 the market, the place where the investors are coming in, that particular thing has to
08:21 be completely safe and secure for the investors.
08:24 So the investor protection is the key there.
08:26 The second one that he has to look for is the development of the markets.
08:29 So both these things he has to balance it out.
08:32 And if you look at the regulations that have come in over the last one year, most of the
08:36 regulations which have come in the last one year is relating to the investor protection
08:41 and also giving the benefit to the investor by, let us say, the TR reduction which had
08:46 happened, which was passing on the economies of scale, like what Bala was trying to say,
08:51 that economies of scale is getting passed on, and the investor protection by means of
08:56 various tightening measures which had happened after the credit crisis which we saw, enabled
09:03 that maybe the disclosure norms becomes much more transparent, the exposure norms get tightened.
09:09 So these are all in favor of the investor so that the investor is given a sort of a
09:16 feeling that, yes, he is coming into an industry which is very well regulated and the regulator
09:21 is on top of the things.
09:23 So that gives the confidence for the investor to come and invest into the mutual funds.
09:27 And the B15, B30, they progressed it from B15 to B30 and gave that additional commissions
09:33 from B30 because they saw that B15 had expanded to the B30 where the money was coming in.
09:41 So they said that let me now take it to T30 and then B30, that sort of thing.
09:45 So beyond 30, they wanted to give the additional incentive for people to work hard and reach
09:51 the tier 3, tier 4 sort of cities and market the mutual fund product to the ultimate end
09:57 user and that is where maybe they have given this.
10:00 So I would say that the regulator has played a very balanced and nuanced role when keeping
10:06 in at the forefront the investor protection as the key message that you would like to
10:11 give.
10:12 Dr. Urjit R. Patel:
10:13 Naminit, you apart from being a veteran in this industry, you also belong to a group
10:19 which is the largest bank in India.
10:22 And clearly this is a bank which today in terms of mutual fund distribution has grown
10:27 from strength to strength.
10:29 Do you see these measures which Sebi has put out bring far more confidence in the customers,
10:38 especially those who come from smaller areas and how do you see the growth in the next
10:44 few years, not just one year?
10:46 Because there are clear headwinds that are there in the initial parts on the equity side,
10:50 but do you see the growth substantially growing over the next three to five year time frame?
10:56 And also from, if you could give us from a SBI bank perspective of how the second tier
11:02 towns are looking at investment in our business.
11:05 Dr. Urjit R. Patel:
11:07 Sure.
11:08 So rarely you go in these events and they put, the organisations put these kind of tight
11:12 belts on your hands, so I don't know whether this was symbolic.
11:17 But on a more serious note, Bala talked about the evolution of the industry along with the
11:22 regulation and he said he started the career before the regulator got set up and then I
11:27 had the opportunity of working with him.
11:29 But our SBI mutual fund story is also very, very similar.
11:32 So it got set up in 1987 and then I have seen the whole evolution of the industry, the regulation.
11:38 And as Bala rightly mentioned, there have been those ups and downs.
11:41 The industry has witnessed the boom and bust of 1992, the boom and bust of '99-2000, the
11:48 boom and bust of 2007-8, and then what we have seen recently, some of the cycles on
11:54 the credit market, and then history is replete with several of those.
11:57 But the industry has gone from strength to strength and I'm sure we have a long way to
12:02 go.
12:04 Talking about the SBI and the distribution, as the parent says, takes a huge pride with
12:10 their 50 million clients, 45 crore clients that they take pride in saying banker to every
12:15 Indian.
12:16 At SBI mutual fund, we get driven by one dream, can we be the wealth creator for every Indian?
12:21 As India moves towards much greater financial inclusion, as we move towards a $5 trillion
12:27 economy, our objective must be that can our industry become the conduit or become the
12:33 catalyst for ensuring that fruits of those growth are distributed to a much, much larger
12:39 part of the population.
12:40 And thankfully, indirectly at least, the participation of pension funds through the ETFs and now
12:47 a wider market over a period of time, which I expect, I think will also ensure that one,
12:53 the numbers that Bala talked about, the direct participation through the mutual fund industry
12:57 and the indirect participation of pension funds participating through the mutual funds
13:01 will ensure that fruits of India's growth are distributed to a much, much larger set
13:07 of population and the growth India achieves will be a very sustainable and inclusive growth.
13:12 I think the hard work that industry is putting in, in terms of investor education, in terms
13:17 of investing, somewhere down the line, the underlying person who's invested in that pension
13:22 fund, which then gets invested in a mutual fund product, actually which starts seeing
13:27 the benefits and come directly also in terms of, is that what you?
13:32 Absolutely.
13:33 And also the economy of scale.
13:34 Globally, when you look at regulators everywhere believe that it's the investment skill set
13:39 or a risk management skill set which is in shortage.
13:42 And how do you get the economy of scale?
13:43 How do you take advantage of that by ensuring that, whether it's insurance money, the pension
13:49 money, the endowment money, most of that is managed by the mutual fund industry.
13:55 And I hope over a period of time in India also we move in that direction so that you
13:59 reap the full benefit of economy of scale and also all of that pool of money takes advantage
14:05 of the skill set that you build in the mutual fund industry.
14:08 So Mr. Kunte, it's good to have a refreshingly outside view because you're not part of our
14:14 industry and sometimes being a part of this industry for the number of years we all have
14:18 put in can corrupt us a little bit.
14:23 One of the important changes I think that the regulator has brought about is the fact
14:28 that they are trying to professionalize the entire distribution system.
14:33 So they are clearly differentiating between people who are just plain vanilla distributors
14:38 who will give the very basic advice and also the more professional people who will take
14:43 financial planning as a tool in which your institute plays a large part in imparting
14:49 education, etc.
14:50 So how do you see these changes benefiting a lot of people who would want to become more
14:57 professional and how is the institute's role going to become far more challenging in the
15:03 years to come?
15:04 Thank you.
15:05 I just wanted to put this thought in front of you otherwise I might not be doing my job.
15:10 So we are very much part of the industry but we are independent.
15:13 So our goal is to…
15:15 I stand corrected on that.
15:17 And since we are talking about dates, I don't know how many of you know about CFA Institute.
15:22 Anybody apart from Nandit and myself, any charter holders here, CFA program?
15:26 A few hands have gone up.
15:29 I am not sure if in the audience people know about the Intelligent Investor.
15:32 It was written by Benjamin Graham and it's freely available on the web.
15:39 And in that he refers to CFA Institute and the force and the thinking behind forming
15:44 CFA Institute which predates back to at least 60 years.
15:50 So we have done a lot of work globally and invest directionally to your question, Kailash,
15:56 that what SEBI is doing, it stands perfectly well with our position.
16:01 We work very closely with SEBI and other regulators around the world, SEC, FCA and in the Hong
16:07 Kong as well.
16:08 So directionally we are going in the right direction.
16:11 But one question we may want to ask is, and as people, you veterans in the investment
16:17 industry ask is, what do you not see?
16:21 In a photograph, there is somebody in the front, but in the background there is something
16:27 that is happening.
16:28 And that background that is something that is happening is what is not being done.
16:32 What is not being done is the insurance industry.
16:34 So while we are seeing a lot of changes in the capital market space, in the insurance
16:42 industry there is no change.
16:44 So the arbitrage in between the two types of, I wouldn't call insurance as an investment,
16:51 that is a basic flaw.
16:52 But that is where the training starts, that is where the education starts.
16:56 So there is a lack of awareness, there is a lack of retail awareness, there is a lack
17:01 of professional awareness, there is a lack of institutional awareness, there is a lack
17:04 of regulatory awareness, where I hope to work with folks like you and with the regulatory
17:12 side and get things moving.
17:14 So I think one of the government's agenda also in a very significant manner is to provide
17:20 opportunities for people to earn.
17:22 They are not talking about jobs, they are talking about livelihood.
17:26 And obviously RIAs, what is now called investment advisory services, is a way to go because
17:34 number one, the number of people who are servicing the potential clients which are likely to
17:39 come in is very far and few.
17:42 So professional courses like yours, how are you all gearing up to serve this and in a
17:49 way helping the industry also grow the number of advisors in the years to come?
17:56 What steps are you taking as an industry?
17:59 Thank you very much for the question.
18:00 See, Navneet here is the president of our society.
18:03 So there are two bodies, one is I get paid for what I do and Navneet is a volunteer.
18:10 But through his support we have got more than 2,500 members in India and the amount of programming
18:16 that we do, it's almost one program, I was just thinking about it, calculating the numbers,
18:21 one educational program every day.
18:24 And it's not an educational educational program.
18:26 So the kind of programming that is happening right now, we call it as armchair programming.
18:30 You know, we are all relaxed and we are talking from the stage and people are taking notes.
18:35 There is a different kind of programming where you go, where you make it little bit intense,
18:40 you know, like a snack, where you look for a webinar, a podcast and then you try to influence
18:45 people like here people on the stage, you know, they influence the listeners.
18:49 And then finally, you know, there is another type of programming where it's a proper meal,
18:53 a dinner, where you actually go and learn and give an exam.
18:57 So we have got all three varieties of this and what we are trying to, apart from the
19:01 CFA program, which is a three-year program and it's very rigorous and that's a credential.
19:06 In India we found, so I took my CFA program in Japan after 10 years of experience.
19:11 Whereas in India, you find everybody, you know, and every neighbor and I get lots of
19:16 calls.
19:17 It is there at the entry level, which is probably wrong, but people who are experienced, they
19:21 should take the program.
19:23 So we need to create an awareness there.
19:25 And apart from that, you know, folks here are like really, really good pilot, but we
19:30 want everybody to become, you know, fighter pilots and, you know, we want to, we want
19:34 them to, you know, change with technology.
19:36 Just yesterday I did a full workshop on machine learning with SEBI.
19:40 So it's a huge opportunity for everyone in the industry and outside the industry, you
19:45 know, to like gear up.
19:48 So we are doing lots of programming.
19:49 We are trying to influence people with the right techniques and we try to think about
19:55 only two things, you know, conceptual frameworks and innovative ideas.
20:00 We are not interested in the what's, we are interested in the why's.
20:03 Just to add to Kailash, since CFA is an interesting subject of mine, Aminit and you are part of
20:10 us in Birla, we actually put a condition to all my, rather, opportunity we gave to all
20:16 our analysts, saying whoever wants to appear for CFA, we'll reimburse that charges to them.
20:22 It used to cost about Rs. 80,000.
20:26 All the three levels you're passing out, we'll give you, because it enhances the knowledge
20:28 of the analyst and you become more current and the way you look at different from what
20:33 you normally used to look at after passing out CA.
20:37 So that's why we encouraged each one of our investment professionals to become a CFA member,
20:42 CFA holder and then CFA member.
20:46 And I'm also quite happy, Aminit is now being, heading that institution now as a president.
20:51 We look forward to next 100,000 CFA's coming shortly on board to help our industry.
20:59 Sourup, there's always a debate in this industry, AUM growth and client growth.
21:06 Up till now, I think we've been focused quite heavily on AUM growth.
21:10 But I think client growth is equally important, considering that we are way below world averages
21:15 when it comes to any kind of mutual fund penetration.
21:19 I mean, we can't even put it on the graph because we just don't feature.
21:24 You've been again on the sales side for a long time.
21:26 Do you see fundamentally the industry changing and moving towards more client acquisition
21:33 and client growth and AUM becoming an outcome?
21:37 And what steps do you think, and how are the current set of norms that the regulators putting
21:42 out helping in this progress?
21:46 I think you got it right.
21:48 We fundamentally find it a little bit of a disillusion that a person is sort of gauged
21:54 by the AUM or the industry is gauged by the AUM.
21:57 India is about people.
21:58 And finally, it's about how many people invest with us is what matters.
22:03 Somebody who gives you 10,000 rupees does not mean he has 10,000 rupees.
22:06 He grows his book only if he gets a good investment experience.
22:10 And that's where there's the outcome of the AUM which you're referring to.
22:13 So going forward, if you look at the last 10 years of say the distribution base and
22:18 correct me Balasaheb Venkatesh if I'm wrong, when you look at what's happened in the distribution
22:23 or the way the money can come to the AMCs, it's become double.
22:26 Earlier we used to have what is called now the MFDs.
22:30 When we have the verticals of MFDs, now we have two verticals growing, which is the MFD
22:35 and we have the RIS.
22:36 And over and above is direct.
22:39 A lot of money which comes into the direct mode comes through RIS.
22:43 And normally that goes unnoticed.
22:46 So when you look at the AMC perspective, AMC is getting money from at least double the
22:51 kind of landscape that used to get just five years ago.
22:54 And that's I think a huge shout out to the regulator for formalizing this.
23:00 And as we grow from what used to be a selling mode to an advice mode, this is the stepping
23:04 stone.
23:05 And something which has been referred to as the education level, I definitely see education
23:10 level being changed at a fundamental level.
23:13 And it has to come from the regulatory side.
23:15 And I see that happening as on yesterday.
23:18 The reason since you asked, I'm not an AFA, CFA, because that option was only given to
23:23 analysts and not given to the sales guys in Birlas.
23:28 But I see that as a compulsory, the education level of advisors has to go up.
23:32 And that is when the accountability of all of us in this fiduciary role comes into play.
23:38 That is where the real test comes as an industry.
23:40 We can say that the industry will go up by x, y.
23:43 Trust me, it has the potential of growing by five times that x, y.
23:47 But it comes with a corollary, and I'm speaking in front of two predicate fund managers when
23:51 I go to that.
23:52 Just the growth of the industry is not in isolation.
23:55 The growth of the industry, we are a pass-through product, right?
23:58 The growth of the industry also has to come with the growth of the underlying.
24:02 There has to be more companies available for us to invest in.
24:05 There has to be more papers available to us to invest in.
24:08 So that's where I think the regulator will play a bigger role in expanding that side
24:11 of the market.
24:12 We will give you what is available and try to beat that.
24:15 But that available pool also has to grow parallelly for us to facilitate a growth.
24:20 Otherwise, what comes, and correct me if I'm wrong, it comes with that big disclaimer that
24:25 the returns to the client also start tapering down.
24:28 Okay?
24:29 So the growth of the industry is not in isolation.
24:32 Let's look at it.
24:33 We are what, 8,500 crores SIP per month.
24:36 That is almost 1.5 billion.
24:37 That is serious money.
24:39 And that is set to grow.
24:40 It is growing by month, irrespective of the overall pie not coming.
24:43 Today, the SIP is a go-to product, okay, for any investor.
24:47 Suppose it's 2-3 billion per month.
24:49 Do we have the underlying stocks to really go and invest in is a question, and commit
24:54 that kind of, or project that kind of returns which we were.
24:57 If you look at the 10-year return which is there now, it's very different from the 10-year
25:01 return which was just two years ago.
25:03 And that's a factor which needs to be also explored rather than just discuss the growth
25:08 of the mutual fund industry in isolation.
25:10 So do you see a large explosion of number of new customers coming to this industry over
25:15 the next three to five years?
25:17 Just look at what the online side has done, and I'll give you some things in perspective,
25:21 is that today most of us at fund houses, suddenly in the last three years, 60-70% of transactions
25:26 are happening in the digital form.
25:29 The number of new customers that are being added by some of the digital players, within
25:34 two, three years of existence is far higher than large distributors which are adding over
25:39 10, 15 years of existence.
25:40 That is what the explosion of digital can do, right?
25:44 And that's where everything changes.
25:46 I mean, for me personally, life changed when I saw my wife buying vegetables online.
25:51 That's when I realized that the world has changed permanently.
25:54 I never thought I would buy vegetables online without checking it, right?
25:58 But that is the new India.
25:59 The fear that is, again I get into the other side, is that the product line that we have
26:05 is probably catering to me and my father.
26:08 I don't know whether this existing product line caters to my son.
26:12 And my son will become the larger universe going forward.
26:15 So just growth in isolation can be a small subject.
26:19 The product line will change, the inflow of investors will change, and that's good for
26:23 us as asset managers.
26:24 We get tested.
26:26 And that's where the real fun starts.
26:28 So of course there is an explosion out the corner, but we have to be very careful about
26:32 handling that explosion.
26:33 So, Mr. Venkatesh, SEBI kind of forced the mutual fund industry to pool assets and create
26:42 something called Mutual Fund Saiya campaign.
26:45 And we have seen this campaign evolve from just brand awareness generation to much more.
26:51 Could you throw some light on that and how this is going to work under new regulations
26:55 and how do you see this play out in the next few years?
27:00 We should really congratulate SEBI on giving that sort of a regulatory change where one
27:07 basis point from the entire AMC's asset center management comes to a nodal agency, which
27:14 is Amphi, which is their own nodal agency, to actually take it and create that brand
27:20 awareness at the initial stage and then continue that from the brand awareness to the financial
27:25 literacy part.
27:26 In the sense that, essentially, earlier we used to talk about the brand awareness.
27:30 Now we are slowly moving and talking about the risks of investments.
27:33 We are trying to say that you can even invest in other products like the retirement products.
27:39 So definitely the way to go forward is very clear to us.
27:45 Bala could be the right person to talk about this because it was under his tenure that
27:49 we launched it.
27:50 And Kailash was the vice chairman.
27:51 Can I add just one part of this?
27:57 This part cannot go unnoticed without mentioning Mr. Rao in the crowd here.
28:01 What he has done on this part is all of us together need to…
28:04 Tremendous.
28:05 It's tremendous.
28:06 Well done.
28:07 In fact, he had the biggest smile when I asked the question.
28:10 Because essentially, I think it's a step in the right direction.
28:13 Now they have put a regulatory clamp down for using celebrities.
28:18 Now they have even given us the exception in the sense that they have said as an association,
28:24 you can use celebrities.
28:26 So we will definitely start using celebrities, which should come maybe 15 days to 20 days
28:32 down the line.
28:33 So we are progressing.
28:34 So the endorsements of the celebrities will also have the eyeballs more, which will ensure
28:40 that people will get tagged on to the mutual funds much more.
28:45 And as an advertisement brand, I would say that it has actually become much more larger
28:53 than the parent body that is Amphi.
28:56 People now know us as Mutual Funds Saiye.
28:58 And then we like to tell that, that Mutual Funds Saiye ad which is coming, I am coming
29:01 from that organization which produces that Mutual Funds Saiye.
29:04 Earlier you used to know Amphi.
29:06 Now it is becoming Mutual Funds Saiye.
29:08 So it has really become a bigger, larger than life sort of thing.
29:12 We are very, very mindful of the fact that we have a responsibility to the investor.
29:20 So that is where we continuously discuss with the market participants, we continuously discuss
29:25 with the regulator, and produce such types of audiovisual as well as the digital sort
29:32 of videos which we put out, which gives a clear understanding about what is a mutual
29:38 fund and what are all the different types of risks associated with the mutual fund,
29:41 what are all the different products that are there in the mutual fund which can cater to
29:45 your needs.
29:46 So all those things are going to come.
29:48 So I am quite certain that this Mutual Funds Saiye campaign will be a great success in
29:53 bringing in newer and newer investors.
29:57 After we launched in 2017 March, in one year time itself we brought in actually 50 lakh
30:05 new investors into the fold.
30:07 So that is the power of this particular brand campaign which we ran.
30:11 So I am quite confident that with this maybe we should be able to bring in more and more
30:16 new investors.
30:17 Dr. Urjit R. Patel So if I have two stalwart fund managers sitting
30:21 on the panel, I maybe permitted a little bit of digression in terms of moving a little
30:27 away from the topic.
30:28 But I will surely ask Navneet.
30:32 Everybody is concerned about coronavirus, the equity markets, global volatility, and
30:37 everybody is actually keen to know.
30:39 So if you get caught outside, one to one to ask this question, what's going to happen
30:44 next, I thought I might as well ask it out here.
30:48 So what's your view?
30:49 I mean India is doing very well.
30:51 Some sectors maybe a little up and down, but you know, finally at the end of the day, this
30:56 is a market which is growing better than the rest of the world.
31:00 How do you see this whole thing play out?
31:02 And I am not talking of next three months, six months, I am giving a little longer time
31:05 view for you to take it on.
31:07 Dr. Urjit R. Patel Good, because Arun will say that after
31:09 talking all about long term investing, mutual funds are good, and you are asking what the
31:13 market is like.
31:16 But on the celebrity thing, they will be there on TV talking about mutual funds are good,
31:20 but I am sure everybody would agree that real celebrities are the advisors, distributors,
31:25 partners over the last few years with fast changing, you know, all the changes in terms
31:31 of regulation, technology, market cycles.
31:34 And it's difficult to handle the investor.
31:36 It's not easy given, I mean, the ups and downs in the market and in variety of other things.
31:41 So they are the real celebrities.
31:43 Talking about the coronavirus and the, of course, it's a sad state of affairs globally,
31:49 particularly in last couple of hours, what has happened in Europe and Korea and some
31:53 of the other parts of the world.
31:54 The base expectations as of now is that over the next few days as the summer sets in in
32:00 China and over a period of time, all the other measures taken by various countries, it should
32:05 get contained and over a period of time, another month or two, situation should start normalizing.
32:10 The positive aspect is that because of the fears about the virus and its impact on growth,
32:18 central banks would err on the side of caution and are likely to print a lot more money,
32:24 keep a lot more liquidity in the system, which will help in the second half of the year when
32:29 China would also start with another set of stimulus along with inventory restocking and
32:35 the easy liquidity supported by the central bank should ensure that I think the second
32:40 half of the year could be good.
32:42 In the very near term, I mean, we have been saying it for last few days, in the very near
32:45 term, growth can surprise on downside, but maybe I think we are going to have a faster
32:50 recovery in the second half because of whatever policymakers will do.
32:54 But I think a little longer term from India's perspective, what we have seen over the last
32:59 few years in terms of starting with the trade conflict between US and China, between Japan,
33:06 Korea, some of the other geopolitical risks that got manifested in various parts of the
33:10 world, India could be a structural long-term beneficiary of, and along with now what has
33:14 happened in the coronavirus, I am sure India could be a structural long-term beneficiary
33:18 of the events that have happened and it can turn out to be in our favor.
33:23 And in terms of what we have done, whether the corporate tax rate cut or focus on ease
33:28 of doing business, a lot of measures to encourage the foreign savings, I think the FDI and the
33:35 foreign flows can surprise on upside and that can actually kick-start the private capex
33:41 that everybody has been expecting for a very long time and which has hit the complete nadir
33:45 recently.
33:46 We can actually expect a private capex returning and I am sure particularly the rural economy
33:53 with better monsoon and higher food prices and the other measures by the government can
33:58 kick-start the consumption growth and followed by a private capex which initially will be
34:02 driven by the foreign money and as the corporate India gets more confidence, the liquidity
34:07 which has been unleashed by RBI over the last few months start percolating down.
34:12 We have already seen the rally in the G-Sec and the AAA and maybe a few of the AAA-rated
34:19 bonds but I am sure it will percolate down to the rest of the other credit markets.
34:25 I think from second half onwards we would start seeing steady growth.
34:30 Q. Bala, coming to you, I am obviously going to ask you questions of your core expertise,
34:38 although you have gone beyond the debt part of the market and we had a speaker just before
34:43 this, Amit spoke about various credit.
34:46 How do you see credit playing out in going ahead?
34:50 What should people be careful of, how does that play out and also after the credit part
34:58 of it, if you wanted to add something to the mutual funds because it all started with you
35:05 and me being a part of the committee right at the start.
35:08 I think I will start with the second one first.
35:11 The mutual funds, sometimes people do ask questions, mutual funds, that question comes
35:18 up but I think the purpose for which, I still remember the discussion we had and we had
35:22 debated in the AMFI committee which of course comprising of people coming from the rest
35:28 of the industry.
35:29 This one industry which I like, AMFI, it is a body which collaborates all the members
35:35 in one room, though they all compete with each other, when it comes to the question
35:38 of service in the industry, we all come together.
35:41 That is the beauty of AMFI, the beauty of all the committees that are set up under AMFI,
35:45 that is why we came with that mutual funds IA.
35:48 The basic theme under which we rolled that out was the mutual fund investment has to
35:53 be part of the discussion while having a sip of a coffee in the morning or having a chat
35:58 with somebody over tea.
35:59 So it should be made part of the discussion that everyone talks across the country, that
36:04 is one.
36:05 Second is the mutual funds IA has to be driven for the purpose for which you are coming for
36:09 the mutual fund, it is not about the return and short term return, market volatility and
36:14 so on and so forth.
36:15 We have to fight the market volatility for the long term investing.
36:18 So that is why we said that long term investing is a must.
36:21 And third, of course, the best way to onboard customers on SAP.
36:23 Sometimes whenever I travel, if you ask some people actually that have you made an investment
36:27 in mutual funds, they will initially think about whether at all they have investment.
36:32 The moment you change the question saying have you made an investment in SAP, the answer
36:35 will come with a loud voice, yes I have made an investment in SAP.
36:39 So actually it changed the way the SAP has been sold to the mutual fund, that is the
36:43 way I think it has worked well.
36:44 So I think thanks to the members, though I was driving it, I was supported fully by
36:50 Kailash as the Vice-Chairman at that time and then the rest of the members who were
36:55 part of my committee and that is the committee approach we did, I think it has done exceedingly
36:58 well.
36:59 I think coming to the credit market, definitely was 2019, 2018-19 was an exceptional year
37:07 and it actually so coincided, exactly 10 years back, Lehman Brothers also collapsed at the
37:12 same time.
37:13 So in September, we had LFS, 25 year old organisation collapsing.
37:17 That obviously such a large institution who has got linkages with everyone in the financial
37:21 market, naturally it will go for a toss.
37:25 And I still remember the discussion me and Navneet used to have to give input to SVA
37:30 Chairman who used to go to Delhi to give a representation when Arun Jaitley was there.
37:35 We did all such things only to ensure that right input is given to the right people at
37:40 the centre, right input is given to the regulator like RBI and SEBI and finally of course when
37:45 things went a little bit out of hand, then credit market of course went to a toss.
37:50 I think exceptionally, number of downgrades that happened in AAA was one of the highest.
37:53 I have never seen the history of credit market in the last number of years.
37:59 Now Reserve Bank of India has taken enough steps to ensure that liquidity is provided.
38:04 The way I think things have evolved, whatever accident that has happened, is accident that
38:07 has happened, that of course every market goes through some accident whether it is a
38:10 credit market or the equity market and credit market has seen its own price it has paid.
38:17 And that is an exception here, now it is behind us, probably now as we move forward credit
38:21 market will get better.
38:23 The second aspect which in my view I have seen, I think since the time the PCA bank
38:27 was introduced, Prompt Currency Action Bank was introduced by Reserve Bank of India, sometime
38:30 I get to hear from bankers they completely forgot about lending.
38:33 I was quite surprised to see, France Minister's headline today in Economic Times saying that
38:39 I am telling all the bankers that you need to touch with the customers and you need to
38:42 lend more money and they are not lending money types.
38:45 So my personal belief is the last two, three years of credit market crisis, people have
38:49 now started feeling now credit is too much to have and that cannot be tolerated and so
38:54 on so forth, that people have actually moved away from lending and everybody has moved
38:58 to the high credit quality lending.
39:01 But there is a space for credit market and there is a space at which one should drive
39:05 it and in the earlier session what he talked about is about how to put the covenants, how
39:09 to manage the risk and every cycle you go through some kind of learning.
39:13 And MF industry also learned the learning, even individual funders like us also learned
39:17 whatever the lesson had to be learned, also have been learned, now it is becoming a part
39:20 of the systems.
39:22 The moment we do that, my view is I think credit market as we move forward would become
39:27 the market to look for, I think once you adjust the risk that is associated with such kind
39:32 of underwriting of credit or pricing the credit, if those are completely taken care, then credit
39:37 market will definitely pick up.
39:38 And the US incidentally, it is a three trillion dollar junk bond market and have seen same
39:46 kind of ups and downs and they have survived all those ups and downs and still grown in
39:51 big.
39:52 And then beyond a point who would say no for getting one or two percent extra return if
39:57 it comes along with the risk.
39:58 I think what is not happened in the case of equity, people are accepting the volatility,
40:02 in the case of fixed income, people acceptance for volatility is low.
40:06 But as the mark to market is getting set in, as the regulatory intervention comes in, as
40:10 the money manager starts understanding the risk much more better than what you have seen
40:14 in the past and which is evolving risk and then on the base of which you actually put
40:18 it as part of your underwriting, then credit market will pick up.
40:20 I think the way is just somehow risk is setting, I think the worst is behind us, I would rather
40:26 assume the next six months you will find hardly any people come to the banks for borrowing
40:32 big time and therefore they have to go down the credit line and start lending money to
40:36 them.
40:37 I think one thing very important is also the regulation that have changed in this regard,
40:42 segregated portfolio.
40:43 So today, even if it has gone bad, the original investors can get back the money once it is
40:50 recovered.
40:51 So it is not really a loss to the investor.
40:53 Regulation of securities is getting much tighter, full mark to market from 1st April
40:58 implementation, these are some of the regulatory norm changes that are happening.
41:02 I think it is just going to make this whole industry more robust.
41:05 I think, Swarup, you have a point further on this.
41:07 Swarup Gingrich No, I mean, that is the fund management side
41:09 speaking but I would like to just highlight the other side which is the investing side
41:14 and the observation, this is an observation from the flow of money.
41:17 There is so much of obsession with a very small part and that leads to so much of distortion
41:23 in investments.
41:24 In the last one, two years, all we have probably thought of is the credit side of debt and
41:28 we probably missed one of the best years of debt investing.
41:31 Correct me if I am wrong.
41:32 The duration return, average industry return is over 15% last year.
41:36 But who is talking?
41:37 Okay, now we will start talking duration after the 15% has come.
41:41 On the equity side, this obsession with mid-caps, as if there is nothing beyond mid-caps or
41:46 after mid-caps is leading to non-asset allocation happening, right?
41:50 We probably seen money or returns coming on all sides of the market and the mid-caps have
41:55 been supposedly laggards but who stopped us from investing across, right?
42:00 This obsession leads to lack of asset allocation is something which the flows are suggesting.
42:06 My humble request is, look at the broad market, debt is not just about credit, it is a small
42:11 part about credit.
42:12 And similarly, equity is a large side, it is not just about one small pocket about equity
42:17 and if you keep both sides or the large side of the market intact, there are investment
42:23 opportunities at all times of the year, is my only submission.
42:26 Just to add to Swarup, on the mutual fund sahi hai part, we wanted to extend the mutual
42:31 fund sahi hai to fixed income mutual fund bhi sahi hai.
42:35 In order to get the total asset allocation, go between equity and fixed income so that
42:41 you can get a better experience over a period of time.
42:43 I mean, fixed income that doesn't mean credit.
42:45 This is the perfect place where Mr. Kunte steps in because he is the one who helps get
42:50 people educated on asset allocation.
42:52 Just to complete Kailash, almost it was stuck.
42:55 I think it was almost finalized, mutual fund sahi hai for fixed income was also sahi hai,
42:59 was almost finalized, unfortunately 15th September of 2018 happened.
43:04 Had it not happened, then that asset class would also become hugely big positive for
43:10 the industry in adding more new customers, most of the conservative customers could have
43:14 come out of fixed income.
43:15 In this process, we could have made Indian bond market much better, more robust in terms
43:20 of size.
43:21 From a customer point of view, satisfaction, having a mix of both equity and debt would
43:24 have given a great experience.
43:25 Swarup Gupta (Moderator): Without things have changed, just one minute.
43:28 Bala and I were managing the fixed income funds between 2000 to 2003.
43:32 It was almost impossible to get money in equity funds.
43:36 So just to say today you have to advertise, fixed income sahi hai, that time it was like
43:42 2003 was almost time and if you tell people equity funds be sahi hai, nobody is going
43:46 to listen.
43:47 The rest is history, next five years was the best period for equity funds.
43:50 Dr. Urjit R. Patel (International Finance Center): Mr. Kunde, do you want to add something
43:53 in terms of how the CFA helps distributors at large work on financial models which are
44:01 far more pro-customer and what else do you all have to offer as an institute?
44:05 Swarup Gupta (Moderator): Both the distributors and advisors and folks over here and asset
44:12 management companies, really it's a difficult task at hand because the canvas for India
44:16 is so broad.
44:18 So just to add to what Bala was saying about mutual funds sahi hai and Venkatesh also referred
44:24 to they don't know about AMFI but they know about that.
44:27 So we had this society, CFA society India cycle from Mumbai to Indore recently and we
44:32 were going through villages and we stopped in one of the villages and he said I am an
44:37 investor in mutual funds, Hindi mein, main bhi invest karta hu, dekho main green fund
44:44 mein invest karta hu.
44:45 So we saw there is no green fund, how come he is investing in a green fund.
44:50 So he looked at, no I mean this is like November right, so sorry, so I mean it was not the
44:57 fund that you were referring to but anyway so that particular thing, the way that investor
45:02 was looking at it was there was a green colour on top of it and he did not know what he was
45:08 investing in.
45:10 So there is a lack of awareness, although he was investing because his boss said that
45:14 yeh achha hota hai, ab kar dena.
45:16 So I mean so the task for distributors and investment advisors is to not only go and
45:24 look at what asset allocation means and what are the different asset classes, what are
45:29 the risk return profiles and all of, most of the material that we give is actually free,
45:34 we are a not for profit organisation.
45:37 So if you give any search term and you give CFA institute, you will get loads of information.
45:43 Now and you can also go to the YouTube but the other most important thing is you know
45:47 emotional stability.
45:49 How do you get emotional stability first for yourself and then for your clients and the
45:54 last thing is you know trust.
45:56 I don't know if folks in this room know but we have been doing a survey, a global survey
46:02 of trust in the financial services industry as compared to other industries and I don't
46:08 know if you know that we are at the bottom, rock bottom and you know at the top there
46:12 are manufacturing services and so on.
46:14 So people don't trust us.
46:16 How do we build trust in the industry and how do we be, how can we be and that all starts
46:22 with us, you know if you are more ethical, you know we could be, we could be trusted
46:26 upon.
46:27 Thank you.
46:28 In the interest of time, I think we will stop now.
46:34 Thank you all for being such a patient audience.
46:36 I hope there is some inputs that you have had from here that have helped you.
46:41 But I can only tell you one thing, I have been in this industry on both sides, on the
46:45 side where distributor, I was a distributor for about 10 years and now a manufacturer
46:49 for about 15 years.
46:51 I think this is the best industry to be in.
46:53 It's a great play if you are in this industry, associated with this industry but I think
46:58 one of the ways forward to go is to keep the education level way up because the customers
47:04 are going to demand that.
47:05 So CFA being one of those initiatives which are there.
47:09 Thank you all once again.
47:12 Thank you.
47:30 [End of Audio]