inesh Khara, Managing Director and Chief Executive Officer of SBI Mutual Fund, is striving to scale up the fund house with the support of its strong parentage in the next 12 to 18 months. In an interview with the The Hindu , h e advocates retail investors to adopt systematic investment plan (SIP) route to reap the benefits of India's growth story.
Edited excerpts:
Being one of the oldest mutual fund houses with strong parentage, and over two decades of presence, could you list out the issues faced by the industry?
The issue is relating to the flavour for MF products. The MF products lost their flavour post-2008, and a sizeable household savings were getting converted into either real estate or gold. Even the interest rate on household savings has come down substantially.
MF per household is very critical element in the whole process. The investment in equity is not a one-time affair.
One has to keep tracking the performance of the company. Not even 10 per cent of the deposits of banking system are with the mutual fund industry. The total assets under management of all mutual funds is around Rs. 10 lakh crore, out of which the retail investment would be around Rs. 1,000 crore, whereas banks have a total deposit base of around Rs. 80 lakh crore.
So, we are looking at broadbasing the clientele, and to that extent, we are focussing on investors’ education to get the first-time investors into the pool.
I would also like to mention that in 2008 when the meltdown happened, many people who invested in equity burnt their fingers. So, it is very difficult to get those investors back, until and unless there is a huge spike in the stock index. What we are observing in the recent past is that at each spike in stock indices, retail investors have redeemed. We have observed that high net worth individuals have started coming back to invest into equity. However, retail investors are sitting on the fence waiting for the right moment to get into this.
Retail investors, often,
time the market badly and get left out whenever there is a boom phase in equity markets. What’s your view?
In fact, to address this particular issue, we are strongly advocating for SIPs, so that the common investors are never left out from reaping the benefits of India’s growth story. We are going ahead with our investor education programmes across the country, and the way these have been received, hopefully, we will be in a position to ensure that they come on board in time and remain on board for days to come. A common man will probably evaluate his portfolios once in three months or once in six months, if he sees appreciation in his investments, he remains in the market. Our effort is to offer real market returns, better than the inflation, and ensure that investors are benefited by the growth story of corporates.
The last five years have been quite challenging for the mutual fund industry. How do you see the next five years? How different would they be for SBI MF?
I would like to say that in the last five years, mutual fund industry has gone through lots of pain. This was because equity was not favoured by investors. In the last five years, activity has been seen in the debt and liquid funds. In the coming five years, I perceive that, apart from liquid funds, which provided healthy returns to corporates and fixed maturity plans (FMP), equity funds will also be favoured by investors. I am hoping that with an improvement in investment climate, the corporate earnings will improve, and corporates will look for more and more equity for supporting their new projects. Thus, equity market will get widened and will offer more opportunities for the mutual funds to create more value for investors.
During the launch of record 51 branches, SBI chairperson said that there is lot of focus on mutual funds and SBI Mutual Fund would move up to the top 5 ranks from its sixth position in next 12-18 months. Will you be able to reach there before that?
In fact, we have already bridged the gap substantially. As on March 2013, the gap was almost Rs. 17,000 crore between us and our next competitor. As on March 2014, we have already bridged the gap, and we have brought it down to Rs. 9,000 crore. So, if we continue at this pace, hopefully, we will be able to reach the position which we are aiming for.
Technology has been a big enabler, and mutual funds are leveraging it to expand their reach and improve their service. How is the SBI MF leveraging technology in reaching out to investors?
Technology is a big enabler, and for that purpose, we have internal portal through which investors can make online investments. Also, we have got SMS-based utility, which can be used for making investments. But, generally, these portals are being used for specific purposes. For instance, our internet portal is more and more used for investments in FMPs.
In case of FMPs, the attributes of the products are widely known to investors. But when it comes to retail investors, they have started using our SMS-based facility for investing in bond funds and liquid funds.
But we also strongly advocate that they should really not get into equity unless and until they understand the products well through these channels. They should take the help of either the distributors or independent financial advisors (IFA) or our branches before investing into the equity through alternate channel.
Mutual Funds, as institutional investors, play big role in corporate governance. In the boom phase, do they take the back seat? Or, do these issues come to fore only when markets are weak? What is SBI MF’s stand on these issues?
We have an elaborate policy on this subject. When it comes to voting on various issues of companies, where we have invested in, we evaluate each of these proposals, and, accordingly, we are working for the ultimate interest of the investor population. As a mutual fund house, SBI Mutual Fund is not a very significant investor in any particular company. But, nevertheless, the fund house is holding 2 per cent, 5 per cent and 10 per cent shares in some companies. . But we evaluate all proposals on a very professional matrix, and if we feel that particular proposal is not in the interest of the investors, we vote against that.
As a fund house, we have evolved a policy on this, and we have articulated it very well. And, we are practising that also.
The indices are scaling new peaks while the commensurate economic fundamentals look weak. What should retail investor do in such a scenario?
The re-rating of the market has been done already and it is attributed to the expectations. When it comes to investment into equity, normally people look at price earnings ratios for the next year or next 3 years.
The current corporate earnings may not support the peaks in indices. But the expected future earnings are certainly supporting these. If we look at the PE for the years to come, it will be an attractive market and hopefully, we are very confident that corporate earnings should improve substantially in the days to come.
Oommen.a@thehindu.co.in
