In the current market scenario, expectations from equities need to be moderated, though stocks remain the most attractive asset class over a longer time frame, Vetri Subramaniam , group president and head-equity, UTI Mutual Fund, said in an interview. Excerpts:
We are seeing that a lot of liquidity is driving the markets. There is a view that fundamentally, not much has changed. In such a scenario, how can mutual fund investors expect the fund manager to outperform the market?
There are two separate issues embedded in the question. The first regards the performance of equity as an asset class and second is the value that can be added by active fund management. In India so far, the good news is that active management industry is adding value. What we have seen in the other parts of the world is that as the markets get more institutionalised ie more ownership lies with the institutions; the ability to create alpha tends to reduce. I think passive management will grow in the years ahead and gain market share but the absolute equity asset class allocation will also rise substantially. As regards returns from the asset class given current variations, return expectations should be moderated.
Would it be right to say that equity is safe investment if one invests properly over a longer period of time?
Safe is a very strong word. But, we have certainly come a long way from when people saw equity [as] a purely speculative, volatile asset class, almost a form of legalised gambling. Equity remains the best asset class for wealth creation over the long term. The risks inherent in equity can be mitigated by diversification and not carrying too much business or company-specific risks. And if you keep a long-term horizon, then the risk posed by volatility can also be managed.
Systematic investment plans have been a game changer for MFs. The note ban also catalysed this.
Yes, because liquidity was ample and many individuals were looking for investment opportunities. But I would say the rise of SIPs started much before that and we must not ignore the role investor education had played in raising awareness.
There are close to 50 fund houses in India and some of them have adopted a focussed approach in the kind of funds that they manage. Others offer all kinds of funds under one roof. Which is a better approach?
I think it is a strategy choice or in some cases even an ideological choice. It is also a function of history and legacy. UTI’s history and legacy is such that it does not make sense for us to choose only one niche as we have large number of investors with differing needs. Also we have a large investment team that can manage varied strategies. It also fits into our larger business strategy and the expectations that investors have from UTI.
Given UTI’s legacy, if you feel that a diverse set of schemes is not working, how easy will it be for you to change?
We have positioned our schemes distinctly. The investment research and portfolio management process at UTI supports fund managers across these different strategies or schemes. The fund manager operates within the flexibility provided by the mandate of the scheme in a disciplined process. This positioning is articulated by our sales and marketing teams to advisers and investors. That said, we continuously review the appropriateness of schemes and have, over the years, made changes keeping in mind the best interests of the investors.
Did this strategy force you to merge a few schemes of yours or market a particular scheme more than the rest?
We had to change some of the benchmarks of some of the schemes and then align those with the right fund managers so that there is a very clear style grid. Hopefully, over a period of time, we’ll see the benefit of this discipline.
As a fund manager, what would you prefer? More focus or diversity?
If I’m the fund manager, I am only concerned with my funds. However, as the head of the team, I would know who the batsman is, who the bowler and who the wicket keeper in the team is. If everyone is doing everything, then it becomes a mess. My job is to position people in the right place to do what he or she is best at.
Taking note of concerns around the high number of schemes, SEBI has issued a circular laying down broad categories and sub-groups of funds.
We are evaluating the implications of the circular. This will be presented to our trustees. We will do as required, keeping in mind the best interests of investors.
