NS Venkatesh, chief executive, Association of Mutual Funds, has been a veteran banker before he joined AMFI. He was in IBDI for nearly 19 years and served in various leadership positions, including CFO and executive director. His last position was as executive director, Laxmi Vilas Bank. An optimist at heart, Venkatesh is quite happy over the recent award given by the Morning Star which, in a study of the mutual fund industry over 24 nations, has placed India with the US for following best global practices on disclosures. In conversation with Daksesh Parikh, Venkatesh talks about the journey of the industry over the last year and what lies ahead
How has 2020 been for the mutual fund industry?
I would say it was a mixed year for the industry. After the pandemic, the stock markets were quite erratic before they stabilised and resumed their upward trends. From November 2019 to November 2020, the AUM of the industry has gone up by 11 per cent. The top 30 cities contributed to the bulk of the AUM at 83 per cent while, beyond 30, it was 17 per cent. Retail and non-retail percentage also remained virtually unchanged at 54 and 46 per cent. Retail, in fact, gained one percentage point. Retail interest in new schemes has been good. It is true that, with indices at an all-time high, the growth in total AUM should have increased. However, the sharp rise in the markets over the last two months has shown some profit-taking by investors, who felt their goals have been met.
It may also be that the redemptions were due to the disillusionment over the poor performance of the industry in a rising market…
Market indices do not have to worry about redemptions or cash, which mutual funds are required to keep. Mutual Funds are like a savings bank account and a little more. They cannot be expected to mimic the index. Maybe some rebalancing had happened. My advice to investors would, however, be to remain invested. People invest with a goal in mind. They are not day traders. They can review their goals once cycles turn. They should not get disillusioned by pockets of volatility but work towards their goal. Long-term returns will come.
How long? Over a five-year period also, many of the schemes have performed quite poorly…
I repeat that investors should remain invested. Once the cycle turns, the returns will come. It is like a person digging a tunnel. He may be quite near and light could be just around the corner. Mutual funds in the past have also given superior returns. MF equity schemes are better than the inflated adjusted returns, which one may get from other sources.
Has anyone done a study on the sudden redemptions and investors trying to get in and out on their own in the stock market? The sharp rise in the NSDL demat accounts seem to indicate that…
No. I am not aware of any studies done on the redemption. However, there is certainly no panic. It is more to do with booking profits. Over the last one year, folios have shown an eight per cent growth to 937,000. Investors are interested; they have not blanked out. As regards to the number of higher NSDL accounts, it could be that there is another set of people who want to try their luck. With many people working from home, day-trading has also increased. MF investors stay invested from the medium to long term.
I feel that, with a $5 trillion economy becoming a reality over the next three years, markets should grow by 16 per cent CAGR. I am bullish over the long term
Did the episode at Franklin Templeton unnerve mutual fund investors?
There was panic for seven to 10 days but debt fund inflows continue to be strong. The regulators, SEBI and RBI, handled the issue well and helped restore confidence. In fact, over the last two months, debt funds have seen good inflows, giving credibility, and equity investors, who had booked profits, are placing their gains in debt funds.
One criticism against the fund is that the scope for introducing innovative products is restricted…
SEBI’s goal is to protect investors’ interest. They cannot allow high-risk products. Trust between MF and the investor is growing. Interest in ETF funds as well as ESG funds is also growing.
What are AMFI’s views on 2021?
In 2019-20, we had aimed to grow by 18 per cent but we grew by only 8 per cent. In 2020-21, the green shoots of the economy will sprout. There is enough liquidity and, with interest rates low and the vaccine programme on, there will be more interest in equity. I feel that, with a $5 trillion economy becoming a reality over the next three years, markets should grow by 16 per cent CAGR. I am bullish over the long term.