Money Guru | ETFs are good products but they will take time to pick up

Money Guru | ETFs are good products but they will take time to pick up
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First Published: Tue, Dec 06 2011. 08 26 PM IST

Debasish Mallick, MD & CEO, IDBI Asset Management Ltd.
Debasish Mallick, MD & CEO, IDBI Asset Management Ltd.
Updated: Tue, Dec 06 2011. 08 26 PM IST
When Debasish Mallick joined IDBI AMC in May 2011, he had a tough choice at hand: Having focused, so far, on its index funds because of its core philosophy, which never really took off, should IDBI AMC continue to focus on index funds and grow at a slow pace or should it expand its product bouquet and reach the masses? Mallick chose the latter and went for an identity change. Seven months later, IDBI AMC is ready for a makeover, offering products across asset classes, pushing retail products aggressively and striving for growth of assets. And with a bank as a sponsor, the fund’s distribution strategy seems to be in place as well.
You took over the reins of IDBI AMC after almost a year since it was launched. What were your immediate goals? Is your vision different from your predecessor?
Debasish Mallick, MD & CEO, IDBI Asset Management Ltd.
The first thing I did was centralize the process. We had different operations being run from different parts of the country. I brought them all together so that logistically it’s easier to monitor.
I also realized we needed more MF (mutual fund) schemes as well as additional focus on our existing products. Our only retail products were index funds based on the Nifty and Nifty Junior indices, and a monthly income plan. Our index funds weren’t selling well. I wanted to refocus on them. Thankfully because of the efforts of our team, we have been able to ramp up our volumes. Our retail folios have crossed 70,000, up from about 40,000 before.
In future, we should try and break even as fast as possible because it gives us a further bargaining power with our sponsor and it helps us to appeal to more people. Obviously, our assets under management (AUM) have to also grow simultaneously.
When Benchmark AMC got acquired earlier this year, did it have any impact on your approach and thinking? Even IDBI AMC was focused only on passively managed funds when it started out.
It depends on how you look at it. Benchmark AMC became a profitable organization even with a smaller corpus. It’s a matter of strategy; all its schemes were ETFs (exchange-traded funds). It took pains to penetrate a market where there were no other mutual fund house. So it had essentially a long-term vision. And then it got acquired by a global firm, Goldman Sachs AMC. That way, Benchmark is quite a good example. It wasn’t as if Benchmark suffered from a crisis and somebody had to come and bail it out. Goldman Sachs AMC found Benchmark AMC attractive so acquired it. Our only similarity was that we were also managing passively managed funds. But unlike them, we don’t want to remain niche, nor will we be content with small profitability or AUM. Obviously, we want to be a very meaningful fund house over a period of time.
Is IDBI AMC planning to introduce active funds?
Yes, we are planning to launch actively managed funds in both debt and equity. We never committed to remain only in the passive management space.
Last month, one of India’s oldest ETFs saw a huge difference between its net asset value and market price. One of the problems cited was the lack of interest from its market-makers. Is that a genuine problem in the Indian ETF space?
ETFs will pick up only if liquidity picks up. Only then the bid offer spread will become narrower. As far as market-making activity is concerned, market-makers also should be in a position to either get a huge credit line to impart liquidity to the market-making activity or alternatively should be sure that there would be some buyers for ETF units.
Lack of retail participation in the ETF segment has also led to low demand of ETF units. Investors either buy stocks directly from the market or they invest through MFs. But they are not sure of an ETF product. With the exception of gold ETFs, other ETFs haven’t really picked up. Gold ETFs have also picked up because of gold mainly.
Fund houses too haven’t been launching ETFs regularly, except for erstwhile Benchmark AMC that specialized in ETF schemes. But ETFs are good products; it will take time for people to understand them.
Brokers also have to be comfortable with ETFs. They still take calls on individual stocks or they go to the derivatives market. Till today, they have not yet familiarized themselves with MFs; that’s also why the stock exchange platforms for MF transactions haven’t really taken off.
It’s said that banks don’t aggressively push liquid and ultra short-term (ST) funds of MFs because they want customers to stay with them through their savings bank account and fixed deposits. How do you get around this problem, especially if you were to get IDBI Bank to sell your liquid funds?
Despite obvious similarities, there are differences among liquid funds, ultra ST funds and savings bank accounts. You can’t write cheques out of your liquid funds like in the US. Liquidity is not instant like in a savings account; it happens with a day’s notice. I don’t think it’s in direct competition with a savings account. On the other hand, a savings account is a very necessary thing to have; no Indian can overlook having a savings account.
But if you are willing to forgo a bit of liquidity, there’s a lot of similarity as well and liquid funds can offer you 3-4% more returns than a savings account, assuming a large number of banks still continue with a 4% interest rate on savings accounts.
Obviously a banker who is given a current-account-savings-account target will not be very enthused to sell our liquid and ultra ST funds. In that case, these funds will be sold through our banking channel only when a customer specifically asks for it, otherwise it will not get sold. I don’t foresee a scenario where IDBI Bank officials will go out of their way to canvass our liquid and ultra ST funds. It’s very understandable.
kayezad.a@livemint.com
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First Published: Tue, Dec 06 2011. 08 26 PM IST