It is about time in the market and not timing the market
Sandesh Kirkire talks about the MF industry and about Kotak AMC's road ahead.
An old-timer, Sandesh Kirkire joined the Kotak Group in 1994. After joining Kotak Mahindra Asset Management Co. Ltd in 1999, he took over as its chief executive officer in 2005. Since then the mutual fund (MF) industry has undergone a lot of changes. Kirkire spoke to Mint Money about what these years have meant for the industry and also about Kotak AMC’s course from here on.
In the last few years there have been many changes in the MF industry, be it regulations or markets. What has affected investor behaviour the most?
While we saw a lot of regulatory changes in the last four-five years, it has happened on the back of the underlying volatility in markets which drives investor behaviour in the equity side. We have seen markets remain flat over the last five years and assets have shifted to fixed income. We are closer to the end as far as the regulatory landscape is concerned. Going forward we may not see too many changes.
In the last two years, we have also seen a massive change away from short-term assets to long-term assets. With the political landscape becoming clearer over the next two years, appetite towards equity should improve. The single point agenda for the industry is to try and get more retail investors into long-term assets—both equity and fixed income.
Do you think it will help if MFs are made part of mandatory savings for retail investors?
For the largest MF industry, the US, the biggest driver was including MF products in the 401K scheme for retirement. It helped when MFs were made part of the payment mechanism. So investors could write cheques on their money market funds. While the second option is no longer preferred after the 2008-09 crisis, long-term savings flowing into MFs gives a boost. However, ultimately it is about time in the market and not timing the market. If you invested at the peak of the market every year for the last 15 years, still you would have earned over 10%. One has to communicate that longevity is critical for investors.
As financial literacy will rise, investors will also appreciate this. If MFs are allowed to offer long-term products such as pension, we will see money coming in. Also, there are multiple regulators, so you have some overlap. So just allowing MF industry to offer long-term savings option is not enough, the entire tax structure for all long-term savings products should be simple and uniform.
How has been the experience of direct plans so far? Have individual investors started to use it more?
Direct plans are something which can be used more by institutional investors who take their own decisions on money markets. Unless you are very financially aware and have the wherewithal to visit five different AMC’s websites and make investments, direct plan won’t affect. For an individual, the distributor has to do some hand-holding. Online investing is catching up and through a distributor website, you can access many funds from different fund houses at one place.
For investors, the availability of products is not in question. However, the access to products especially outside metros is limited. What more can be done to make MFs more accessible and attractive even outside metros?
Top 100 cities of the country contribute over 65% of managed funds. The industry has reasonable physical and distribution presence in the top 100 cities. The issue is do we have adequate number of distributors to reach customers? The total active distributors may not be more than 20,000 which is not enough. We need to bring in more distribution on the roles. Distribution is modelled such that the business takes some time to break even; you need to get substantial assets under management (AUM) which may take three years or more. Also, distribution should be able to offer the entire financial or investment solution to the customer and ideally be able to service on both sides of the balance sheet. There is huge potential for entrepreneurs in this space.
There are more investors in equity through MFs than through direct equity and in that sense the industry has worked to attract investors. Having said that, the country lacks an equity culture; this refers to investing directly or holding MFs for a long time. Wealth creation is not a short-term issue and the distributor should talk about the overall wealth of the investor and recommend assets based on needs.
What are Kotak AMC’s plans from here on? Do you need to increase penetration or add more products?
As an AMC, we have most of the products we need. We are touching base in around 100 cities in the current year. It is a very simple business—one has to manage risk well and deliver performance. Ultimately we are alpha managers and have to deliver outperformance. But customers don’t always look at alpha, they are more aware of the market movement. We have to communicate clearly the objective of funds.
Is it profit or AUM you are more interested in?
If you look at the structure of an AMC, it is very interesting. On the one side there are trustees and on the other there are shareholders. I think if you are customer-centric, other things fall in line. This means one has to have simple products and produce performance. This together takes care of profitability and AUM. Focus of the business has to be on fund management.
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