Around 80% of Deutsche India MF’s assets lie in debt. Around 75% of its total assets lie in short-term funds such as liquid and ultra-short-term funds. Isn’t that risky?
When we launched in 2003, our fixed-income products made more success initially. With a smaller sales team, it was easier to penetrate the institutional market as opposed to getting through a large retail distribution mass that requires more feet on the street. So, for the first few years, our focus was on the institutional market. Over the last few years, we have been focusing on expanding our retail presence. Now, armed with a strong track record across markets and an expansion in retail network, we are looking to build our equity assets.
Why don’t we get to hear too many distributors hawking your products?
We could not have grown from an average corpus of Rs7,000 crore (in December 2008) to Rs13,613 crore (in December 2009) without distributor support. From around 800 distributors till about a couple of years back, we now have 8,000 distributors attached to us. We have been increasing our presence across key cities and creating awareness about our products.
You’ve been in this industry since 1993. How has the fund management industry evolved over the years?
From the days when the sale and redemption prices of some of the funds had no connection with the net asset value (NAV) to the days when career bankers and fresh graduates with little performance track record or money-managing experience managed MFs, we have come a long way. Fund management has become more scientific and research-based.
Funds have realized the importance of customer satisfaction and better disclosure. The understanding of products has improved among investors and distributors alike.
You have a contrarian view of the debt markets. Comment.
While the Reserve Bank of India is likely to raise key policy rates this year, we believe the rate hikes would be rather gradual. Though credit growth has been the lowest in 10 years, inflation is likely to be over 7% by March 2010. High inflation can be predominantly attributed to rise in food article prices due to supply constraints. Since December 2008, 10-year bond yields have risen by around 250 basis points (bps), while overnight rates have fallen by around 200 bps over the same period. Currently, 10-year government bonds give an yield of around 7.65%, which is about 450 bps higher than the overnight interest rates. This indicates one of the steepest yield curves seen in a long time. In an environment where home loans are yielding just around 8 %, 10-year sovereign bonds look attractive. Given sufficient liquidity and attractive valuation, compared to other fixed income instruments, long-term bonds and long-term bond funds are interesting investment options.
Suresh Soni is CEO, Deutsche India MF
Kayezad E. Adajania