A little short of completing a decade in the Indian mutual funds industry, HDFC Asset Management Co. Ltd is now India’s second-largest mutual fund. Milind Barve, managing director, chronicles the journey of the fund house that won the best equity fund house award by Morningstar at a ceremony on Monday.
Committed: Barve says the fund remains devoted to retail customers. Abhijit Bhatlekar / Mint
How different was 2009 from 2008 for your equity funds?
Markets were very volatile in 2008 and it was a bad year for equities. HDFC mutual fund’s equity schemes have a predominantly retail investor base, especially through systematic investment plans (SIP). We, therefore, also have a stable investor base. Neither did our investors panic and sold, nor did we panic and got out of equities. We stayed invested in the equity markets throughout. Occasionally, we bought defensive stocks but we consciously chose to remain invested.
The turnaround in 2009 was expected though nobody could have predicted correctly and accurately the swiftness with which the equity markets rebounded. Of course, it was known that India’s economic fundamentals are different from many international economies; hence, we were anyway fully invested in equity market. In 2009, markets went off on a different trajectory altogether.
To stay invested in equity has been your fund’s conscious decision, isn’t it?
Our equity funds are mandated to remain invested because our investors have given us a mandate to invest in equity markets and not sit on cash. If we have a view on the markets and which direction they are set to take off, we take a call on holding high beta or low beta stocks.
HDFC Asset Management crossed the Rs1 trillion mark for the first time recently. Has our industry matured or is there just a lot of corporate money floating around?
The Indian mutual fund (MF) industry has two business segments. One segment belongs to large, institutional investors, who invest in short-term income funds, money market funds and so on. Money coming from this segment largely depends on systemic liquidity that is prevalent in the financial system. It is simply a phenomenon, whereby if there is liquidity, money pours into mutual funds and also in bank fixed deposits, which by the way, also accepts money from corporates. It’s just that we happen to be the beneficiaries. This is what happened in 2009. This segment will remain dependant on the liquidity scenario. Money keeps coming in and going out.
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The second segment is largely favoured by retail investors. Around 90% of our equity fund investors are SIP customers or new customers. Our equity funds help us get new customers. If they would have stayed invested—or would have systematically invested—in our equity funds in the past three to four years, they would have made good money.
It is a myth that mutual funds chase corporate investors. Banks do not turn away institutional investors. They also accept large deposits. Accepting institutional money is not a sin. It helps, in whatever way it does, to improve our bottom-line, it brings volume and helps us lower costs. As long as our heart and soul is devoted to serving retail customers, it’s fine to accept institutional money also. We remain committed, though, to the retail investor.
Apart from an occasional infrastructure fund, you have not launched any sector funds. Why?
Although there is a market for sector funds, investors need a high degree of understanding of a particular sector when he or she chooses to invest in such sector funds. For much of the time, we look at acquiring customers who have not been exposed to the capital market. These are first-time investors. For such investors, we need to launch and manage simple products.
We can’t throw sector funds at them because not many of them are well-equipped and have the necessary understanding to invest in them. I don’t think we need innovation in this industry. The need of the hour is launching simple products that people can understand and invest in.
Graphic by Ahmed Raza Khan / Mint