Morningstar India is one-and-a-half years old in India. Bringing its global expertise to track the Rs7.8 trillion Indian mutual fund (MF) industry, Morningstar aims to build a database of information concerning every little aspect of your MF. Mint spoke to Jin Tian, chief executive officer, Morningstar Asia. Edited excerpts:
Why Morningstar Awards and what’s in it for the investors?
Morningstar India Fund Awards tell you what is important when it comes to selecting MFs. I suggest you should not just look at the final results but also the methodology behind the awards as it covers various angles that should be looked into when you pick a scheme.
When we look at the candidates for the awards, we take a very systematic approach. We take a look at not just the returns and risk parameters, but also qualitative aspects like how the fund managers and MFs account for investors’ interest when they look at forming investment structure, marketing structure, marketing strategy and so on.
Point of view: Tian says a lot of investors in India take a short-term view on the markets, whether they invest in stocks or MFs. Abhijit Bhatlekar / Mint
You’ve seen the Asian markets for so many years. How different is India from other Asian markets?
Lots of things are common but some things are different. We find a lot of investors here taking a short-term view on the markets, whether they invest in stocks or MFs. Some take a long-term view of, say, three, five or 10 years, but most people tend to take a short-term view of, say, three months, six months or a year when they pick and choose their investment vehicles.
But in another sense, Indian market is more mature than many other Asian countries. The Indian MF industry seems to have adopted many global best practices. The industry has an open architecture and we see a variety of products here. The capital market regulator has also been taking a close look at the industry to make sure that the investors’ interest is taken care of.
Around 5% of household savings go into stock markets and MFs against about 50% in traditional savings. What do you think is the trigger point to take the industry penetration to the next level?
The fact that in India, like many other Asian markets, people tend to have a high savings rate against the US where about 43-47% of household savings go to stock markets, shows that there is a lot of room for growth.
Also, remember that in India, we have a solid ground to start with. We have a variety of fund houses offering a wide bouquet of products. A few things are required though. Firstly, we need to improve awareness that an MF is an effective investment. Secondly, third-party players, such as Morningstar India, will also play an important role in educating people about MFs because of the kind of information we give out.
We play a significant role in helping investors pick the right fund for you. Thirdly, like in markets such as Hong Kong, South Korea and even the US, if MFs are used as a vehicle to channelize savings for retirement, it could act as a trigger. Because MFs are a long-term vehicle and retirement is a long-term goal, investing in funds becomes a good way to save for your retirement. And lastly, we need to learn lessons from other markets where investors shunned MFs because they realized that fund managers were not giving priority to their interests.
People usually invest when markets are high and sell when they are low. How do you address that?
Around three years back, in China, when markets were rising, some fund houses took the right approach. Some of them closed subscriptions when markets were extremely hot. On the other hand, there were fund houses that encouraged investments even when markets were hot or took measures, such as splitting and declaring dividends, so that they could bring down their net asset values (NAV) and create an illusion that the funds with lower NAVs are better than those with higher NAVs.
They said these funds were cheap. But investors did not realize that MFs are not like shares or stocks. So, there are some MFs that take steps to educate people. Some take advantage of people. We need to learn these lessons so that we do not lose investors’ trust.
Morningstar gives out information that helps investors choose funds. So do many MF agents and independent financial advisers (IFAs). How should an investor decide whether he wants to go to an IFA or Morningstar?
Individual investors are very important to us and come before anything or anyone else. We are not competing with IFAs; we work closely with them. In fact, in the US, 75% of IFAs work closely with Morningstar Inc. and get fund factsheets from us. They use Morningstar as a resource and an advisory work station through our financial planning software.
Though all information is available on our website and is accessible to investors, we understand that many want to meet their IFAs face to face. These IFAs can use Morningstar tools to work efficiently.