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Millennials are moving slowly towards direct mode of investment
Millennials are moving slowly towards direct mode of investment

‘Millennials are slowly moving towards direct route of investment using technology

Amfi chief executive officer N.S. Venkatesh spoke to Mint about the changing behavioural trends among investors and why inflows softened in recent months

The Association of Mutual Funds in India (Amfi) completed 25 years in August. Amfi chief executive officer N.S. Venkatesh spoke to Mint about the changing behavioural trends among investors and why inflows softened in recent months.

How has Amfi’s journey been in these past 25 years? What were its major achievements?

Amfi was incorporated on 22 August 1995. When we started, the industry had some four asset management companies (AMCs) with 66,000 crore in assets under management (AUM). Now, we are 44 AMCs with over 27 trillion. Investors have also grown manifold and the systematic investment plans (SIPs) have been a real success. From 2017 onwards, the financial literacy with Mutual Funds Sahi Hai campaign has taken off very well, and Amfi has become a household brand. Morningstar has ranked India as number one globally in terms of transparency and disclosure.

What are the major behaviour trends that you have noticed among investors?

The first is that the millennials are moving slowly towards direct mode of investment. They use the direct route using technology. The second trend is that women are taking interest. Women investors are slowly increasing.

Turning to near-term data, net inflows in operated equity funds dropped by 4,000 crore in August. What explains this?

The first thing could be that investors are redeeming wherever they are seeing profits. The second could be some knee-jerk reactions of investors who have just joined in the market and feel they are not getting the desired return. But the older investors would have seen that their goals are met. In the last two months, the inflows have been very low.

Even the debt category saw redemptions in August. Has the Reserve Bank of India’s (RBI) action reduced yields for various debt funds below comparable fixed deposit (FD) rates? Are banks taking away that flow of money?

Bank deposits are definitely growing despite the interest rate falling down. But bank FD rates are also low now. State Bank of India’s rates are also around 5.5-6%. So, deposit rates are nothing much to write home about. Maybe people think that during this uncertain period, they would rather remain in cash. So, there is a general risk aversion. Once the risk-on mode is back, you will see flows coming into mutual funds. At present, things are in the risk-off mode.

On a positive note, gold exchange-traded funds (ETFs) saw net inflows of 921 crore in August. Is the interest in electronic gold at the expense of the physical market due to social distancing norms?

People moving towards gold itself is again an indication of them being in the risk-off mode. They are taking the safe haven approach. People are taking electronic gold because they believe that it can be converted back to cash at any point of time. A little bit could be the social distancing as well, but mainly it is because they believe that conversion back to cash is much easier in an electronic mode compared to the physical mode, at this point of time.

Amfi has written to the Securities and Exchange Board of India (Sebi) asking for a category called flexicap in response to Sebi’s circular on multi-cap funds. What’s the reason?

At this point, sharing the finer details wouldn’t be appropriate.

In a speech last week, Sebi chairman said that mutual funds should not act as banks and there is a difference between lending and investing. What is Amfi doing to ensure that mutual funds do not stray into the domain of banks?

What Sebi says is right; that we are an investment institution. So, definitely we should be on the investment side. Our best practices circulars, including the valuation guidelines, clearly indicate that MFs should do the investment part properly, including risk management in investments. Amfi has been in consultation with the industry in the last 12-18 months on this matter, stating that they should look at investments more closely.

What is your vision for the future of mutual fund investing? Where will growth come from?

We would like to take the industry to 100 trillion and to reach that, we need to increase the number of investors and distributors fivefold. With 5G coming in, we believe that the digital stack will improve, and the India stack will improve along with it. We will use digital to widen the reach and the investors will come from tier III, tier IV, tier V and tier VI cities. We have not added much beyond 30 (cities), which is around 16-17% of the total AUM. We believe that we should take it up to at least around 40%. We will use the banking network much more with payment and small finance banks coming in.

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