The mutual fund industry has grown nearly 10 times in assets over the past 10 years even as folio count growth has been somewhat moderate.
In order to boost penetration of the investment vehicle, CNBC-TV18 in collaboration with Reliance Nippon Asset Management has launched Mutual Fund Day.
In an interview with CNBC-TV18, Sundeep Sikka, ED and CEO of Reliance Nippon Life Asset Management, said through the initiative, the target is to get 10 percent of the population to invest into mutual funds in next three years.
He said systematic investment plans (SIPs) have now become synonymous with MFs with about Rs 4000 crore coming in every month through that route.
Talking more about the Mutual Fund Day he said, it was a privilege to launch a concept like this and is confident of it changing the investing habits of Indians.
Below is the verbatim transcript of Sundeep Sikka’s interview to Varinder Bansal on CNBC-TV18.
Q: Can you explain the concept of Mutual Fund Day?
A: It is privilege for Reliance Mutual Fund to be launching a new concept in India called Mutual Fund Day. I think we believe this is going to be a revolution, because it is going to change the habit of how Indians invest. If you step back a little if see mutual fund industry has been creating a lot of wealth for investors over the last 20 years.
Especially, in the last 10 years mutual fund industry has grown by 10 times. In 2007 it was about Rs 3 lakh crore, today it is going to be touching Rs 18 lakh crore. The equity assets have been increasing, but the only thing that has not changed is the portfolio count.
In last five years, the portfolio count has just gone up by about 10 percent, we are about less than 5.5 crore investors. I think this concept came from the fact that so much is happening in India of India growth story as it unfolds how do we share this wealth with Indians.
Indians have been traditionally investing in bank deposits, real estate, golds and with the demonetisation so much coming into the banking system, we thought we need to change the habit and this is a concept coming from that. So, we are trying to get this is not just one event for us this is going to be an annual affair. I mean 7th of every month we are going to be encouraging investors to invest in mutual funds and this will be followed on ground activities in hundreds of cities and towns throughout there.
Q: You are so right in saying this that still there is huge opportunity untapped. I was reading some of the numbers where it clearly said that the assets under management (AUM) to gross domestic product (GDP) ratio is still the lowest in India which is only 8 percent compared to the other countries like US is 91 percent, UK is 50 percent, Brazil 38 percent, we are still at 8 percent, right?
A: I think we are at inflection point, I mean if you were to again step back what was happening, traditionally because the Indians love for gold, I mean the total equity assets in the country they were less than the total amount of gold that were bought by Indians. But, look at how things are changing? Last one year we saw almost Rs 1 lakh crore of equities sales coming into the system, every month we have now about Rs 4,000 crore of systematic investment plan (SIPs), we have been seeing today almost effectively means Rs 50,000 crore. This number was less than Rs 1,000-1,500 crore. You look at this now today the domestic mutual funds are becoming a force, counter force for FIIs also and also there was a time when people did not know about mutual funds today SIP has become synonymous with mutual funds.
Q: What has changed like in the last one or two years what has changed so much of money guzzling in whether it was demonetisation or something where the money is pouring in, right?
A: I think money is just not pouring in, I think it is backed on the wealth that the industry is creating for the investors and also the other opportunities are dying away slowly. So, today there was a time till about five years back-10 years you could get double digit returns for bank deposits. Gold was on a one way journey. Also the other thing what has happened is lot of investor education that the industries have been doing. As Reliance Mutual Fund we conduct almost a 1000 camps every month.
Also what is happening is now mutual fund industry is no more seen only as equity product. Today it has become a balanced bouquet, you have debt, you gave gold, you have money market funds and now investors are getting more and more comfortable. The inflection point if we were to say is the point that today there is a long track record, 20 year track record our own Reliance Growth Fund which has given a return of almost 25 percent compound annual growth rate (CAGR) – 95 times, so Rs 1,00,000 has become now Rs 95,00,000 in last 20 years. So, people are realising this and also investment habits changed, it is a matter of generations many times. I think this initiative is exactly to change the investment habits of Indians.
Q: What are the challenges still in the mutual fund industry because I remember in the last two or three years back there were lot of challenges which were there? Do you find that there are still loopholes which the regulator might pull out and they might be impetus again for the industry?
A: I don’t think so there are any challenges; most of the challenges are in the mind. I think today the way we see, equity as an asset class has given, the overall portfolio if you were to see the equity assets of the mutual fund industry have given a 17 percent return over 10 years. I mean just look at this, it is a question of how do we communicate these initiatives, there are no short cuts. I mean today the fact that we were used to buying the fixed deposits (FDs) and gold this was taught to us over generations by our grandparents and this is going to change. The way we see initiatives like 7th of every month being a Mutual Fund Day ones this comes month after month people will be told, educated, 1000s of industry stakeholders will be getting new investors, will be talking to new investor trying to get investments from, I mean it is going to change the way people invest.
Q: You were very bullish on Index fund right, if I am correct? You think that the Index funds will by far outperform the Index returns going ahead. That is the same thing that Warren Buffett also mentioned?
A: I would actually say the other way round, I think as an asset management company you need to offer the complete bouquet. So, both in India active funds and the exchange-traded fund (ETFs), I clearly see them co-existing that is the reason our Goldman Sachs acquisition was a part of that. Today we are the fastest growing in ETF segment also. But, I am very clear that from a long-term point of view both will have to co-exist in India. While the small cap the alpha will keep getting created but in large-cap you could see because they are high expense of the schemes ETFs could be a preferred option by a lot of Institutional and High net worth individual (HNI) investors.
Q: Is there any geography in India where you are seeing highest inflow coming in?
A: It is very encouraging, today the inflows we are seeing are from across the country. We are seeing lot of investors coming from north-eastern states. We ourselves this year we have a plan to open about 25 new branches. About say 5 branches are going to be in the north-eastern state. So, it is no more a big city phenomena; it is up to us as an industry player and all the stake holders of the industry to take it down as deep as possible because the actual wealth lies deep in India it is not only in the Delhi’s and Mumbai.
Q: Rs 1,000 crore SIP becomes Rs 4,000 what do you estimate it could be in the next two-three-four years?
A: I think in three years times I will see this to be a Rs 10 crore per month. Because two things are changing the number of SIPs are increasing and also along with that the average ticket size what used to be about Rs 2,000 today we are getting about Rs 4,500-5,000 both the things will change. Again initiatives like Mutual Fund Day where 7th of every month they will be encouraged to come and invest in mutual funds it might be through SIPs, it might be lump sum all these things are going to change. Especially, you know what happens I think people are seeing advantage in systematic investment plans.
Q: That is true, I know many people who have made their homes, who have married their daughter’s only via SIP. I remember of small example when one of them said that he has given a CAGR of 20-21 percent since 1965 there are few funds in the Indian industry whose CAGR is more than 20 percent in the last 20 years.
A: We are proud that today, that one fund you are talking is our Reliance Growth fund.
Q: That is so true, our CAGR is one of the biggest power in terms of wealth creation. Education is the only reason which stopped retail investors to put their money in SIPs or do you think that there are challenges like distribution and all as well in the industry?
A: The way I see, once the investor start looking comfortable with it I think the distribution will also keep becoming more efficient. We will see distribution getting increased more deep. So, again ultimately what happens it is just like a stock. Once the market cap increase the liquidity also increases. As the industry size increases you will see more investors coming in and more distributors coming in. So, clearly today we are seeing in the last two years more distributors have been active. So, I think it is just a matter of time because ultimately the growth of industry will only happen if the end consumer which is the investor is benefiting from it, the wealth is getting created from him. Because of which all this stakeholders whether it is the manufacturers or AMCs like us or distributors will also keep benefiting.
Q: I think Rs 10 lakh crore AUM has been added in the last three years and before that it was only Rs 8 lakh crore how much more, what kind of growth you anticipate for the assets under management in the Indian context in the next three years?
A: I am sure we are all going to be surprised positively. I remember few years back when I said industry will be Rs 20 lakh crore by 2020 a lot of our colleagues, friends and media laughed and said that what you are talking is too ambitious. Now I think it might happen in 2018. I think I don’t see today a reason, I would like to step back, it is not just about the AUM.
Right now the next target that we need to have is 10 percent of Indian population needs to be investing into mutual fund in the next three year. That is the kind of target because once the base increases I think then everything changes because AUM gets reflected, AUM many time is a function of institutional money, HNI money, but for the growth of the mutual fund industry I think the base has to increase so that the next target for me is basically Rs 10 crore investors in mutual fund.