Challenging times for MFs to continue: Dhirendra Kumar

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Q: Would it be fair to say that today the problems of the mutual fund industry with this constant redemption and net outflows is actually in a sense its own creation. That every time the market rallied or jumped all funds or houses fell over itself themselves to get new NFOs going and then the market inevitably corrects and these people lose money and therefore every time the market rallies back, they are all queuing up to take money out because these NFOs always happen at a very elevated levels of the market?

Kumar: Yes, in fact those are the ancillary problem. They were actually side effects of a wrong business model. Basically, the naive and gullible were attracted to NFOs. After that the level of understanding; the rational for buying a fund, the rational for making lump sum large investment at the peak of the market when the feeling is that 'I have missed the bus', so the driver for those investments are wrong. So that is why we see that such investors, their experience is very typical, buying high, selling low and never comeback and they become depositors and that happens after three-four years.

Every bull run gets all the big bang NFOs, but that is past. Because that business was such a happening segment of the market that nobody had the interest, time, inclination or resources dedicated to building something, which was robust gradual, economical and cost effective sustainable. That I think is a problem and that has been mandated by the regulation that has been triggered by the regulation. Suddenly, it was thought that there will be some kind of impact on ULIPs too but that is not happening quickly, maybe over a period of time it happens. But as of now it certainly is an unlevelled playing field when it comes to individuals savers, who look at market related products in the market and evaluate that, the distribution is uneven.

I also feel that the change has been brought with a very short notice, so the realignment might take longer. But my feeling is that the unintended consequences of this big change are going to be counter productive. The problem is that the bottom of the pyramid will be completely unserved and they will never be able to get into the market through mutual funds.