Moneycontrol MF Summit | Regulations, reflections and rapid chess: Industry’s bigwigs brainstorm for shaping Bharat’s investment landscape

The annual Moneycontrol Mutual Fund summit 2024

Thought-provoking discussions among the who’s who of the Rs 65-trillion Indian mutual fund (MF) industry were on the menu at third edition of the Moneycontrol Mutual Fund Summit 2024, but mutual fund stalwarts and star guests raised the bar several notches with insightful takes on casting the financial literacy and inclusion net wider and laying out  the roadmap to achieving the Rs 50,000-crore monthly SIP or systematic investment plant inflows target. At present, MFs get inflows through SIPs worth Rs 23,000 crore.

Moneycontrol’s Managing Editor Nalin Mehta set the tone for the glittering event with his remarks on how the compelling India growth story and rising retail participation are fuelling a massive transformation in the country’s investment arena. “We, at Moneycontrol, are great believers in the India story, the great expansion of the Indian markets, the rise of a new kind of retail investor at the centre of this growth and the centrality of the mutual fund industry in this massive transformation,” he said.

Stewardship role for mutual funds

The stage was then set for the chief guest for the event, Amarjeet Singh, whole-time member, Securities and Exchange Board of India (SEBI), to deliver his much-awaited keynote address. He emphasised on the need for the MF industry to play a proactive role in ensuring better corporate governance standards in listed Indian companies.

MFs’ rising ownership in Indian listed companies places them in a position to ensure better corporate governance standards, he said. He pointed to voting data of Nifty 500 companies to demonstrate how MFs can hold listed companies to higher standards. “The voting data shows that the highest dissent by institutional investors were related to ESOPs, slump sales, sale of substantial undertakings, related-party transactions, director appointments and remuneration. This reflects that a number of institutional investors now focus on compensation, capital allocation and transparency, which is a good sign,” he said.

While acknowledging the industry’s role in spreading the equity culture across the country’s length and breadth, he reminded the top honchos that there is further scope to deepen penetration. Despite the industry expanding its reach beyond the major cities, the top five cities—Mumbai, Delhi, Bengaluru, Pune and Kolkata—still account for over 52 percent of the industry's assets under management. “The number of unique investors in mutual funds is a fraction of the roughly 55 crore PAN card holders who have linked their PAN card to Aadhaar,” he pointed out.

Toning down the focus on return expectations

The regulator’s address was followed by a panel discussion featuring industry captains from premier asset management companies—Radhika Gupta, MD and CEO, Edelweiss AMC, Ajit Dayal, founder and advisor, Quantum Advisors Ltd, Swarup Mohanty, vice chairman and CEO, Mirae Asset Investment Managers, India, and Kalpen Parekh, MD and CEO, DSP Mutual Fund.

Also read: 5 steps to take the SIP inflows to Rs 50,000 crore

Gupta expressed concerns that a large amount of funds is now going towards thematic funds. “I am a strong proponent of dal-chawal (meaning no-frills) investing,” she said. Dayal echoed her sentiments. “Thematic funds are a no-no for me. Unless you're very smart and you time the cycle of a particular sector, you can't say,” he said.

The panel also discussed the deluge of new fund offers (NFOs) that have been hitting the MF street of late. Data provided by Value Research shows that between 2021 and now, MFs launched around 108 new schemes a year on average. What’s more, the share of thematic and sector funds in the overall NFO space have grown considerably. In 2021, 24 percent of the new schemes were sector-focused and theme funds. And 12 percent of the NFO money collected was by sector and theme funds. In 2024 (between January and July), 112 NFOs (equity and hybrid schemes) have already been launched. Fifty-nine percent of these schemes are sector and theme funds and collected 77 percent of the overall inflows.

Gupta spoke about the need to focus on long-term returns. “We should look not to publish the one-year returns, rather publish five-year returns,” she said. She stressed on the importance of paying more attention to five- and 10-year year rolling returns instead.

"In the last two years, it has largely been return chasing, with risk going out of the window. More often than not investors say that their risk profile has gone up…However, regulatory-wise, I think we are more than prepared for this (a market crash, if any) – the guardrails of the industry are in place, that makes this industry far comfortable and safeguarded," Mohanty said.

Kalpen Parekh, MD and CEO, DSP Mutual Fund, too, spoke about the focus on past returns. “Investor is not buying thematic or sector funds. Investor is buying returns of the past in the belief that they are his returns, but the returns of the past belong to someone who invested in the past. As an ecosystem, we have to reflect that we all start with returns. It is unfair at times to say that the investor is chasing returns. But what else have we shown to him except returns?"

Managing investor interests and expectations

In the SIP journey of Rs 23,000 to Rs 50,000 crore inflows, the role of the advisor-distributor is only bound to increase as both Gupta and Mohanty stressed that the feet on the street must go up to handhold the new investors who’d be coming in. The second panel discussion of the day turned the attention to advisors’ role in taking the industry closer to the Rs 50,000-a-month SIP goal.

The panel consisted of Kailash Kulkarni, CEO, HSBC India Asset Management, Suresh Sadagopan, a SEBI-registered investment advisor (RIA)  and managing director and principal officer, Ladder7 Wealth Planners, and Misbah Baxamusa, CEO, NJ Wealth.

Also read: How to avoid being influenced by past returns when they can mislead

Kulkarni spoke about the need to manage investors’ return expectations. New investors who have come into the market in the last five years have not seen a sustained bear market, i.e., the situation of 2008-2010, or a flat market. The new investors who are coming in are setting extremely high expectations for returns from the equity market. “For such investors, handholding is more important in the current market and managing their returns expectations is a bigger challenge,” Kulkarni added. This is where advisors can play a role. “Investors have to go to a professional advisor to avoid recency bias,” said Baxamusa.

We asked Sadagopan if Sebi's recent consultation paper aimed at lowering the entry bar to become a registered investment adviser would help grow the advisors' community. Sadagopan confessed that India needs more investment advisers. These advisers, he added, can be critical in handholding investors and recommending the ideal investment strategy for them. “Bringing down the eligibility of becoming a mutual fund distributor from Rs 50 lakh to zero is a good starting point, but part-time advisory is ill-advised. Advisory is a full-time profession,” said Sadagopan.

In its consultation paper issued on August 6, SEBI proposed lowering the cost of compliance in setting up and running an RIA profession.

It has suggested that RIAs should not be required to put forth a net worth to start. At present, an RIA needs to have a minimum net worth of Rs 5 lakh. A corporate RIA should have a minimum net worth of Rs 50 lakh.

Instead, SEBI has proposed that all RIAs must deposit money (from Rs 1 lakh-10 lakh; more the number of clients, higher the deposit) with a stock exchange to pay for any disputes at a later stage.

A higher net worth also comes to bite individual RIAs at some point when their number of clients exceed 150. As per current regulations, once the number of her clients exceeds 150, she has to convert her individual RIA membership into a corporate RIA. In this case, she needs to bring in additional net worth, at least Rs 50 lakh.

Making the right moves on the financial chessboard

The highlight of the summit was undoubtedly Moneycontrol’s personal finance editor Kayezad E Adajania’s chat with chess legend, grandmaster Viswanathan Anand, who opened up on his investment style and personal finance lessons for budding chess players.

"My philosophy of investing is just to grow it. Thanks to how India has grown, my style of investing, which has a mix of taking risks, has performed well over the years,” he said. Further, on a personal note of managing his own finances and the strategies he might be using being a chess grandmaster, Anand confessed that his wife is more methodical when it comes to investing. "I would get swayed, but my wife is very methodical when it comes to investing. She doesn't run everything past me. But we discussed asset allocation," he revealed.

When asked on his investing moves, Anand added that he invests in equities and mutual funds.

Thematic funds: passing fad or integral to asset allocation?

While the CEO panel was concerned about the interest in thematic funds, the chief investment officer (CIO) panel saw it as a corollary to how the market develops.

This panel comprised of Ashish Gupta, CIO, Axis Asset Management Co Ltd, Dinesh Balachandran, head of equity, SBI Funds Management Ltd, Rajeev Thakkar, CIO and director, PPFAS Asset Management Co Ltd, Roshi Jain, senior fund manager, HDFC Asset Management Company, and Sanjay Chawla, CIO, Baroda BNP Paribas Asset Management Ltd.

"This is a natural process of market evolution. This is happening not only in India but also globally. For a growing number of investors, you will have to find new products and solutions,” said Jain.

Chawla also said that there are new themes emerging for investors, but added that one needs to question whether these themes are enduring or cyclical before they take a call on investing in the category.

“While taking decisions on launching new NFOs, conviction on the theme is the most important,” said Balachandran.

Gupta of Axis MF also added that there was a need for themes to be broad-based. "It has to provide opportunities to investors through a multiple set of companies who do not have congruent cycles," he said.

The mutual fund summit drew to a close with a glittering awards ceremony to honour mutual fund distributors, who are instrumental in propagating the equity culture to the masses.