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Want to be a mutual fund for youngsters who are starting their investment journey: Zerodha’s Nithin Kamath

There is an opportunity to disrupt in the AMC business operationally, though not so much with products, says Kamath.

October 22, 2021 / 06:52 PM IST
Zerodha founder Nithin Kamath (File image)

Zerodha founder Nithin Kamath (File image)

Most of the new asset management companies only want to focus on passively managed funds. But there are already several passively managed funds out there. How will the new crop of asset management companies be able to differentiate themselves?

In an interaction during Finity’s GoPassive conclave, Nithin Kamath, founder of Zerodha -- the country’s largest stock broker in terms of active investors -- shares why he wants Zerodha’s AMC foray to be passive-only and still offer differentiated passive products to investors.

How can Zerodha create disruptions in the mutual fund business?

I think there is an opportunity in the AMC business to disrupt operationally. And not really in terms of products because whatever you disrupt in terms of products, will get copied in a matter of time. When you look at some of the large AMCs around, they have large costs, which you don’t really need if you are focusing on just passively managed funds. There is also an opportunity to be like a thought leader, saying that I am only going to do passive business as selling active and passive funds at the same time is a conflicted kind of relationship. There is also an opportunity to simplify how mutual funds are sold. Youngsters, especially prefer product selection to be a simpler process, than a complex decision-making process with too many options. There is an opportunity to get this new class of investors -- 20-30-year-olds -- who are yet to start investing or have just begun their investment journey. With the number of mutual fund schemes out there, there is already a plethora of options for investors who know how to invest.

There are also several passive funds out there and we are seeing a lot more coming up. How can new AMCs give different offerings to investors?


I don’t think there is an opportunity to put up another Sensex or Nifty fund. There are just several options already out there. But, like I said we want to focus on disrupting operationally. For example, when I think of ETFs, I think of liquidity. If I want to pick an ETF today, I would look at which is the most liquid one as you can get hurt on impact costs. For investors that want to move in and out of ETFs, impact costs can be really significant.

How can passive funds grow in an industry, which has so far been dominated by actively managed funds?

The question is if active fund managers can outperform the indices. Given what’s happening around the world, I think fund managers will struggle to beat the indices in the large-cap fund category and maybe even in some of the larger midcap categories. In which case, it means that the indices will start to outperform. Once they start to outperform and there are enough people talking about it, that whole shift from active to passive can happen really fast.
Jash Kriplani is a journalist with over ten years of experience. Based in Mumbai. Covering mutual funds, personal finance. His last stint was with Business Standard, where he covered mutual funds and other developments in the financial markets
first published: Oct 22, 2021 06:49 pm

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