India: the industry now is turning over a new leaf

After a heady season of sectoral fund premieres and market crash, the industry now is turning over a new leaf.The plain equity funds are being brought back to woo investors

BAKU L CH UGAN TONGIA ET I NTELLIGENCE GROU P

    DAL-ROTI or Hyderabadi Biryani? One is more likely to choose a sumptuous dish, like Biryani, even if it comes at the cost of his health. After all it's only human to fall for something that tickles one's taste buds.
    Though an analogy, it captures the situation that the mutual fund investors were into last year. Between multitudes of theme-based funds and the plain vanilla equity funds, it wasn't a tough choice for the risk-loving courageous investors. They were more than ready to participate in the growth that each of the sectors in the thematic funds promised.
    Such funds are specialised products that were designed to cash in on the next best opportunity available in the market. There were, thus, a series of mid-cap funds followed by small-caps and then those focussing on even smaller caps. And, when market capitalisation could not be stretched further, industry players began jumping over each other to launch sector specific funds. Be it infrastructure or real estate, power or gas, finance or entertainment, whatever did well in the market—the mutual fund industry bundled it and presented in a brand new avatar.
    Today, it is a different story. Offspring of the bull market—the thematic funds—have lost their lustre. The crash in the equity markets might have had spared none, but it is the thematic funds that have taken the maximum pounding.
    The statistics speak for themselves. While the average returns of large-cap and index funds have fallen by about 37% in the last one year, mid-cap and small-cap funds have lost nearly 43% and 59%, respectively during the period. Sector funds have also taken a heavy beating. The average returns of the IT and the banking sector funds were down by almost 47% and 39%, respectively.
    Perhaps it is the best time for mutual fund investors to ponder over what the renowned artist Leonardo da Vinci had said—simplicity is the ultimate sophistication. This is probably what the investors need to do—rebuild their portfolios without being biased towards a particular theme. The Indian mutual fund industry, also, seems to have woken up to this fact.
    The honchos of the mutual fund industry also endorse this view. There may be lot of speculations on the outcome of general elections, but in case of the mutual fund industry, its leaders are unanimous regarding the kind of products this industry should now promote. The pure equitydiversified schemes won hands down.
    The votes were cast by the six leaders of the mutual fund industry at the Economic Times Intelligence Group (ETIG) Mutual Fund Roundtable Conference. The expert panel comprised industry barons like Abhay Aima of HDFC Bank, Ashu Suyash of Fidelity International, Rajiv Deep Bajaj of Bajaj Capital, Sandesh Kirkire of Kotak Mahindra Asset Management, Sundeep Sikka of Reliance Capital Asset Management and Vijay Venkatram of Wealth Forum.
    "Till about a year ago, the reason for buying a particular product was its new feature. And that is where the mutual fund advisors and investors started going offtrack. Now, when the portfolios have been eroded by
    30% - 50% and need to be rebuilt, investors should bank upon simple products like the diversified equity schemes and the fixed income funds," acknowledged Rajiv Bajaj. Leading one of the largest distribution companies of the country today, Bajaj also stressed on the fact that investors should first aim for capital protection and then look out for other features in any investment product. The industry's shift to selling simple products appears to be the outcome of investors' apathy towards mutual funds—specially the thematic funds—in the light of the crash in markets.
    The number of new fund offers (NFOs) too, have dwindled considerably since the downturn and even those who were brave enough to set sail in the turbulent waters, have failed to garner any investor interest. So, does that block the industry's dreams to attain greater heights in terms of size?
    "The entire NFO business was about wanting to buy something perceived to be cheaper. But all that is beginning to change now. 'Buy a new mutual fund at just Rs 10' phenomenon will slowly vanish," remarked Sandesh Kirkire pensively. "The time will come when the manufacturers will pay greater heed to selling their existing products (than run after the NFOs)," he added. These words call for added weightage as they come directly from the CEO of one of the prominent asset management companies in the country today.
    Abhay Aima, who heads the distribution arm of one of the largest banks in the country, however, excused himself from this school of thought and maintained that there is still scope for the new launches provided the fund houses have something new to offer. "There has been very limited manufacturing in the past. Most of the new launches, say about 90% have been mere packaging," he said. It seems that even the distributors are now finding it difficult to push products with little or no differentiation.
    These are just a few of the issues that were discussed and debated in a meet at the Economic Times office in Mumbai. The connoisseurs of the industry were pretty vocal in expressing their views on some of the hottest predicaments currently surrounding the industry. Turn to Page 3 for the comprehensive coverage of the event.
    Like every quarter, the performances of all mutual funds - that are at least three years old have been analysed and rated in this edition as well. The schemes have been graded accordingly in the five broad cadres – Platinum, Gold, Silver, Bronze and Lead. For complete ratings, log on to www.etintelligence.com.

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