While the market may remain volatile in the near term, it will deliver good returns in the long run. Retail investors should participate in the growth story by investing in equities through the MF route. Sunil Subramaniam, CEO of Sundaram Mutual Fund, in an interview with Saikat Neogi, says the volatility in the markets would impact the decision-making of retail investors. Excerpts:
Given that AUM of equity funds has grown in the last one year, what type of funds are retail investors preferring now?
Retail investors continue to prefer diversified equity funds, though there is gradual and increasing comfort with mid- and small-cap diversified funds.
Despite the surge in markets, why is it that the retail portfolio is not increasing significantly?
Retail decision-making is driven by a mix of greed and fear. While the run-up in equities has perked up their interest, the volatility would impact their decision-making. Once the Indian economic growth story comes into a more sound footing, retail confidence in equities should rise. However, in our case, the retail portfolio has been steadily increasing and, since March 2014, more than 2 lakh new folios have been opened (which is 15% of our base) of which a third have come in the last four months alone. Our SIP book has also grown by 60% in number and 120% by value in the last 15 months which is an indicator of increasing retail interest.
Gold ETFs have seen a lot of redemption. Does that mean they have lost investors’ interest?
This is just because gold prices have been falling and inflation has also been trending down. If prices rise and inflation trends up, then we could see inflows into gold ETFs once again. Hence, these are asset allocation decisions and ETFs offer a low-cost method to make tactical investment decisions.
How is the industry and Sundaram MF going to make enough inroads into the retirement business?
Simplicity of products, taxation support from the government and positioning of mutual funds as a truly long-term vehicles (for 10 to 15 years) are absolutely critical for this to occur.
Sundaram MF’s performance in the mid- and small-cap segments has been strong. How do you all take the strategic call?
Our strategic calls are based on bottoms-up stock-picking based on extensive research and analysis into individual stocks using the GARP (Growth At Reasonable Price) model. We also use the 5S framework in selecting stocks — simple business, scalable opportunity, sound management, sustainable competitive advantage and steady & sustainable cash flows. Based on this, we are always biased towards a buy-and-hold approach.
Do you plan to come out with more new fund offers this year and what are your plans for distribution?
We will selectively launch NFOs whenever we have a new idea for wealth creation. Our next offering is likely to be a value fund. Our plans for distribution are to expand our geographic presence, especially in the B-15 cities, and focus on empanelling more and more independent financial advisers (IFAs) to expand our market presence. Already, almost 40% of our equity business comes from the IFA channel and we would look to grow this strongly.