Given the high rate of savings in India and an expected increase in financial literacy, there is a scope to expand the MF industry in terms of both size and number of players, believes Reliance MF CEO Sundeep Sikka. In an interview with Ashley Coutinho, he says investors should focus on long-term investment and adhere to asset allocation. Excerpts:
Equity markets have seen a significant uptick since September last year. Will we finally see MF investors coming back now?
We have seen a high net-worth affluent class and also retail investors returning to equities. I see this as a good start and the positive sentiment is bringing the India story out. Overall, I see the trend improving further, though it may take some time to get the momentum going. I am happy to see the retail inflows have doubled up compared with FY14, based on the monthly average in the first 2 months of FY15. Although it is difficult to predict inflows in the near term, I believe the trend will continue this year as well. Investors are optimistic and hope the new government will announce measures to further revive the economy. As the awareness and positive sentiment spreads, we will see more inflows from all investor categories.
How was FY14 for the fund house?
RCAM (Reliance Capital Asset Management) had a good FY14, which saw an addition of about R9,000 crore of assets over the year. In the fixed income space, we grew about 17%, against the industry growth of about 15%. RCAM was also a frontrunner in terms of investor awareness programmes, having covered 21,000 participants through nearly 650 programmes over the year. RCAM always had a strong balance sheet, and in FY14, we remained among the top profitable AMCs in the industry with a consolidated profit before tax of about R350 crore.
What plans do you have for the year ahead?
We are bullish on the MF industry as a whole and expect to see continuing growth of assets and folios in the long term. There are some new fund offerings in the pipeline for next 2 years. RCAM would be looking to scale up new categories in the industry and expand the size of the market itself. Instead of focusing solely on market share, we plan to take a look at the asset sub-categories from the investor point-of-view to achieve market expansion. We plan to step up awareness programmes; this would be in addition to the plans in place for the adopted districts. Although long-term in nature, investor awareness must figure prominently in an annual plan of an AMC considering the under-penetrated nature of the industry.
With the market regulator giving incentives for inclusion, how are you expanding your reach beyond the top 15 cities?
The incentives for reaching out at smaller locations along with the district-adoption programme are great initiatives that will bring discipline and a systematic approach to awareness. It is a good method to ensure that the highest number of locations are covered across India. RCAM has adopted 21 districts and is conducting awareness programmes in these districts primarily through face-to-face interactions, which ensures higher recall and comprehension. We plan to cover close to 160 districts by March 2015. We are supplementing awareness campaigns by strengthening the distributor network in smaller locations for distributing simple products, along with using customized literature for awareness programmes based on regional languages.
With more than 40 fund houses in business, is the industry ripe for consolidation?
The fact remains that there is very low penetration of mutual funds in India. Given the high savings rate in India and an expected increase in financial literacy, there is a lot of scope to expand the industry in terms of both size and number of players. I see this as a big opportunity for the existing AMCs and also for newer entrants. Also, as observed in more developed markets, AMCs with scale co-exist with niche AMCs that have smaller asset size. We believe there is space for many more AMCs in the industry.
What is your advice to MF investors at this point in time?
One of the basic tenets of investment is that MF investors should adhere to is the asset allocation. MF investors also need to focus on long-term investment. I believe long-term investment is the key to sustainable wealth creation.
