Reliance Mutual Fund, the country?s largest fund house, has recently lagged its peers in terms of equity fund performance. In an interview with FE?s Chirag Madia, Sundeep Sikka, CEO Reliance Asset Management spoke about its investment strategy as well as its distribution model in the changing regulatory environment.Excerpts of the interview:
How has the FY 2010-11 been for the MF industry?
The last financial year was very interesting with many industry players re-working their business model post regulatory changes. We clearly saw emergence of two distinct trends: equity fund investors booking profits and many others coming back into equity funds through systematic investment plans (SIPs).
We believe SIP is not only good for equity investors but also for the MF industry. Usually, investors panic when market prices are lower and are bullish on higher market values. In contrast, SIPs invest at various points of time and have made decent returns in the past. Also in the last few months we have seen investors getting interested in debt funds, whether its fixed maturity plans (FMPs) or any other open ended scheme.
Equity investors of the MF industry are going down and there has been a massive outflow from the industry in the last few months. What has been your business strategy?
Investors will keep booking profits based on their needs, financial goals and market conditions. However, we clearly believe in the long term growth of the industry. The profitability of the fund houses depends on their business plan, how retail (in terms of retail presence) they are and how one wants to invest for future. Reliance continues to invest aggressively in branches, people and technology as well as investor education.
Performance of some of your equity schemes such as Reliance Equity, Reliance Vision and Reliance Growth have been lagging behind in the last one year. How has it impacted the inflows into the schemes?
I don?t think our performance has been lagging behind. It is important to understand the performance based on fund mandate and from a long term perspective. Many schemes from our fund house are currently among the top five based on 5-10 years time frame. We don?t want to look at the performance over the short time frame, as market conditions favour different investment styles at various points in time. For example, Reliance Growth fund has done well over the 3.5 and 10 year time frame, in terms of its performance but in the last one year, mid-cap stocks have not done well against large-caps, which has led to its under-performance.
The market regulator has formed a panel to find appropriate ways to compensate MF distributors ? Going forward what will be the distribution strategy?
I will be not able to comment on the committee which is formed by the regulator. Today the biggest issue facing the MF industry is how the financial planner is to be compensated. Currently some investors don?t understand the value the financial planner can add . In India distribution business has not yet matured, but we will see a trend in the days to come where investors will start paying a fees for receiving advice.
We have been hearing of R100 as a transaction fee to compensate for distributors? expense. Its a very logical thing to do as there is some transaction cost incurred to collect the application from the investor. Besides these fees, I expect financial planning fees to emerge.
Equity markets are going through volatile times. What are your suggestions to retail investors at such a time?
As far as equity markets are concerned, negative factors such as inflation and hardening of rates have already been discounted by the markets. We are waiting for some positive triggers for markets to move up. We believe this is the best time to invest in debt funds as investors could expect a near double digit return.
