The Hindu Business Line : `MIPs stepping-stone for conservative investors'

"WITH choices on the fixed-income side getting limited, we expect more investors to look at mutual funds for their long-term needs," Mr Raghvendra Nath, Head - Strategy & Business Development, Birla MF, tells Business Line. Excerpts from an interview.

As chief of strategy with a large fund house, how do you see the scenario for MFs changing in India?

The market for funds in this country has grown substantially over the past seven or eight years. The pace of penetration has also gathered momentum with new players joining the industry. This is a healthy trend. I think the disclosure norms as well as the service standards here are at par with global systems. One can safely say that in some areas these are even better. This is reflected in the practice of monthly disclosures of portfolios, daily NAVs, efficient turnaround times etc. I believe that we have come beyond the stage where funds were only associated with equities and were considered risky. Today we have investors from even small towns investing in equity and debt funds. Another feature that has helped the industry is a supportive media, which, I must add, has educated customers not only about the benefits of funds but also about their pitfalls.

What are the factors that currently define Birla MF's strategic thinking?

We have focused on providing quality and innovative solutions to investors. This philosophy guides us in all our initiatives. In the past we have come out with groundbreaking ideas, including a fund based on dividend yield and another on bond index. With the volatility in the debt markets increasing and with the equity market rallying, our products are being positioned in a manner that keeps investors' expectation at realistic levels. We have maintained a strategy of distributing profits generated in our equity funds to clients and we intend to carry it out in future as well. Increased focus on the retail segment is a major input in our strategic thought process. This is being attempted through multiple initiatives.

Can you map some of the trends that are likely to materialise?

I foresee the retail segment coming into funds in large numbers. One emerging trend is investors' growing appetite for hybrid solutions like MIPs and asset allocation funds. These can provide them a mix of equity and debt, depending on their risk profiles. Asset allocation in particular is a concept that will gain greater acceptance in times to come. Funds are also becoming preferred choices for quite a few medium- and large-sized treasuries. These trends point towards one direction — growth.

To what do you attribute the market's liking for MIPs? Are some investors tired of debt funds?

With interest rates bottoming out, return expectations from pure debt funds have come down drastically. However, there will always be a class of investors who are entirely averse to equities; they will continue to invest in pure debt funds. At the same time, there is a large section that does not mind a higher return with marginal increase in risk. For the latter, the MIP structure is very much acceptable. Such a penchant for MIPs also arises from the fact that these schemes have provided returns higher than that generated by 100 per cent debt products, the past three years' volatile equity market notwithstanding. If you look at it from a fund's perspective, it would ideally like investors to graduate from debt to equity in stages. MIPs make a good stepping-stone for conservative investors.

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