The Hindu Business Line : ‘Most people choose a fund purely based on recommendation’

JP Morgan Asset Management India introduced its first mutual fund scheme in 2006. Currently the fund house has four schemes, with Rs 2537 crore in assets under management, according to AMFI data. Mr Krishnamurthy Vijayan, Whole-time Director & CEO at JP Morgan Asset Management India, who has two decades of experience in the Indian mutual fund industry, talks to Business Line about the industry in the prevailing scenario.

Where does the mutual fund industry stand now?

This is the best of times in the mutual fund industry as far as we are concerned. It’s at a size where it matters. A typical and a sustainable position is when any one AMC does not have more than 10 per cent market share. Today only a couple of AMCs have more than 10 per cent market share, but by and large most AMCs have 5-10 per cent market share, which enables a reasonably good level of competition. In addition, the business has also become increasingly more viable, because of which people are expanding and going in for a wider network of both distributors and offices.

In what sense has it become more viable?

This is a pure volume game and it is these volumes which are making it more viable. The other advantage is that if there are 10 or 12 viable players in the industry the rest know they can aspire to be viable so they are also expanding in scale, so it is kind of a virtuous cycle in a way.

With the new KYC norms and the requirement of a PAN ID for MF applicants, is it more difficult to get new investors say from smaller towns into the MF fold?

There are two things here, First , is KYC really a mental block? I don’t think so. The vast majority of investors don’t have wealth to hide, they pay their taxes, they are salaried employees and they would be more than happy to get this formality over and done with, I don’t see that as a problem. The other thing is people who have vast sums of cash. Frankly speaking, sooner or later that is going to disappear and for us as an industry it is both safer and less of a nuisance to steer clear of that money.

So, I would think that the challenge for us is not really to tap the cash market but to ensure that we tap the 151 million salaried employees in this country.

How in reality do people choose from the numerous funds and schemes, or is it just a matter of marketing?

From experience I have found that most people choose a fund purely based on recommendation and not based on analysis or very little analysis if at all.

Therefore, the challenge always is to be among top four or five names. Given the level of governance, given the level of transparency in the industry, I guess the differentiator would really be the brand awareness.

So when you have common distributors for several funds, how does it work?

Commission is one way of doing it, but it is extremely short term, because remember ultimately most of these distributors need to go back and show their face to investor. So you should have a very clear message as to why your fund makes sense, like for instance one of the things we say, which is the key differentiator for us, is that we follow a team-based fund management approach, which means that no one fund manager decides the fate of your money and we believe that a group of people working in reasonable harmony would be more productive for a fund.

Your launch of a mutual fund is at a time of high volatility in the market, so in case of investment decisions for mutual funds what do you have to keep in mind?

This is not the first market that we have entered in a situation like this, we did it in China also. For us it becomes an opportunity, because we do not enter a market unless it is certain size, typically anything smaller than a hundred billion dollar market we wont even enter. When we entered India, it was about $70 billion, and rapidly crossed $100 billion and is now about $150 billion or so.

One clear philosophy for us is that whatever products we launch they will be identical or more or less identical to products that we launch in other markets and managed according to the same style.

We believe the style faithfulness (if I may call it that) is critical. That’s what differentiates us from an individual who is a brilliant fund manager.

Would you say there is an optimum period of time for which an investor should hold in an open ended mutual fund?

You should invest when you have the money by picking those instruments or stocks which seem to you to have the best long term potential, and sell only for two reasons: one, if you feel that you have made a mistake in your decision or if you feel that you need the money for some reason. Otherwise there is no other reason for exiting a mutual fund or even a stock.

In this current volatile state of the market, is your portfolio constantly shifting?

No we don’t do that, we look through short term volatility in our funds. Our portfolio turnover is very low, around 30 per cent. Just because the market is up or down we would not necessarily change the portfolio.

More Stories on : Interview | Mutual Funds

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Corporate developments

The road ahead for SEBI

Post-Bear Stearns’ sell off, select stocks recover

Promoter selling, FCCBs drag Orchid Chemicals

Volatile movement

Stocks end flat after early gains

Reliance Capital tumbles sharply

New FII registrations provide silver lining

‘Most people choose a fund purely based on recommendation’

Cipla (Rs 204.45): Buy

Day trading guide

20 Microns files for IPO

SEBI examining alleged insider trading in Reliance Petroleum shares: Govt