The Hindu Business Line : ‘Performance impacted if fund gets too large’

Several of SBI Mutual Fund’s diversified funds are at the top of the long-term performance charts. But is rising asset size impacting performance? Mr S. Shahabuddin, MD & CEO of SBI Mutual Fund, took a few queries on these lines.

Excerpts from the interview:

How are SBI Mutual’s assets divided?

Our total asset size is about Rs 28,000 crore, of which assets worth Rs 21,000 crore are invested in equity and the rest in debt instruments — Rs 3,000-4,000 crore in liquid and the balance in fixed maturity plans. Since the debt segment is currently small, we are going to focus on this market from now on. But I feel fund houses should not concentrate on liquid debt options as there are banks to do that job.

Some of your schemes, such as Magnum Multiplier and Magnum Contra, have high cash positions of up to 20-30 per cent?

Normally, we go into cash ahead of dividend pay-outs. In some cases, the fund moves into cash anticipating redemption or when the fund manager feels that the valuations are stretched and anticipates the market will correct. This is purely the decision of the fund manager.

Fund managers cannot have any fixed strategy on how much cash to hold. They do not desire to sit on cash, because there is a pressure from the peer group to perform.

Magnum Global’s assets have grown by over 100 per cent in the past year on the back of strong returns. However after the expansion in assets, the performance appears to have slowed down? Any specific reason?

Generally it’s easy to manage a Rs 30-40 crore fund. As you grow bigger the task is more challenging. Take Magnum Tax Gain; now the fund is close to Rs 4,000 crore. Here, I have to be extremely cautious. In terms of corpus, we think up to Rs 5,000 crore is manageable. It does impact the fund’s performance if the fund becomes too large.

I feel it is more appropriate to compare the performance of a fund with the benchmark rather than compare with peer group. I always prefer to compare with the benchmark, as that is what we have stated in our mandate. I don’t see anything wrong in the selection of the sectors. I feel in a year’s time the performance of Magnum Global will improve.

What asset size do you think is comfortable to manage in the mid-cap space?

For mid-cap stocks, if the fund size is above Rs 2,000 crore, it becomes difficult to manage.

What is your call on the Sensex over the next five years?

With the growth story intact, I foresee the BSE Sensex touching 40,000 points over a five-year period.

With SEBI setting the ball rolling regarding entry load waivers, do you think the market is mature enough to bypass intermediaries?

I cannot comment on SEBI’s decision, but my opinion is that we have to bring in as many as investors as possible into mutual funds. The SBI has a very high small investor base and we are now present in 75 locations. This is likely to increase to 400 (either through branches, agencies or franchise) in the next two years.

A fund house with a 20-year background, with the backing of SBI, is able to do only this much. Think about small players! This is why we have to depend on intermediaries. If I reduce brokerages, they may stop selling mutual fund products and switch to insurance products.

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