The Budget has pulled the plug on mutual funds by making fixed maturity plans less tax efficient. The industry is gearing up to retain a large chunk of the ₹1.75 lakh crore that may mature over a period of time. It has been a challenging time with market regulator SEBI Sebi tightening norms and making mutual funds look beyond the top 15 cities to raise money. Chandresh Nigam, Managing Director and Chief Executive Officer, Axis Mutual Fund, spoke to BusinessLine on the way forward. Excerpts:

Is the Budget a blow for fixed maturity plan?

The Budget proposals do not make the fixed maturity plan (FMP) an inferior product. It is just that the tax benefit is extended. Yes, there may be some redemption, but that would be more retail in nature. In fact, I think investors would move to open-ended funds and pure-play equity schemes. The chances of equity doing better than fixed income in the long term are usually high.

Will FMPs be attractive over three years?

FMPs are being launched with under three-year plan even now. It may contract over a period of time. Most of the FMPs are maturing in the next year between February and April. A significant part of that money will be rolled over for another two years. But there will be some redemption. I do not see any dramatic fall, but over a period of time, yes. So, maybe it will stabilise over ₹1 lakh crore over two years.

How do you see the proposal on MF-linked retirement plan?

It is going to be a game-changer once the regulations for these products are notified. Currently, there is little option in the retirement plan space, except for the one provided by the Government. From the Budget, we understand it would be along the lines of the National Pension Scheme that allows contribution from the employers. The mutual fund industry would appreciate if the government retains the same in the MF-linked retirement plan.

How different is it from pension plans offered by insurance companies?

In terms of insurance companies, it is mandatory for them to buy annuity. For MFs, we have to look at the regulations. Ideally, it should be part annuity and the other half should be left to the investors’ decision. The other important part is the option for investors to move allocations across schemes. These things will have to be seen. The retirement market in the next three to five years can make ₹15,000-25,000 crore. The equity-linked saving scheme does about ₹3,000-5,000 crore annually. And the MF retirement plan, I believe would do something similar.

Do you think the equity market bull run is sustainable?

We cannot expect market to move in one direction. The macro economics is certainly improving. In the next 18 months, the economy should improve, and the macro environment may also turn positive in the three to five years. With the macros doing well, equity and corporate performance should also improve. How do you see corporate earnings this fiscal?

I do not see much change in earnings this fiscal. The markets are really expecting good growth in corporate earnings from next financial year and improve further from FY17 onwards. Every sector — be it automobiles, commercial vehicles, capital goods, infrastructure or real estate — which was under pressure, will turn around.

Mutual funds have been violating SEBI’s ‘20-25 rule’, which requires a minimum of 20 investors and a maximum 25 per cent investment by an individual investor in schemes. What is your view?

The general sense of what the SEBI is saying is that it is more of a passive breach. If you look at most of the investment restrictions that have been there, the industry is under the impression that passive breaches are okay.

Most of the mutual funds that have got feedback from the regulator have taken corrective measures too.

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