I am not expecting an immediate revival in the mutual fund industry — V. Krishnan, President, Integrated Enterprises.
At a time when the market regulator is thinking of ways to increase retail penetration in the market, President of retail-based financial services provider Integrated Enterprises, V. Krishnan, talks of the recent trends in retail investments and the strategy that retail investors should adopt to maximise returns.
What are the challenges you are facing in your business which is mainly focused on retail investors?
We want to expand our branches but have not been able to for the last 4-5 years as the commercials are not comfortable and market conditions are also volatile; fast expansion could lead to faster winding up. Margins are under severe pressure and have come down to 0.5 per cent from 1.25 per cent earlier while the fixed costs of rent and manpower have gone up. Besides in retail business model, the growth is very gradual and requires more patience and perseverance as the number of transactions are maximum and revenue per transaction is small.
What insights do you have into the investment patterns of retail investors?
In 2006-07 when mutual fund demand rallied, we used to do about 1,000 transactions daily for mutual funds alone and fixed deposits and fixed income schemes were not sold. But today the mutual fund businesses have gone down by 75 per cent and the same has got diverted to fixed income and corporate bonds.
Currently fixed income and traditional fixed deposits are back as people want to go back to a safe product with decent returns given the volatility in the markets in the last five years which has left them shaken.
Corporate FDs, Bank FDs, corporate bonds, where NCDs and debentures are issued, are being sought.
How dependent retail investors are on the expertise of a fund manager?
With more sources of information about corporates and markets being available through the print and television media, retail investors are getting more financially savvy. They don’t feel the need for fund managers to tell them which are the good companies to invest in as they already know and go for buying stocks directly.
Moreover, generation next is coming into the family and their risk-taking capacity has gone up with their earning capacity. Due to these reasons we have seen a drop in our equity mutual fund business whereas our direct equity business has remained stable.
With SEBI’s recent steps to revive the mutual fund industry, are you anticipating a pick-up in demand?
Presently, I believe fixed income and corporate bonds are here to stay for now on the retail investor radar as I am not expecting an immediate revival in the mutual fund industry. The positive factor is that distributor interest has been revived again so the push factor would be more but the pull factor from investors will come only gradually with time.
Since investors haven’t seen any return from mutual funds in the last few years they are not in a mood to buy. However there are slight indications of a change as interest rates have started coming down. So equity would go up and slowly equity mutual fund will get activated so we are waiting for that.
What advice would you give to retail investors in current market conditions?
We are telling them that a simple asset allocation has to be maintained. Fixed income should not be ignored and retail investors should not get carried away and jump into equities. But at the same time equities should not be ignored altogether and it should also be part of their portfolio as equity is one product capable of giving inflation beating return unlike fixed income products. Investors should also introspect what is their “investible” surplus and what is their risk-taking capacity and invest in equity to a level they are comfortable with.