‘Many debt MFs have given double-digit returns’

Suresh P Iyengar Mumbai | Updated on July 09, 2020 Published on July 09, 2020

Markets have been on a wild swing, given the economic uncertainty and bleak prospects on corporate earnings. Mutual fund investors are clueless as to whether they should continue with their investments that have hardly made any profit in the past three years. BusinessLine spoke to Sundeep Sikka, ED and CEO, Nippon Life India Asset Management, to understand what lies ahead for investors. Excerpts:

How do you see the performance of equity markets this fiscal on the back of Covid crisis?

We are optimistic that markets will recover, supported by various measures taken in Indian and by global central banks. Markets are currently down 20 per cent compared to pre-Covid levels. So, even if it regains to pre-Covid levels, the five-year returns will double to 10 per cent compounded. Equity markets tend to go through sharp corrections and recoveries, but have a history of generating attractive returns over the longer term.

Why has Nippon India MF decided to invest only in AA-rated papers?

We are in the midst of unprecedented times and historically low economic growth, coupled with uncertainty in the market outlook. With this background, supplemented by recent credit events over the past two years, the board felt the need to adopt a cautious approach. The decision may be revisited once the economic scenario improves. The investment strategy for an economy growing at 7-8 per cent will be different from the low growth phase of 0-1 per cent. With Nippon Life Insurance as majority shareholder, we are adopting the best risk management practices from developed economies.

Do you expect more defaults, given the Covid situation?

The environment is certainly challenging, relatively more for some segments and specific companies. However, the RBI and SEBI have provided relaxations, which may provide some respite on debt servicing obligations for many companies. Regardless of ratings, we also adopt a cautious bottom-up approach on debt securities for their abilities to fulfil the obligations.

Will MF schemes investing in gilt and highly-rated paper be better than bank deposits?

An investment product with market-linked returns cannot be compared with a bank deposit with fixed interest. Moreover, the G-Sec yields and credit spreads could be relatively higher at present. As such, investors could aim to generate better returns with funds that are investing in debt securities and hold them till maturity to earn the implied yield as returns.

Do you expect investors to shun debt funds, given the bad experience?

Investors have 12 types of debt funds offering different maturity and credit profiles that suit various investment needs. While a few credit-oriented funds were impacted over the last year or so, other categories have done well. In fact, several debt funds have generated double-digit returns over the last year, thanks to the declining interest rate scenario that has kept inflows robust in these categories of funds.

What is your outlook for SIP inflow?

The industry monthly SIP book is ₹8,100 crore, adding up to about ₹1-lakh-crore annually. SIP inflows have been in a consistent uptrend since March last year. The last two months saw a marginal dip, which may be due to disruptions in investor earnings, leading them to pause their SIPs temporarily. It will start picking up again once things normalise.

Have online transactions added to MFs’ profit?

Yes, it has. Besides boosting profit margins, it has helped us reach out to a vast array of customers who are now transacting digitally, further enhancing the business with the no boundaries paradigm. Over 75 per cent of our overall transactions are coming in from various Zero Touch avenues. However, I view my branches as specialised knowledge centres, educating investors on their investment planning. While we continue to make a transition from footfalls to digital comfort, we would adopt a ‘phygital’ model that brings the best out of both world.

Will MF reach be impacted with over 5,100 distributors quitting the business?

All channels of distribution have their unique importance in deepening the mutual fund penetration. Most of the distributors who have exited are individual financial advisers. However, this is a short-term phenomenon due to uncertain market outlook. NIMF has managed to increase empanelled distributor network by about 3,000 to 76,200 in FY20.

Was rebranding from Reliance to Nippon difficult?

Over the last 25 years, the company has built a strong distribution and investment capability. We have 91 lakh investors who have imposed faith in us. With continuation of previous management team, the transition has been smooth. It was a learning experience from the 130-year-old Nippon Life. Investors who had stopped investing with us earlier have restarted. We are confident of regaining our lost market share and touching new highs.

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Published on July 09, 2020
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