‘Fund-flow through SIP mode is at inflection point’

Suresh P Iyengar Mumbai | Updated on January 09, 2018

Swarup Mohanty, Chief Executive Officer, Mirae Asset Global Investments (India)

Founded in 1997 in the midst of the Asian currency crisis, Mirae Asset has shaped up as a leader in emerging markets with presence in 12 countries across five continents. From assets under management of ₹1,600 crore four years ago in India, the South Korea-based mutual fund has touched AUM of ₹10,000 crore recently. Swarup Mohanty, CEO, Mirae Asset Global Investment, spoke to BusinessLine on the way ahead for the market and Mirae Asset. Excerpts:

Are you concerned with the current rally?

In the last four-five years, we have been very cognisant of this rally and we have stayed away from making any market predictions. All market predictions have gone wrong. We stick to our role of identifying good stocks and building strong portfolios. We have taken adequate steps if there are concerns on excess flow. The soft closure of Mirae Asset Emerging Bluechip Fund last October is a case in point. The fund was attracting unprecedented flow for nearly three to four months in a row. Hence, we made a soft closure of lumpsum investments in the scheme, while restricting SIPs to ₹25,000 a month.

Are do you considering relaxing the restriction?

We review it on a quarterly basis. The problem is, in the past three years, this segment has given good returns and so people get attracted to mid-caps. Allocation is fine but over-allocation or under-allocation kills.

Are equity investors facing too much uncertainty?

We have not changed our view due to market conditions. We maintain our return projection of 14 per cent year-on-year. In fact, the fund-flow through the SIP mode is at an inflection point. At the macro level, the basic shift from fixed assets to financial assets is just beginning. I am not saying that the entire money from fixed assets will flow into MFs. If MFs are able to handle the flow and give good experience, then the dramatic shift will happen.

Will the fund-flow into MFs support the markets?

We have to look at the dramatic structural changes. The market prior to large SIP inflows was completely supported by FIIs. We are still not getting used to the fact that domestic institutional investors are gaining ground. I believe that we should own our market. The alphas (excess returns of a fund compared to its benchmark index) are diminishing. It is probably the last 10-15 years of alpha and if you do not invest now, Indians will miss out the broad alpha.

Are there enough avenues to deploy funds?

It should not be a problem in the large-cap space. We invest about 80-85 per cent of our overall portfolio in 40-45 stocks. The core portfolio of any MF will be made of 50-60 stocks. India is still a young economy with lot to happen in these companies itself.

We are a consumption-led economy and it is yet to happen at certain levels. The pressure on consumption over spending will continue, you cannot stop Indians from spending. Probably this is the first of the next two generations which has just started earning money. The last generation was always cautious on future. The GenNext are confident lots and they do not worry much about the future. Spending will increase dramatically. When you add up all this factors, there is no sector that will lag behind in the next 15-20 years.

Has more fund-flows added to the profitability of MFs?

The costs that have been defined for MFs were decided at the beginning of the industry. There has been no review of this ever since. But underlying costs are going up. So, our basis point margins are shrinking. For an investor it has not changed as the fixed cost attached to managing funds are according to the size of the fund.

Our long equity book where the margins are higher saved us. We broke even when our AUM was at ₹660 crore which from an industry standard is unimaginable. We are now focusing on the debt side and it should fall in place in the two years. We will create physical presence in B-15 cities.

Published on August 21, 2017

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