In the 25 years since the Association of Mutual Funds in India (AMFI) was formed, the assets under management (AUM) of the industry has grown from ₹66,000 crore to around ₹28-lakh crore. The number of asset management companies (AMCs) has increased from 14 to 44 and the array of products has also grown significantly. NS Venkatesh, Chief Executive of AMFI, shares his thoughts on some key issues concerning the MF industry in this exclusive interview.

What according to you have been the main contributions of AMFI over the last 25 years?

AMFI has contributed significantly towards improving the awareness regarding mutual fund as a product — it is now owned by a majority of the households, especially after the Mutual Funds Sahi Hai campaign in 2015.

We have also standardised transparency and disclosures for the industry; Morningstar ranks India number one globally on this parameter. We have set up standards for valuation of assets, NAV calculation, disclosures to be made through fact-sheets.

We have honed up the AMFI website to give lots of data to empower investors. We have also standardised investor on-boarding, transmission of units, etc.

We have an ARN (AMFI Registration Number) committee to educate distributors through seminars and so on, so that we can minimise mis-selling. We get very few complaints regarding mis-selling of mutual funds.

What is the agenda for the next 5-10 years? Is it to improve MF penetration?

Yes, that will be our major agenda — improving penetration and investor education. We will have to go to the tier V and tier VI cities and educate them.

We want to communicate to them that they can start a SIP with even ₹100, thus taking MF investments to the bottom of the pyramid.

The penetration in India is very low. While the total number of folios is around 9 crore, folios linked to unique PAN IDs is only 2.5 crore.

Thus, against the total number of PAN cards in the country at 32 crore, the penetration is only 6 per cent.

If we can take it to around 20 per cent, then the number will improve significantly.

What are your views on the recent net outflows from equity MFs?

This is also due to underperformance of equity MFs vis-à-vis their benchmarks.

I think this is not a trend. Essentially, those who invested earlier are booking profits and those who entered recently are finding that they are unable to make money; such people are also exiting.

It’s because the Sensex has gone up almost 40 per cent since March and within the Sensex also, only two stocks are moving up — RIL and HDFC Bank.

Mutual funds are unable to mimic the Sensex’s performance because they cannot hold more than 10 per cent in a stock in a particular scheme, whereas the weight of RIL in the Sensex is 17 per cent and that of HDFC Bank is over 10 per cent.

Is AMFI doing anything to promote passive funds? There aren’t too many available in India compared with other countries.

As of now, passive funds account for around 6 per cent of the overall AUM. Maybe, over the next five years, their share may increase to 12 per cent.

But active funds will remain. Because there is enough potential to generate alpha in Indian markets to help fund managers give superior returns.

There may be phases of underperformance, but over the long term, the mutual fund industry has delivered superior returns.

We will definitely track the developed economies where passive funds account for equal or greater proportion than active funds. We move towards that over a period of time, but not in immediate future.

The regulatory difference between insurance and MFs has made many distributors leave MF distribution and move to selling insurance. Is that hurting the industry’s growth?

Even now, the MF industry is quite small at ₹28-lakh crore compared with bank fixed deposits of ₹130-lakh crore. If it has to grow, then the industry has to be tightly regulated in order to build investor trust. Distributors can do both insurance and mutual funds together, so that they can offer a boutique of products.

In insurance, they are a tied agent, ie, they can sell the products of only one company, which may not be suitable for the needs of an investor, thus leading to mis-selling. With MFs, a distributor can sell the products of all 44 AMCs, thus offering a large boutique to investors.

On the commission side, insurance seems more attractive with first-year commission almost at 30 per cent of premium, whereas with mutual funds, they get hardly 1 per cent. But in MFs, the commissions are on a trail basis and annuity keeps coming. So, it’s good to distribute both together.

What were the actions taken by AMFI in the recent Franklin Templeton debt fund issue?

You would have seen that all office-bearers of AMFI were quick to come on television and through print media to assuage investor fears. Specific AMCs also communicated, and fortunately things are now back to normal as far as debt fund inflows go.

We also addressed all distributors, educated them on how to look at the episode, how not to spread false rumours, and these measures have helped. Since the episode is AMC-specific and not an industry-wide issue, there is little that AMFI can do directly here.

There is this recent trend of investors directly investing in stocks, trading, etc. What are you doing about this?

We are educating investors to begin their investing journey through mutual funds and then to go on to direct stock-investing. Unfortunately, with people working from home, they have free time on their hands and they are doing day trading from home.

And there are agencies calling people to give stock trading tips, etc. I myself have been getting such calls. Investors need to be wary of such calls and SMSes.

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