Retail investors have stayed away from mutual funds. V Shankar, founder of Computer Age Management Services (CAMS) feels that this is due to the lack of a long-term view on the part of both investors and fund houses. He is currently is the Director of Acsys Investments.

Retail participation in the equity and debt market is quite low. What do you think will help increase this?

I think that part of the problem is that prices are known daily and investors experience volatility. Unlike buying a plot where you do not look at the price every quarter or even every year, people panic and exit the market on seeing prices fall.

Also, funds have to find ways to reward brokers based on how long the customers stay. Every step, every relationship should be focussed on longevity. Advisors must also focus on attracting sticky customers.

Would any new product help increase retail interest?

There are only eight or ten different portfolios that one can put together with equities. In fact, there are now too many products and their names do not always reflect the fund’s current strategy. What may help is to grade the equity products into finer categories based on risk.

For example, index-mimicking funds can be graded as lower risk compared to those that take specific bets.

Funds must also do more marketing to attract small retail investors to fixed income funds. They must take a long-term view and focus on increasing their retail fixed income customer base from 10,000 to 20 lakh.

What are the costs for investors in mutual funds?

A mutual fund account never had a paper certificate and was always in the demat form. This itself resulted in a lot of savings, as there tends to be a large overhead for handling, replacing and validating paper certificates.

Also, the equity market has an expensive system of settlement due to the need to manage counter-party risk. There is no such risk in a mutual fund. You also do not have any intermediary in the redemption process.

If you look at other countries, it may take even eight days to redeem a money market fund. Our level of liquidity and response time is extraordinary.

Do you see any conflict of interest issue for financial intermediaries?

Being an agent of the fund house and advising the client is always an untenable position. So there is conflict of interest. To avoid that, you need customers who are willing to pay for advisory service.

Unfortunately, we have are clients who are used to being paid by the advisors. This model needs to be turned around, but it will not happen overnight.

Here, mutual funds have a role to play in educating customers. Funds should elevate the role of intermediaries so that customers see the value of advisory service.

Based on the experience of processing fund applications, what are the common errors found?

Forms are filled in cursive handwriting. This is hard to understand and is therefore error-prone.

Handwriting reading technology is not greatly advanced, so there is a lot of manual work involved in reading and interpreting each item.

We also do some automated checks based on earlier recorded data for a customer, to detect errors.

What are the investor complaints you receive often?

Investors are now getting a lot more comfortable with the status of their investments since they get regular emails and SMS communication.

But a common issue is with SIP payments where the bank debit fails. We send a notification to the customer that the transaction has failed. If the customer wants to reinitiate the process, it has to be taken up with the bank.

What are your personal investments?

I own a few properties which were bought a long time ago. Given our demographics, property prices are likely to grow on par with or above inflation.

But I believe the best returns can be obtained only from equity investments. My investments are primarily in mutual funds.

I invest in debt funds and focussed equity funds such as small-cap or mid-cap funds. For the large-cap exposure, I prefer to buy individual stocks and hold them.

I am also not in favour of gold as an investment. The appreciation we witnessed was due to the asset getting re-rated and it is not likely to repeat.

And finally, I have been an angel investor for over four years and I am now part of the Chennai Angels Network. Angel investments by value form a small part of my portfolio.

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