AMFI CEO on new players entering MF space | Economic Times

There is scope to do more to ensure a level playing field for mutual funds so that these can become a viable savings option for more people, N.S. Venkatesh CEO, Association of Mutual Funds in India (AMFI) tells Sanket Dhanorkar of ET Wealth.As a self-regulatory organisation, what role is AMFI playing to prevent mishaps and maintain investor trust?AMFI has always played an active role— whether it is to help the industry whenever any new regulations or guidelines are introduced or to ensure best practices. We keep liaising with the regulator and government on behalf of the industry. If some mishaps occurred along the way, we have been the first to step in and look closely at that incident and ensure these don’t recur. If it requires better risk management practices, for instance, we give our inputs and guide the AMCs to put it together. Sebi has always involved AMFI in such discussions. We believe we are contributing to the industry growth in an orderly manner while keeping the investor at the forefront. We are aware that the trust of investors is paramount for the industry to grow at a rapid pace.What is your take on the concept of ‘skin in the game’ in mutual funds?The mutual fund industry has already had this is in place for a long time. AMCs have been investing their own money in their funds. So fund managers already had their skin in the game for many years. It is not as if this is a new concept for the industry. But there are certain nuances in what the regulator has prescribed so we are examining the finer aspects in the circular. Otherwise, the industry is well prepared to meet the requirements. The industry has always been compliant on the regulatory front.MFs today have emerged as a competitive savings option. Do you feel more parity is still needed with other options in terms of regulations or taxes?We have been engaging with the regulator as well as the finance ministry about bringing a level playing field between mutual funds and other products like Ulips. We have seen some efforts in this direction already in this year’s Budget, with tax introduced on high-value Ulips. This goes some way in bringing parity with MFs, but we feel more can be done in this regard. Sebi has always kept the investor’s interests at the forefront and regulatory changes in MFs over the years have revolved around this. Whether it is in terms of disclosures, expense ratios, risk practices etc, the regulator has been very proactive. Compared to that, the insurance regulator needs to catch up. More regulations can be introduced in this area to prevent instances of misselling, for instance.Mutual funds have been attracting first time investors but many have also shown preference for direct equities. How is the industry addressing this gap?We have observed that mutual fund investments are generally preferred for the longer term. Direct equities are for more short-term opportunities in the form of trading. Mutual funds have been positioned as a vehicle for wealth creation at a very low cost. This is well understood by knowledgeable investors. That is why MFs continue to attract inflows and the industry has recorded the highest ever assets under management last month. We continue to see new folios being opened every month. We have added around 20 lakh new investors into the MF fold over the past months. Both mutual fund and direct equity investments are co-existing. Those with medium-long term time horizon remain invested in MFs.How do you view the rising trend of flows to passive funds?This an encouraging trend. Even globally, the passive segment has grown at a fast clip. In India, it still a fraction of the total asset management pie. But it has been showing good traction in recent years. Passive investing is for those who rather not bet on active management but instead put money on the index and fetch returns in line with the market. Since these have much lower costs, it is a good option for those who are particular about keeping expenses low. This doesn’t take anything away from the active management space. The expansion of the passive segment is not purely triggered by underperformance in active funds. It is simply a mindset of the investor if he wants to bet on the index or look for index-beating returns. Some are more comfortable investing in a wider basket of stocks instead of selectively picking from active funds. Some of the passive flows are also owing to the money coming from EPFO and pension funds. There still remains enough scope for active fund managers to create alpha. Both strategies are coexisting. But over a longer period of time, as more investors enter the mutual fund fold, the passive space will start showing a faster pace of growth.What do you expect multiple new players with diverse backgrounds to bring to the table?New entrants are welcome as it fosters a competitive spirit within the industry. These players will bring a diverse set of ideas. For instance, a distributor outfit entering the asset management space is in touch with the last mile of investors. It will perhaps have a better understanding of the investors’ preferences and thought process and will bring products catering to their specific needs. Other entrants will adapt newer technologies that will bring down cost of operations which could be passed on to the investor. So entry of players with different backgrounds is ultimately beneficial for the investors.