'Demonetisation has increased deposit-base for mutual funds'

With real estate prices dipping post the demonetisation announcement by the Modi government, alternate financial asset classes including mutual funds are attracting much more investors.

In perhaps his first full-fledged interview after taking over as the chairman of the Association for Mutual Funds in India (AMFI), A Balasubramanian, who is also the chief executive officer of Birla Sun Life Mutual Fund, talks to Benny Antony of DH about the Budget, growth expectations for the industry and the likely impact of Goods and Services Tax  (GST) on the industry.

How do you feel the Budget has gone for the industry as a whole?

From the industry’s point of view, it is more or less a status quo. Overall, not touching the Long Term Capital Gains (LTCG) tax against the general expectation which was there, was good. Overall, it’s good for the mutual fund industry. I would rate it 8/10.

What were some of the positives for the MF industry from the Budget?

The Budget has given some clarification on consolidation of schemes and some clarity on equity-linked savings schemes (ELSS). Secondly, the finance minister has mentioned in his Budget speech that the government will add more securities under section 54 EE which they have introduced this year for exemption of tax on capital gains arising out of sale of real estate assets. I presume they will add mutual fund securities also in that.

AUMs (Assets under Management) for the mutual fund industry are at an all-time high. What predictions do you have on this?

Growth in the next three years will be faster as far as the industry is concerned. Demonetisation has actually increased the deposit-base and as a percentage the deposits or credit growth is low and it will remain low for some time. Therefore, investors will start looking at mutual funds as another big product. I will not be surprised if it grows above Rs 25 lakh crore in the next one year.

Secondly, I also see industry growth going up significantly, as now for the first time, people are saying that real estate is not getting sold in the country. Gold is not going anywhere. Therefore, now a common investor, who used to invest in real estate only as an investment, now is realising the importance of other asset classes. Therefore, incremental investments will not go into these asset classes, they will go into the financial asset class, therefore mutual funds should grow.

What is the investor-base on a whole, as far as the mutual fund industry is concerned, and how do you see it going forward, and what are your plans to increase it?

The industry has around 5.2 crore folios. Roughly two crore folios are having unique PAN numbers and the new folio base in the next two to three years in my view should cross five crore investors. Each year, we add around 80 lakh investors. I think we should be able to touch five crore unique customer-base by end of 2019.

Even the industry itself will go for increasing the customer-base. Today, the industry is getting around Rs 3,900 crore per month from systematic investment plans (SIPs), which should grow to around Rs 10,000 crore in the next few years. Each year, this number will go up by around 25%.

What will be impact of GST on the industry ?

GST should be neutral for the MF industry, except that it will increase the cost of compliance. If GST does not give a one-stop resolution for all the states, and then in each state, we have to maintain both the books of accounts and records, then we have to invest on people. Otherwise, the impact on the financials is neutral.

Sebi has allowed investment by mutual funds into Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs). What is your view on it? Also, what is your take on celebrity endorsements?

Allowing MF investments in INvITs and REITs is a very good move. It is a new asset class that is emerging and it is beneficial. Any new asset class is always a welcome step and it is one of the other instruments in which we can make investments now. As far as celebrity endorsements are concerned, those are the recommendations that have gone from the AMFI committee. Celebrities coming in will create MFs as a big category and that will create a huge pull.

What are some of the roadblocks to mutual fund selling through ecommerce platforms?

Some of the issues include questions like how will you do the E-KYC, and how will you do the customer suitability. This is something which cannot be fixed on the ecommerce platform. When the time for robo advisory will come, this problem is likely to be solved but that will take some time. One good thing that has happened is that due to demonetisation, adoption to digital platforms has gone up significantly. People are willing to adopt it and are willing to act. So this is the time for ecommerce companies to get active on financial products.

There has been some relaxation in tax slabs when it comes to personal income tax. Do you see that income coming into mutual funds by any chance?

Not really. In my view, it will boost the consumption among the masses. If people get more money, they will use the excess to pay home loan, EMIs or for buying consumer discretionary items. But for the first time, the Budget has brought in the topic of illegal money fund raisers, which is basically on Ponzi schemes. It means that they will be strict about Ponzi schemes getting money in many parts of the country. That money may get diverted into mutual funds or many other asset classes or financial products.