'Retail investors are very risk averse'

Fiscal 2014 has been rather lacklustre for mutual fund (MF) investors in India till now. The April-October period saw investor accounts (measured in terms of folios) decline by almost Rs 20.70 lakh to Rs 4.07 crore as on October 31, 2013, from 4.28 crore at the beginning of the year.

The Rs 8.34 lakh crore (assets under management, or AUMs) business comprising 44 mutual fund houses saw investors booking profits on their investments and not evincing much interest in taking fresh positions, especially in equity schemes; investor accounts here dropped to Rs 3.06 crore by October end as against Rs 3.32 crore in April 2013.

The MF sector offers about 1,330 schemes, with about 890 being debt-linked, and the remaining 340 schemes predominantly investing in equities. The sector is likely to evoke lukewarm response from investors in the near future, given the low GDP growth rate in the first two quarters this fiscal and no visible signs of significant recovery in the next two quarters.

The remain months will be marked by uncertainty induced by the run-up to the general elections in May next year, says Chief Investment Officer (Equity - India) at Franklin Templeton Asset Management (India), K N Sivasubramanian, in a conversation with S V Krishnamachari of Deccan Herald. He also shares his views on discerning trends among retail investors and reasons for inflows continuing to be skewed in favour of the five major cities of India.

How has the MF business been trending over the past few years?

The MF business in India started around 1993 and in the last 20 years, there has been a big change, in terms of perception and the way MF schemes are sold. Today, there are many intermediaries selling MF units.

The buzz these days is about the upcoming general elections and its impact on policy making, economic reforms, stock markets and investments. What is your view?

Frankly speaking, in the long run, who wins or which party forms government will be less and less important, because reforms are now accepted by all parties, barring the Left.

However, there will be uncertainty (for some months) induced by the general elections due next year.

Have you spotted any trend in investment patterns by retail investors?

In the past four years, they have become extremely risk averse, post the correction in stock markets in 2008 and 2009. They have stopped bulk investments in equities.

Have retail investors gained from their investments in equity schemes, given the volatile movements in the stock markets?

Equity schemes are long-term products, not to be looked seen from one or two years’ perspective. Also, the longer one stays with them, the better it is for him. And the best way to beat volatility is through systematic investment plans.

Many fund houses that launched global funds have done well with some of them delivering more than 30 per cent returns in the past one year. The same is not the case with investments in India. Does that mean that the so-called India growth story is all but over?

No, not really. The industry wants to give choice to investors by offering them opportunities outside India. The long-term growth story for India is there, but from a diversification standpoint, fund houses are giving more options.

What other discerning trend have you seen among retail investors?

Earlier, they used to make one-time bulk investments and then forget them. That has changed, as many of them are following the markets now. There has also been a pickup in systematic investment plans, urban professionals are increasingly building their wealth profiles through this route.

Equity schemes form just about 30 per cent of the total AUMs in MF business. How is it at your end?

It more or less mirrors the overall position, with more inflows coming into the fixed income segment. Our AUMs at the end of September stood at Rs 44,000 crore from approximately two million investors. Equity schemes accounted for about Rs 14,000 crore.

Data gleaned from your website reveal that about 72 per cent of inflows are from the top five Indian cities, while Tier-I and Tier-II cities have negligible participation. What are the reasons?

Yes, it is true that the top five cities contribute the maximum, it is more or less the case for many fund houses. The reason being that though rural prosperity has been on the rise, encouraging rural people to look beyond traditional asset classes is going to take some time. Most rural households tend to lock up their investments in real estate and gold. Of course, we are trying to reach out to rural investors in various ways, but it will take time.

Where do you see the Sensex going by March next year? How will that affect your investment decisions?

It’s tough to hazard a guess, though most of the bad news has been factored in. We don’t have a top-down approach, instead we look at individual stocks and take a call.