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"We would like the Indian mutual fund industry to be second to none" - Views on News from Equitymaster
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  • Jun 8, 2000

    "We would like the Indian mutual fund industry to be second to none"

    Mr A. P. Kurian is an old RBI and UTI hand, having held senior positions in both these organisations. He did his masters is Economics and Statistics (with a rank) before he joined the RBI as a Research Officer. He was instrumental in setting up UTI's marketing setup involving over 30 schemes. Given his varied experiance in financial services, it is not surprising that he finds himself on the board of several companies. Currently he is the Chairman of AMFI and a Commonwealth Secretariat Consultant.

    In an interview with personalfn.com (PFN) he spoke at lenght about AMFI's role in the mutual fund industry and its efforts to improve standards across the board.

    PFN: What is the role of the Association of Mutual Funds of India (AMFI) in the domestic mutual fund industry?

    Mr. Kurian: AMFI is the representative body of all mutual funds in the country including the Unit Trust of India (UTI). It commenced operations in 1996-97. Over the years AMFI's most significant achievement has been to cement a very strong relationship with the Securities and Exchange Board of India (SEBI). Over the years SEBI and AMFI have framed policies and guidelines for the mutual fund industry. We are grateful to SEBI for giving us the opportunity to work so closely with them.

    Our second critical role has been to introduce a certain degree of professionalism in all areas of mutual funds be it, accounting, disclosure, communication, publication, advertising, marketing. All these functions have international standards and we would like to be second to none. In fact in most of these functions we have already scaled international standards, with some exceptions in areas like valuation of illiquid stocks, valuations of unlisted debt. Of course, this is an ongoing process and changes cannot be expected to happen overnight.

    Our third area of focus is to promote mutual funds as an alternative investment avenue. We try to educate investors about mutual funds and how they differ from bank deposits, post office investments and national savings certificate. Mutual funds follow a risk/return pattern and can fluctuate in line with the markets.

    Another important function that we fulfill is training the intermediaries and agents. We have conducted seminars across the country to serve this purpose. We are now graduating to the next level by introducing certified courses for agents. Agents can take an online test after studying from our self-study material. Those who are not computer savvy can take a written test.

    Then we publish a compendium, listing all mutual funds with details of their schemes, board of trustees. We also publish data on the mutual fund industry on a monthly and quarterly basis containing an update on SEBI regulations, inflow and outflow figures, assets under management, new schemes.

    We also make an attempt to study the mutual fund industry in other countries and see how positive points in that market can be used in the Indian context. In fact recently I led a delegation of Indian mutual funds for a South-East Asian regional conference. We have ongoing relations with representatives of mutual fund industries in several countries.

    PFN: Although AMFI and SEBI work so closely, at times one finds certain discrepancies between the two data sources. How do you explain this discrepancy?

    Mr. Kurian: Mutual funds give data to SEBI on an aggregate basis. Often SEBI's data is quick estimates. On the other hand AMFI's data is more detailed and gives a break-up into growth, income, ELSS. So sometimes one may find some differences, but they are minor.

    PFN: Over the years, how has investor perception towards mutual funds evolved?

    Mr. Kurian: The period from 1994-97 was not a good period for the industry as NAVs of mutual fund schemes was down. Most of the schemes launched in this period were close-ended and were listed on stock exchanges. And in line with the phenomenon affecting close-ended listed schemes world-over, these schemes traded at a huge discount to their NAVs. A lot of these schemes had invested in initial public offerings (IPOs), which were the rage in that period. And as these IPOs crashed later, the NAVs of these schemes also declined.

    1997 marked a turnaround in the fortunes of the industry with the entry of several international players with substantial experience. This improved the standards of disclosure, accounting, reporting, regulations in the industry. 1998-99 was the big year when markets went up significantly and led to improved inflows in mutual funds. The dark clouds that hovered over the industry withered away, so to speak.

    PFN: Does AMFI find the ministry of finance (MoF) responsive to its suggestions/recommendations?

    Mr. Kurian: Our relationship with the MoF is not as strong as our relationship with SEBI. The MoF is linked to the government and somehow we cannot be expected to enjoy the same kind of rapport with them as we do with SEBI, which is an autonomous body. However, the MoF has done its bit to boost interest in MFs over years. We have Sections 88 (rebate), 48, 112 (indexation) that have benefited investors. (Sections 54EA/EB are effective only up to September 30, 2000)

    PFN: What is your view on the 11% rise in effective tax on dividends?

    Mr. Kurian: I think that has been the biggest disappointment in the last budget for the mutual fund industry. We have spoken to MoF about it. We held the view that the revised 22% dividend tax should be only for new income schemes and not for existing income schemes (as in the case of UTI). By doing this they were penalising the existing investors in these schemes. But MoF did not agree with us.

    PFN: What do you have to say about certain unhealthy trends in the industry like dividend stripping?

    Mr. Kurian: Dividend stripping per se, cannot be punished as there is no law against it. But it is a serious problem plaguing the industry. Mutual funds are affected by the sudden inflows followed by the equally dramatic outflows from their schemes.

    PFN: By investing heavily in technology stocks, at times fund managers have changed the basic nature of the fund, defeating the objective of diversification. What are your views on this development?

    Mr. Kurian: Basically we need to understand the investment objective of a growth fund, which is capital appreciation. A fund manager is going to try his best to achieve that objective. If he feels that investments in technology stocks are going to help him post capital appreciation he will make those investments. Similarly if tomorrow he feels that FMCG stocks are going to help him achieve that objective, he will invest in the FMCG sector.

    PFN: A lot of investors have seen their NAVs erode significantly in the last few months and this has disillusioned the retail investor. In the aftermath of this, what is your advice to the mutual fund investors?

    Mr. Kurian: Investors need to define their investment objective and investment horizon very clearly before taking an investment decision. If they wish to invest in a technology fund or a growth fund they must understand the risk-return concept associated with these funds. Basically growth funds are linked to the markets and this means that their NAVs could rise or fall in line with the markets and this could have a serious impact on the returns.

    PFN: Who are the three people who have influenced your life the most?

    Mr. Kurian: After God, I would say my mother has had the most profound impact on me in moulding me as a person and developing me as whatever I am today as a person with all my weakness and strengths.

    To have made me a professional and to have enabled me to work and achieve, the most important person who has influenced me is Mr G. S. Patel.



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