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"Mutual funds have graduated into a reliable investment avenue" - Views on News from Equitymaster
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  • Jul 7, 2000

    "Mutual funds have graduated into a reliable investment avenue"

    If there is one thing Mr Niamatullah, does not lack, it is experience in mutual funds. His association with the industry has seen him function in various capacities as a Director on AMFI, a member on the Index Committee of Bombay Stock Exchange, a member on the Advisory Committee of SEBI for mutual funds, a Director on The India Magnum Fund, managed jointly by SBI and Morgan Stanley. He is currently the Managing Director of SBI Mutual Funds.

    In an interview to personalfn.com Mr Niamatullah aired his views on the mutual fund industry and its metamorphoses into a reliable investment option. He then elaborated on the performance of SBI MF's funds vis--vis its peers giving the impression that SBI MF is very much in the topmost bracket of mutual fund players.

    PFN: How do you find the mutual fund environment in the country at present?

    Mr. Niamatullah: Over the years, mutual funds have graduated into becoming a reliable investment avenue. Initially apart from equity markets, we had banks (nationalised and foreign) for deposits, corporate deposits, non-banking financial companies. Investors who had fallen for the promise of high interest rates made by NBFCs burnt their fingers. Other investment avenues like company and bank FDs was not very attractive either. So mutual funds became a very attractive investment avenue for the investor. However, not all investors have taken to mutual funds. Only a section of investors that has knowledge and understanding about mutual funds have evinced interest in it.

    PFN: Where is SBI Mutual Fund placed in terms of size, returns vis--vis the others?

    Mr. Niamatullah: We are among the leading five mutual funds in the country. We are also among the top five in terms of returns. Over last year, our schemes have done better than others in the three main segments - equity, balanced and sectoral.

    In addition to the returns, we also have high service standards. It is our constant endeavour to improve our service levels. With this objective we have changed the registrars in several of our schemes to enhance our service.

    PFN: Last year SBI MF came with a slew of sectoral funds - pharma, FMCG. Both these funds are below par currently. On hindsight, do you think the decision to launch these funds were ambitious?

    Mr. Niamatullah: No the decision to launch these funds were not ambitious. But given that they are sectoral funds, they are bound to fluctuate in line with the performance of the sector. This is the difference between a diversified growth fund and a sectoral fund. A sector has its ups and downs and the NAV reflects that. These sectors are pretty defensive compared to IT. So even if the upside is limited (when compared to IT), the downside is also limited.

    PFN: If you had to launch a sectoral fund today, which sector would you look at?

    Mr. Niamatullah: The IT sector is certainly the most attractive. It has given (annual) growth of over 50%, which is much more than pharma and FMCG.

    PFN: What new products do you on the anvil?

    Mr. Niamatullah: We have all mutual fund products in our product portfolio. We have a growth fund - two of them (Magnum Equity and Multiplier 1993), sectoral funds (Pharma, FMCG, Contra) income fund (Liquibond Income), an ELSS (Taxgain). Currently we don't have a gilt fund, which would then make our product portfolio complete.

    There were some reports last week to the effect that SBI MF is considering a tie-up with a foreign partner. How far are these reports credible? We have no comments on this issue. We certainly did not release any information to that effect and we have no idea about the source of such reports.

    PFN: Now that trading in derivatives has been permitted, do you see mutual funds participating actively in it?

    Mr. Niamatullah: We have to develop guidelines internally to see how we can best utilise derivatives as a hedging tool. Moreover I think the NSE is working on a software to facilitate trading in derivatives. Once the guidelines and the software are in place, we will definitely look at derivatives as a hedging tool.

    PFN: How do you find the idea of an investment rating system for mutual funds?

    Mr. Niamatullah: I am not sure if it's a feasible exercise given that portfolios change frequently. We have rankings for mutual funds based over periods (like 1 month, 3 months, 12 months).

    PFN: Why has SBI MF not leveraged State Bank's network for marketing its schemes?

    Mr. Niamatullah: Marketing of mutual funds requires a dedicated effort. I don't think State Bank wanted to get into that. I don't think the bank ever saw it as a non-fund based revenue generator. Moreover, marketing of mutual funds by banks is a relatively recent phenomenon where mainly foreign banks like HSBC and Stanchart have been in the forefront. Other banks like ICICI Bank and HDFC Bank have also started marketing mutual funds actively.



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