"Even in this market, equity funds are as popular as income funds" - Views on News from Equitymaster

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  • Aug 9, 2001 - "Even in this market, equity funds are as popular as income funds"

"Even in this market, equity funds are as popular as income funds"

Aug 9, 2001

Mr Prem Khatri, VP – Marketing, Pioneer ITI Mutual Fund (earlier Kothari Pioneer) has a rather chequered past. Before joining Pioneer ITI in 1994, he was in State Bank of India (SBI) as Manager - Accounts (1984-89) and later at Lintas (1991-94). Professionally qualified as an MBA from the prestigious Indian Institute of Management (IIM), Bangalore, he is now the driving force behind Pioneer ITI’s marketing initiative. In a brief interview to personalfn, Prem outlined his views on the domestic mutual fund industry, its strengths and how pension funds will be the next best thing for the Indian investor.

PFN: Are you satisfied with the way the domestic mutual fund industry is doing currently? What ails the industry and what are its remedies? What are your comments on the future of the domestic mutual fund industry?

Mr. Khatri: The Indian mutual fund industry has grown at a good pace since it was opened up in 1993. The entry of private sector players like us has ushered new levels of performance, services and transparency. While the industry has a long way to go, we expect it to grow more rapidly and mature at a much faster rate than it has done in the western countries. The litmus test for the industry would be to expand the distribution network to sub-urban and rural areas where most of the small investors live - the challenge would be to educate these investors about the advantages of investing in mutual funds compared to traditional saving instruments. I see the mutual fund industry offering more choices, more value in terms of investment performance, convenience, pricing and emerge as the most preferred investment choice in line with the rest of the world.

PFN: Do you think fund houses are being opportunistic by promoting their income funds now when the markets are weak? Now is the right time to enter equity funds, but there is a surge in income fund collections instead. Does this indicate that the Indian mutual fund investor is not mature enough and will take to equity funds only when the markets are firm?

Mr. Khatri: If the barometer of popular mood is the number of applications, then equity funds draw as many investors as income funds, even in the current markets. You may find it somewhat of a surprise but equity funds accounted for a nearly 60% number of investors who came in mutual funds in the year 2000-2001. This percentage has come down marginally this year.

What leads to this misconception of an overwhelming shift to income funds is the fact that income and cash funds draw a lot of corporates and high net worth individuals who typically put in large sums. The large sum invested relative to equity funds (which draw a more retail response) masks the real picture. So the shift in the preference for income funds is not that dramatic.

At Pioneer ITI, we have seen a fair degree of interest in both categories. In our equity funds in the first 4 months (April to July 2001) of this financial year, we have received nearly 60,000 applications and almost an equal number in income and cash categories. So there are many investors taking advantage of the current downturn in the markets.

Finally, let me put it this way, investors need to reach their financial goals through different asset classes – though the weightages depend on their own preference and situation. And mutual funds offer access to all these asset classes. Sometimes there is a shift in investor preference as a result of market conditions.

PFN: There seems to be a long list of applications with SEBI for index funds. Do you believe that this is the next trend to hit the industry?

Mr. Khatri: Changing market circumstances throw up new opportunities. Moreover, the Indian mutual fund industry is still evolving. So the launch of a slew of products is natural in response to investor demands and an ever-changing investing environment. Given the recent market conditions, index funds would be ideal for investors who are investing in equities for the first time and also act as a hedge in the years when active funds underperform the index.

PFN: What will be the impact of pension funds on the domestic industry?

Mr. Khatri: Till recently, government agencies had been managing retirement funds and giving assured and unsustainably high tax-free returns of 12%. With a sharp reduction in the returns to 9.5%, individuals are now finding that their accumulation at retirement is much less compared to the targeted amount. To bridge this gap, they have to seek out newer opportunities which can deliver higher returns…and this is where professional fund managers such as Pioneer ITI will have a role to play.

Opening up this sector to professional fund managers will not only enhance the performance of the investors nest egg, but would also help in raising service and transparency levels. From the perspective of the industry, growth of pension funds will be a key driver for growth given the long-term nature of such investments and the fact that this category forms a major of chunk of assets of mutual funds the world over.

PFN: Who are the three personalities that have influenced you?

Mr. Khatri: There is a lot I have learnt both personally and professionally in my life through my friends and my colleagues. I have had the good fortune of being surrounded by people willing to share and give and for this I am grateful to many people. But the strongest influence has been that of the Principal of my college where I did my graduation - Fr. Denis Carneiro who had more confidence and faith in my abilities than I ever had.

PFN: What books have left an impact on you?

Mr. Khatri: The books which I am glad to have read the most are :

  • Born to Win by Muriel James and Dorothy Jongeward
      -  An amazingly simple but brilliantly insightful book for anyone trying to understand human behaviour

  • Leave it to Psmith – P.G. Wodehouse
      -  A masterpiece from the king of humour which I must have read at least a 20-30 times!

  • Grapes of Wrath – John Steinbeck
     -  Story telling at its best.

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