Active funds still have a big role to play

SBI Mutual Fund is planning to leverage its Magnum brand name for launching Specialised Investment Fund (SIF), said CEO D P Singh. He tells Ananya Grover that active funds still have a big role to play in Indian markets. Excerpts:

Is the SIF branding rule a disadvantage?

They do pose challenges, as a significant amount of time and investment will need to be allocated on promoting the brand itself. It would have been better, if we were allowed to use our own. However, the market regulator wanted investors to understand the difference because this is definitely a high-risk product. If there is any overlap, it will become a problem. 

We have a strong team and are planning to launch offerings in the equity strategy. We’ll be using the name Magnum. At SBI Mutual Fund, many of our initial offerings were branded as Magnum and enjoyed high recall among investors, who often referred to their investments as “Magnums” rather than individual fund names.

Are you seeing an increased preference towards passive funds?

Today the total AUM of passive funds is around Rs 11 lakh crore, out of that around Rs 4-4.5 lakh crore comes through the so-called fiduciary investments like superannuation funds, insurance companies, family offices etc. who want to participate in the equity market by not taking the fund manager risk. Individual investors have not yet joined the bandwagon in a big way. Maybe going forward, active and passive will work together and both will grow.

How should an investor choose between active and passive?

Generally, whenever some fund manager says that active investing still has a lot of role to play, it is seen to be self-serving, but if you ask me today 95% of my personal portfolio is in active funds only. And that is because we feel that in India we are at a stage where there is a lot of opportunity to create alpha over and above market growth. 

Once the market matures in a big way, the way it has in the US, then passive will play a much bigger role. From an investor’s point of view, it does make good sense to have some participation in smart beta products. This is because they are cost-efficient and eliminate the need to be concerned with anything beyond market movements. 

How has the response been to JanNivesh– the 250-rupee SIP? 

Today, all the benefits of India’s growth are going to either the affluent people or foreigners. We want all citizens to participate in the growth journey. We have more than 100,000 SIPs registered already, but I think the potential is much more. The constraints in onboarding millions of new investors currently are the higher acquisition cost and remunerating the intermediaries as per existing rules, as that does not align with the efforts. The whole industry is working on building robust digital tools. We want to have more and more people for economic viability. As industry leaders, we are not concerned about economic viability as there is a lot of potential but even at the current level of participation, we are not operating at a loss.

There are concerns these days about the negative performance of many schemes.  Have things become more difficult?

The equity cycle should never be seen in terms of one year, it has to be three years. There can always be underperformances in short periods but mutual fund investment has to be minimum three to five years because of the volatility factor in the short term. If we look at a three-year period, I don’t think anybody is sitting on losses. While the market has fallen, it is making a strong comeback. I don’t think there is a big concern. 

The regulator is planning to ease 24-B rules for the mutual fund industry. What are you expecting? 

This is a very heartening development for the industry. There are many peripheral activities that AMCs are capable of handling but are restricted from undertaking without seeking specific approvals—rules that were introduced when the industry was still in its infancy. Given the current stage of the industry, with mutual funds now a mainstream investment option rather than a niche offering, I believe this is a very positive and timely step. 

Where should investors put their money? 

Multi-asset allocation due their whole market scenario approach.  Our portfolio has quality debt papers where recovery is visible. We have put almost 20% in silver and gold. Just before the recent correction in gold happened, we were 17% allocated to gold. Anticipating the movement, we reduced our exposure to gold and reallocated a significant portion to silver. But this may not be the way it will always happen.