IDBI Asset Management Company, a fully owned subsidiary of IDBI Bank, is formulating a strategy around debt products for expanding its retail investor base, in the light of the recent guidelines by the Securities and Exchange Board of India (Sebi).
Sebi had asked the mutual fund sector to go beyond the top 15 cities in the country while allowing it to charge an additional 30 basis points of expenses ratio for doing so, besides increasing the retail investor portion in Initial Public Offers.
Retail investors are wary of investing in MFs, whose returns are closely linked to the performance of capital markets. A sure way of winning them over would be to change their perception through debt products, according to Debashish Mallick, managing director and chief executive officer of IDBI AMC.
“Unfortunately, everyone in India has taken MF investments to be essentially a surrogate of equity investments. But if you really look at it, MFs are very good debt products, where the return is more than the fixed deposits of companies,” he said.
Debt products would be a key strategy to go after retail investors, as the post- tax return on MF debt schemes is much better and they offer a fairly decent and stable return that has got nothing to do with market fluctuations, he said.
With the Sebi guidelines, the MF sector would undergo a significant change, as a retail focus not only dilutes the relevance of corporate products but would also bring innovation and quality in services to capture the new market. The regulator's effort to take the sector to the retail investor is the only way in which the industry can survive and sustain, Mallick said.
He says the retail investor is not aware of debt opportunities in such funds. Retail investors find schemes like a dynamic bond fund, a short-term bond fund or a liquid fund or ultra short-term funds attractive, as these invest only in market-related securities, which are safe, give higher post-tax returns and there is no lock-in period.
The portfolio of IDBI AMC, which has Rs 6,200 crore of assets under its management, is dominated by debt products. Mallick said they had very important and sensible debt products to execute the strategy on the retail front. On larger investment options, the company is trying to order products giving returns in the shorter, middle and longer term.
Gilt fund next month
IDBI MF is launching a guilt fund on December 5. According to Mallick, the fund will invest mostly in Government of India securities and in some state government securities. The company currently offers 10 products, of which three are equity, two are gold and the rest are debt products.