IDBI Asset Management Company Limited, a 100 per cent 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 industry to go beyond the top 15 cities in the country while allowing the industry to charge an additional 30 basis points of expenses ratio for doing that, besides increasing the retail investor portion in IPOs.
The retail investors at large are wary of investing in mutual funds whose returns are closely linked to the performance of capital markets. But, one 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 Asset Management Company.
“Unfortunately, everyone in India has taken mutual fund investments to be essentially a surrogate of equity investments. But if you really look at it, mutual funds are very good debt products where the return is more than the deposits or the FDs of companies,” he said.
Debt products would be a key strategy to go after retail investors as the post tax return on mutual fund 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 mutual fund industry will undergo a significant change as retail focus not only dilutes the relevance of corporate products but would also bring a lot of innovation and quality in services to capture the new market. The regulator's effort to take the industry to retail investor is the only way in which the industry can survive and sustain, Mallick said.
In his view, the perception about mutual funds is flawed because the retail investor is not aware of debt opportunities in such funds. Retail investors find schemes like dynamic bond fund, short-term bond fund or liquid fund and ultra short-term funds attractive as they invest only in market-related securities, which are safe, give higher post tax returns and there is no lock-in period.
Incidentally, the current portfolio of IDBI AMC, which has Rs 6,200 crore 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 the products that gives returns in shorter, middle and longer term.
To launch gilt fund next month
IDBI mutual fund 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 ten products, of which 3 are equity products, 2 gold and the remaining debt products.