The mutual fund industry wants a level playing field on tax treatment for long-term investment vehicles across product classes, such as pension, insurance and mutual funds. That was the consensus at the Business Standard Fund Cafe held in Mumbai on Thursday.
The heads of six mutual funds said that similar tax treatment for mutual funds would enhance investor participation in the industry and increase the four per cent share of mutual funds in the overall household savings pie.
“Irrespective of the time frame of the investment product, it should get the same tax treatment,” said Milind Barve, managing director (MD), HDFC AMC. “Nothing incentivises investors more than taxes to invest,” he added.
| Milind Barve |
MD, HDFC Mutual Fund
“The Rs 10 crore entry barrier is too low, but if the fund is backed by institutions, domestic or international, they would be serious about creating a long-term business model which helps all stakeholders“
| Sundeep Sikka |
CEO, Reliance Mutual Fund
“Given the US example, where there are a number of niche AMCs, there is a case for a hundred AMCs in the country and the industry is likely to grow four to five times in the next 10 years“
| Nimesh Shah |
MD & CEO, ICICI Prudential AMC
“Irrespective of the environment over the past five years, relative outperformers have continued to get money into the funds “
| A Balasubramanian |
CEO, Birla Sun Life AMC
“Some players are selling out to others, but there are new guys who are seeing great potential. That's the trend we could see, going forward. The industry is evolving”
| Jaideep Bhattacharya |
MD, Baroda Pioneer AMC
“There is a mismatch between the expectations of manufacturers and investors. We need to move away from NAV-based selling to
| R Venkataraman |
“The industry is at a point of inflection because regulatory uncertainty has been removed. It is the right time to educate investors about the long-term nature and discipline in investments”
A Balasubramanian, chief executive officer (CEO) for Birla Sun Life AMC, said 401 K plans in the US had helped the mutual fund industry become a bigger player than that country’s bank savings sector. If a similar model was implemented in India, it would help investors create wealth and income streams on a long term basis, he added.
In addition to this, access to insurance investments was another key area which will ensure growth, said Jaideep Bhattacharya, MD, Baroda Pioneer AMC. Giving an example, he said 40 per cent of assets under management (AUM) in the US came from retirement assets. “Unless the Indian mutual fund sector has access to that we might not have the growth we are looking at,” he said.
On Sebi’s initiative to promote mutual funds in smaller cities and towns, participants said given the wealth creation, investors in these areas should also have access to the products and services offered by the mutual fund industry. Currently, over 71 per cent of AUM comes from the top 15 cities.
Moreover, there were benefits of going to smaller cities, said Bhattacharya of Baroda Pioneer, “ The churn rates in non-metros are lower leading to lower volatility in portfolios and the cost of acquisition is non-metros is much lower than in bigger cities.”
On the issue of underperformance of the equity mutual funds in the recent past, Sundeep Sikka, CEO, Reliance Mutual Fund, said investors should not get carried away by short-term returns. “Investors should look at the record of the fund managers and fund houses, especially the performance over different market cycles.”
On the issue of equities being the preferred asset class, Bhattacharya said not too many asset classes have been able to match the 14-16 per cent average returns over the last 25 years.
R Venkataraman, MD IIFL, said there was a need to educate investors about risk adjusted returns instead of absolute returns from a scheme. While most investors said their investments were long term in nature, their behaviour indicated a short term focus as they continue to track prices.
On the issue of low entry barrier, Balasubramanian said this was the only industry with such a requirement but it also had a pass-through effect. This meant that the risk in the portfolios were borne by the investors.
However, Barve said the pass-through was applicable for the equity schemes but not so much for debt as in the case of a default or investments going bad, it had to be made good by the sponsors/asset management companies.