‘Innovation possible in solution-based schemes’

PMS and Alternative Investment Fund are for sophisticated investors, says Ashwin Patni

Ashwin Patni, Head - Products and Fund Manager at Axis Mutual fund, believes that notwithstanding SEBI’s strict scheme categorisation rules, there is scope for innovation in solution-oriented schemes, schemes focused on global markets as well as in PMS and AIF products.

Excerpts from an interview

What does management of a mutual fund product involve?

Product management involves bringing a new product to market as well as managing the existing products.

From a new product perspective, we first try to see what new opportunities are available that investors would want to be part of. Sometimes, there could be a demand for products from distribution partners; we could also consider launching a product based on global or other market trends.

Whatever be the idea, ultimately, we have to check whether it will result in a good quality sustainable portfolio which will remain relevant for a long period of time.

For existing products, we check if it is being run the way it was envisaged; whether the portfolio and performance are aligned in terms of what the objectives are.

Are SEBI’s new scheme categorisation norms stifling innovation?

I am sympathetic to the regulator. The industry has been partly responsible for this move.

This is because there have been cases where products have been launched for no reason other than a business perspective, that is, to get more and more AUMs (assets under management). Over a period of time, it began causing confusion among distributors and investors.

With strict scheme categorisation, SEBI has taken a stand, and rightly so, that it wants all funds to stand for simplicity and does not want any complex strategies. At Axis, we have a compact product portfolio and try to be very relevant.

Of course, if you want to innovate, it can be in other vehicles. At Axis AMC, we, no doubt, run a large MF business.

But over the last two to three years, we have also ventured into the PMS (Portfolio Management Service) and AIF (Alternative Investments Funds).

These are vehicles meant for more sophisticated investors and where SEBI has been more liberal in allowing newer type of strategies. So, going forward, mutual funds will be easy to understand, simple products. We will see minimal launches from the existing large players.

Since the active strategy has been defined and done with to the last detail, would the future lie in bringing out products in the passive category? Also, the fact that outperformance of large-cap funds over passive funds is narrowing may help passive funds...

Indian fund managers have a consistent track record when it comes to delivering alpha over the long term. To answer the second question, there is place for passive funds from a diversification and asset allocation perspective. But I don’t see any significant threat to active funds otherwise.

On the first question, whatever can be done in terms of straight-forward, simple, actively-managed strategies has, by and large, been done.

Going forward, innovations can happen in the category of solution-oriented funds such as children’s education or retirement solutions. Globally, the solutions theme is becoming very relevant.

A second area where we will see innovation in the future is in terms of making the markets available for more broad-based investment. Today, most products focus only on the Indian equity market.

Globally, mutual fund investors do have access to big markets such as US and China. So, it makes a lot of sense for investors of a reasonable size to have access to these markets. This is one area which has not seen much traction on the active side. We are also in the process of identifying something in this space.

Launch of closed-ended funds are happening by the droves. But, from an investor perspective, we don’t think it is a good idea…

You have to separate closed-ended funds on the fixed income and the equity side. On fixed income, the idea came from a fixed deposit type of structure where people lock-in for a specific period and get a specific yield.

Thus, there is a very large and successful FMP market that is very genuine and needed from an investor perspective.

There are two sides to closed-ended equity funds. Suppose we have an idea that may not be relevant beyond two to three years, then one way to manage it is to launch a closed-ended fund and unwind it when the opportunity gets done. However, there is also certain amount of opportunism which came in. In any market, a new fund becomes easier to sell.

So, when SEBI became selective about giving new fund approvals on the open-ended side in the last few years, one of the responses of the industry was to launch closed-ended equity funds. However, as long as people understand what they are getting into, it is not something that is undesirable. It will work for more sophisticated investors.

Is not having good benchmark indices an issue for mutual funds in India?

On the equity side, we have robust traditional market capitalisation-based indices. Globally, there are alternative indices which are non-market cap-based because of the boom in ETFs and passive funds.

While the BSE and the NSE have done some good work on this, to be honest, this is just a bit too early in our market for those type of indices. The challenge is more on the fixed-income side.

There are several issuers, but these instruments don’t trade actively. So, capturing it in the index becomes a problem. Similarly, rebalancing the index when a new issue comes out is also not easy. While some of the challenges come from the way the market is, I believe we could have done a better job on the fixed-income index side.

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