Consistent performance, not aggression led growth!
2 Feb 2009
“McKinsey report for mutual fund industry predicts that the growth of asset management industry will out strip the growth of life insurance industry. Today number of players has almost doubled to 36 and share of financial savings is also expected to grow substantially. This way mutual fund is expected to mobilize much bigger share,” says Sushobhan Sarker, Chief Executive, LIC Mutual Fund AMC in a free-wheeling interview with Harsh Roongta and Bienu Vaghela of ApnaInvestment
Having about 30 years of experience in life insurance industry, Mr. Sarker has held many key positions. He has extensive knowledge of both life insurance and investment management. He was associated with the investment department of LIC for nine years (asset base of about US $170 billion) and headed the department for three years. A Post graduate in Financial Management from University of Mumbai, Mr. Sarker is Chief Executive and Whole-time Director of LICMF AMC. He is also on the board of Infrastructure Leasing and Financial Services and The Clearing Corporation of India.
We present here the excerpts encompassing various facets of mutual fund industry:
The government recently announced measures of increased credit availability for various corporates. Do you think these boosters would be able to push the economic growth rate to beyond 7% especially keeping in mind that recession has already hit the US and other developed economies?
We have seen that measures taken by the Government since October 2008 have brought in great normalcy and financial stability in the system. One of the primary objectives of the RBI is to maintain financial stability, which has been achieved already, though it would take sometime before we see actual growth happening. Growth cannot be achieved only by the Monetary Policy of RBI.
Till few years ago mutual funds were not important in one’s personal finance portfolio. Even today it is Rs. 5.25 lakh crore (including equity component). How do you view the scenario upholding for the retail consumer in the times to come?
Unit Trust of India (UTI) introduced mutual funds in India in 1964, which expanded in three stages with SBI coming in 1985-86. Mid-80s’ saw Public Sector Banks and Financial Institutions entering the mutual fund business. LIC Mutual Fund was set up in 1989. At that point in time, the economy was mainly driven by Development Financial Institutions (DFIs) and PSU Banks whereas private sector did not have significant presence.
The economic reforms led to liberalisation of policies in 1991 thereafter markets started changing with the deregulation happening. Subsequently SEBI, the regulator for the Capital Market, was set up and introduced regulation on mutual fund industry in 1993, which was amended in 1996. Around this time private mutual funds started their operation. Till the time SEBI came into existence, alternate investment avenues mainly favoured Banks and LIC. Here full credit should be given to LIC for taking insurance to the far-flung areas of the country and creating a trust in the hearts of the people.
Then equity market was also not that developed. So to establish the concept of mutual funds in the minds of people required time. However, with better regulation and more players, mutual fund industry embarked on its growth path by taking 150% jump in asset under management (AUM) i.e. from Rs. 2 lakh crore in Dec’05 to Rs. 5.25 lakh crore in Dec ‘08.
What needs to be done to make mutual funds single largest factor in the consumer‘s wallet in India?
Mutual Fund industry as a whole need to strengthen the distribution and scale up to reach the point. As economic growth takes place and people accumulate surplus funds, mutual funds should be able to provide the solution for effective deployment of such surplus funds. Other solutions like insurance, pension, housing etc will be provided by other respective players. The policy objective of our country is to give thrust on financial inclusion, which will bring many more customers in the income pyramid. Then mutual funds will get its due share. But whether it would be largest or not that remains to be seen.
Capital markets or other comparable investment avenues (Say Insurance or ULIPs) have grown in much larger proportions and not mutual funds. Please comment.
Talking of insurance here, from the day one it was a retail product to be sold to retail customers. The distribution set up was also tailored accordingly. In case of Mutual Funds, since liquid products constitute a large part of the asset under management and the liquid fund investors being corporates, Mutual Fund industry have been able to grow without a comparable emphasis on retail distribution.