ETMarkets Fund Manager Talk: Volume growth can make for potential hit to MF industry profits on fee cap: Mahindra Manulife

MUMBAI - Market regulator SEBI’s recent proposal to make sweeping changes to the fee structure of the mutual fund industry will certainly have an impact on the profits, but it will over time, be covered through volume growth, according to Mahindra Manulife Investment Management.

A proposal by market regulator SEBI last week has left mutual fund industry

“If this impacts the customer positively in terms of lower costs, in the long run, it should lead to MFs becoming the go to product for every investor, and that will take care of profit concerns,” Anthony Heredia, MD & CEO of the asset management firm, said in an interview with ETMarkets. Edited excerpts:


The MF industry has seen significant growth and transformation in the last 10 years. How do you see the next decade for this industry?
The industry has seen unprecedented growth since the end of the financial crisis in 2008, and we have witnessed almost 10x growth in AUM since that point.

That being said, the move of savings into financial assets has only just begun in our view, and while we may not see similar growth patterns over the next decade, our expectation is that we can expect mutual funds and allied savings vehicles to become the dominant savings vehicle for Indian households by the end of this decade.


How much growth in AUM did you see in FY23? What kind of growth are you looking for in FY24?
We saw almost 30% growth in average assets under management, with a major share coming from equity related funds that we run. We are a relatively newer player and as some of our long-term investment track records gain recognition, we expect to sustain the growth trajectory from a market share perspective in the year ahead.

We also expect pressure on net flows, as we see investors becoming more reticent to commit money to equity, as markets trace new highs.


How many NFOs did your AMC launch in FY23, and what are the plans for FY24?
Over the last few years, we have been very active in launching NFOs as we looked to build out our product offerings for clients as quickly as possible. In FY23, we took a step back and focussed on growing our existing funds. We did launch a small cap fund in November 2022, which has been well received by investors, as the appetite for small cap funds has turned positive, perhaps influenced by relative valuations.

Over FY24, we will look to do some differentiated product launches, with particular focus on thematic opportunities, and the multi asset space.


How different is your recently launched small cap fund compared to other small cap funds in the market?
The traction was above expectations. It’s never possible to time product launches, but with the small cap fund, we do seem to have created an offering at the right time, especially when you look at how industry flows in terms of specific categories have played out in the last six months. There is always a danger to over think differentiation, especially when you are a late entrant, so we would focus on creating that difference through our consistent approach to equity investing and concentrate on ensuring a good outcome for the investor, rather than being too
focussed on a different approach.

How much of an impact can SEBI’s proposed caps on fees have on MF industry’s profits? As an industry player, are you considering sharing your feedback on the same to SEBI?
While there certainly will be an impact, our belief is that over time, it will be made up through volume growth. Also, if this impacts the customer positively in terms of lower costs, in the long run, it should lead to MFs becoming the go to product for every investor, and that will take care of profit concerns.

There are nuances to the proposal though that do require greater dialogue and debate, and am sure, industry players including ourselves will ensure that they engage appropriately with the regulator on the same.

What are your thoughts on the recent tax amendments in debt funds? Would this trigger a change in the strategy for bringing new products?
It will certainly impact potential flows into debt funds especially from retail investors. They do have very powerful alternatives in terms of deposits etc., and the industry will need to go back to the drawing board to recraft products that perhaps are more solution oriented in terms of income generation, rather than pure interest rate or credit plays.

What’s your overall view on markets? How should one go about fund allocation in FY24?
The last year saw volatility both in terms of multiple events, as well as consequently market action. We have seen flat returns for some time now, and expectations seem to be that this is likely to continue. We, however, feel that most of the negative events are baked into market valuations and staying on the sidelines expecting further corrections may be counterproductive.

Markets seldom behave in the way that consensus expects it to, and we believe that some of the positive aspects like stable inflation, rate cycle close to peak, and decent earnings will start to play out in terms of market returns.

Investors would do well to ignore short term events, and gradually increase their equity allocations over FY24.

We would, however, believe that it is better to stick to diversified funds, and perhaps use this time to increase SIP contributions.

SIP route has done extremely well for the MF industry, with monthly inflows at record highs. Do you expect inflows to continue at the same pace this year?
SIP flows are not only sustainable but poised to grow rapidly in the coming years. Key to wealth creation is to be disciplined about savings, investing regularly, and staying for the long term. SIP does this as a matter of routine and, therefore, is a great solution, especially for retail investors.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)