IDBI Asset Management Company, a subsidiary of IDBI Bank, is diversifying its product portfolio beyond index funds. It has launched a Dynamic Bond Fund, an actively managed open-ended debt scheme that will invest in government bonds, treasury bills, and corporate and public sector bonds. In October last year, it launched an open-ended gold exchange traded fund for retail investors. Debasish Mallick, managing director and chief executive officer, IDBI Mutual Fund, in an interview to FE’s Saikat Neogi says investors
should look at inflation-adjusted returns over a reasonably protracted period of time. Excerpts:
Do you think investors in India will look more towards debt products? How do you think the secondary market for debt will develop?
The most popular mutual fund debt product is the fixed maturity plan. People take it as a substitute to bank fixed deposits. The risks are comparatively lower and, once you have subscribed and the issue closes, you know how much you can expect to get at maturity. For that, it does not require any secondary debt market. The other end of the spectrum could be debt products that are actively managed and give various returns at various point of time. Though the Indian secondary debt market is not very deep, whatever products are available are petty frequently traded. I have not seen a situation where a debt dealer is stuck just because there are no buyers.
The secondary market is not there at the longer-end period like a 30-year or a 40-year paper, and that’s the reason why infrastructure funding is getting affected. But normal debt paper that is conducive to mutual fund companies is there in the market. I look at debt as an attractive investment option for retail investors and I always feel one should not put all one’s money in equities alone. One must make a fine balance between growth of capital and conservation of capital.
With the current volatility in the markets, do you think in the near- and medium-term, investors will go for more risk-averse instruments?
Unfortunately, it does not happen that way. Risk-aversion could only be a sometime phenomenon. I have never seen a situation where there is a very well thought out risk-aversion in a classical sense. Those types of divisions do not exist and it will always remain cyclical. One has to look at prudent asset allocation and distribute money across all asset classes that need to be customised according to one’s needs and requirements.
Won?t IDBI Dynamic Bonds Fund have competition from tax-free bonds?
This is a different class of fund without any tax breaks and has upside possibilities. Tax-free bonds do not have any upside as the coupon is fixed and there are tax breaks depending on the tax bracket. So, you can calculate the effective yield after maturity. In the case of the Dynamic Bond Fund, there is a prospect of capital gains apart from the coupon.
What kind of distribution model are you working on?
IDBI Mutual Fund right now has IDBI Bank as its main distributor. The bank has about 900 branches, of which 650 are distributing IDBI Mutual Fund products. As the bank expands its networks, we will have more networks to distribute our products. However, we feel that we need to diversify the distribution channel further and just can’t rely on one single distributor. So, we have entered into tie-up with 3,500 independent financial advisors who are registered with IDBI Mutual Fund and sell our products throughout the country. Banks like Indian Overseas Bank, Corporation Bank and Lakshmi Vilas Bank have recently started distributing our products. In addition, there are certain banks that have not signed any formal agreement with us, but are keeping our products. As per their own norms, they take about 3-5 years to recommend a product and since we are not that old, they don’t recommend our products.
So are you looking at more bank partners to sell your product?
We eventually want to have more bank distribution partners with us. Banks come with a captive customer base, which are essentially retail customers. And being a bank-sponsored company, we have some relationship with these banks already. So, we are not necessarily looking at big banks, but, instead, smaller banks because we will not be able to capitalise the vast network of big banks.
Why is it that the concentration of MFs is only in big cities and tier-II and tier-III centres still remain untapped?
Personally, I think people believe that MF is a substitute for equity market, which generated supernormal returns on a continuous basis. And, somehow, people thought that since MFs are managed by professionals they can beat a slump. That is just not possible.
People are yet to plan for wealth creation and wealth generation. In fact, get-rich-quick is not wealth generation and it is patient investment that helps in the process of wealth generation. MFs cannot be a get-rich-quick solution, which unfortunately it was made to look like. MF is equated too much with equity and investors will have to understand that there are a reasonable number of debt products and they could mean a lot. People will gradually realise that investment in mutual funds will lead to steady wealth creation over a longer period of time.
