The new debt tax regulation announced in the Union Budget is an opportunity for the mutual fund industry to focus on offering more medium-term to long-term investment options, believes Suresh Soni, managing director of Deutsche Mutual Fund. In an interview with Sneha Padiyath, Soni speaks about how the industry could make the best of the new debt tax regime, its investor awareness programmes and the slow and steady return of the retail investors.
Has the industry moved on from the initial disappointment of the new debt tax regime?
The industry was taken aback by the announcement since debt mutual funds play a key role in the corporate bond market. The fixed income mutual funds account for nearly 35% of daily trading volumes of corporate bonds and are one of the largest holders in the bond market. At a time, when the industry was looking at further developing the corporate bond market, this latest move is sort of a setback.
Many investors have put in money into medium to long-term fixed income investments like PPF accounts, tax-free bonds for 10-15 years. But in mutual funds, a large chunk of flows came into one-year FMPs.
The new tax regime announced during the budget is an opportunity for the industry to work on offering medium/long term investment options since there are significant tax benefits available to investors.
Are you expecting to see huge redemptions by the end of this fiscal?
We are not expecting any significant redemptions per se in the market but investors who are invested currently would weigh their options and to that extent there could be some impact on the existing fixed term plans (FMPs) that come up for maturity. While the industry has started offering a roll-over option or the extension of FMPs in the existing funds, one can see some withdrawals from these funds.
Are clients willing to rollover or do they want to exit from the schemes completely?
This is an option that fund houses have offered to clients and figures till date indicate a positive response to this move.
How are you planning to deal with redemptions, considering more than 60% of your assets under management comes from debt funds?
Deutsche Mutual Fund has a range of products, with FMPs accounting for about 20% of our portfolio which is broadly in line with the industry. We have a range of open-ended products for investors to choose from and plan to further increase our offering by introducing some new products across equity, debt and hybrid.
With higher tax on debt products are you looking at expanding the equity portfolio?
Any expansion will depend on investment opportunities and to bridge the possible product-gaps in our portfolio. At present, we are evaluating launching funds across equity and medium-long term fixed income categories.
At the industry-level, is there a move to broaden the equity product-base?
The industry would like to have a little more client flows into equities. The possibility or the prospects of that now improves with the equity markets looking up and overall a positive environment. On the fixed income side, the industry focus will tend to move a little away from 1-year FMP kind of products to more slightly medium-term products. One will see the industry coming out with more three-year products.
How is the district adoption programme progressing? Questions have been raised about the audience at such investor awareness programmes, that there seem to be more distributors present than investors at these events. What do you have to say to that?
As directed by SEBI, the entire industry came together to adopt certain districts to conduct investor awareness programmes. Deutsche Mutual Fund’s investor education initiative has met with considerable success and we believe a large number of investors have benefitted from it.
This programme itself is evolving and the industry is also learning as it walks down this path to improve the programme. At the camps that we conduct, we do have a system of creating a rigorous database of the attendees.
At times, in order to reach out to more investors, we may take help of intermediaries to invite them. But that doesn’t mean that the audience is an intermediary. Audiences are investors who have turned up to learn and understand about the investment options.
With equity markets turning around, are you seeing higher retail participation yet?
We are beginning to see retail participation increasing again after a continuous decline in folios. It is refreshing to see retail folios actually begin to increase. That is an indicator of better things to come, and points to the positive outlook on the part of the investor and for the industry as well.