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Mutual funds recovering from credit risk overhang; investors may look at these debt funds | AMFI CEO INTERVIEW

16-May-2020

As Indian share markets tanked in March with the onset of coronavirus across the globe, investors rushed in to draw monies from their mutual fund holdings. Net outflows from mutual fund schemes spiked from Rs 1,900 crore in February to a staggering Rs 2.12 lakh crore in the month of March. With redemptions rising as investors preferred to keep more and more cash in hand, credit risk mutual funds saw redemptions jump from Rs 1,599 crore in February to Rs 6,279 crore in the month of March, only to multiply in April to Rs 19,500 crore. Despite this, the Association of Mutual Funds in India (AMFI) is advising investors to be optimistic about the future of their investments. AMFI aims to reach Rs 100 trillion in combined assets under management in the next decade. AMFI’s Chief Executive, N S Venkatesh, in an interview with Kshitij Bhargava of Financial Express Online, talks about how mutual funds have dealt with the situation at hand, and has some word of advice for investors on how to reassess their portfolios. Here are the edited excerpts:

  • What is your initial reaction to the Rs 20 lakh crore special economic stimulus package that Prime Minister Narendra Modi announced?

We, of course, will have to wait for the fine print but I would say it is a big plan. Rs 20 lakh crore is 10% of the GDP which is a good stimulus that has come up from the Prime Minister of India, and I think this will go to sectors which really need this money. Prime Minister Modi has himself talked about the infrastructure, SME and agriculture, so this will ensure that we kickstart where it is possible. Maybe not in the red zones but green zones can be looked at and wherever it is possible. This will also have a positive spinoff for the rest of the economy in the time to come.

  • What do you expect in terms of policy support or stimulus for the Mutual Fund industry, along with other expectations?

I would suggest that once the economy kickstarts and once it starts moving and cash flows start going around so automatically liquidity in the system will start moving and people will have surpluses in their hands over the period of time and that surplus money will find its way towards investment and mutual fund will become an attractive arena for investment. So you will see the spinoff benefit over the time coming to the mutual fund industry where people will start coming back to mutual funds for investment because we believe mutual funds are the best investment avenues available to the retail public.

  • he Finance Minister announced a Rs 30,000 crore special liquidity scheme to buy investment-grade debt papers, how will this help the mutual funds?

The announcement made by the Honourable Finance Minister, the special liquidity facility to buy Rs 30,000 crore worth of investment grade papers will increase the liquidity in the secondary market for corporate bonds. This is an encouraging move by the Government of India.

  • Mutual funds have seen heavy redemptions for the past couple of months, so at this point what would you say to the investors?

Redemptions are not huge; we do not agree to that. It is only in some select credit risk funds; and those have also come down substantially after regulators stepped in and the special liquidity facility which RBI was announced, even though mutual funds have managed the liquidity on their own because they had high quality liquid papers in their portfolio and this was a one off instance that led to that redemption. Having said that, when the economy starts and propers you will see the sentiment improving and if you see the sentiment on the liquidity side it is phenomenally good. SIPs over the last one year have been good; we have collected over Rs 1 lakh crore, and in the previous year we collected around Rs 96,000 crore so that is intact. Around 92% of the money goes into equity, so the equity mutual funds are doing well. It was just some pressure on the debt side which is now wearing off and hopefully we will see money coming into the mutual fund segment and that money will go to productive credit purposes and that will also give an added thrust to the economy.

  • During these times what should be the aim for an investor? Is it time to look at ETFs or gilt funds?

At this time they should reassess their credit risk appetite because of the one incident that happened but other funds are all worth looking at, whether these are index funds or the gilt funds, or even low durations, because there is a benign investment environment in this country. Going forward also the Reserve Bank of India’s stance is to be accommodative and already around Rs 8 lakh crore liquidity is there in the system. So I think that will ensure that the low duration funds or the gilt funds and even the PSU and banking bond funds see more inflows coming in.

  • Where do you see the Mutual fund industry in a decade from now?

Currently the Asset Under Management (AUM) is around Rs 24 lakh crore. The way the economy will prosper maybe from the next financial year onwards based on the stimulus that has been given from this financial year, I think the mutual fund industry could also grow roughly at around 16%-17%. If it grows at that pace in the next seven to eight years we should be able to reach the goal of having Rs 100 trillion assets under management.

Source : Financial Express

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