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Recently, I attended a one-of-its-kind conference titled “Putting Investors First”. (Shockingly, we have now reached such a stage that we have to do a conference like this one to rebuild trust among investors. Isn’t this the sole objective of all stakeholders in the first place?) Anyway, in the conference it was deliberated why retail investors are not coming to our industry of asset managers and one of the panellists mentioned that we ourselves have created such a complex ecosystem that even the most intelligent investors find it difficult to navigate.

When a lay investor does a Google search using key words such as “investing in mutual funds in India”, the number of results is so overwhelming that ultimately the exercise results in confusion, which leads to the investor taking no action. Even if she is brave enough to get into few mutual fund websites, she will have to navigate through the whole process of becoming compliant with know-your-customer (KYC) requirements, choose from among different funds, then specific plans, then their options, and finally different forms. the numerous steps lead to the investor losing interest and the industry losing a prospective client.

Why are we making investing in such a simple vehicle a most complex act? At the latest CII Mutual Fund Summit, Securities and Exchange Board of India (Sebi) chief U.K. Sinha urged fund houses to consolidate mutual funds schemes having similar fundamental attributes.

In fact, the same message was echoed by C.B. Bhave in his speech at the 2010 edition of the same summit wherein he came rather harshly on to the manufacturers. “Even if you put before me 3,000 investment products, I won’t know how to choose from those products. I’ll have no idea of which scheme is good for me,” Bhave had said. “If you really want to reach to the so-called small investors in whose name you do everything, does he need 3,000 options? Is there really so much of innovation that is going on? Are these schemes really so different from each other or were there incentives operating in the market that made us generate these 3,000 options?” he had said.

Unfortunately, the industry has not learned much over the past five years. In the past couple of years, fund houses have launched a series of closed-ended funds. When the Narendra Modi-led government announced the “Make in India” theme, asset management companies got a new idea to launch funds capturing this theme. One won’t be surprised if the manufacturers start tinkering with the idea of a “Swachh Bharat fund”.

The other problem is that if one fund house launches a unique strategy, then other fund houses simply start copying it.

The most striking part is that many sales representative of fund houses themselves do not know how many funds they have in their own companies.

The same diversified equity fund is sold by various names. One can call it Top 100 Fund, Top 200 Fund, Opportunities Fund, Equity Opportunities Fund, Value Fund, Growth Fund, Focused Fund, Select Focused Fund, Focused Large cap fund, Focused Bluechip Fund, Flexi Cap Fund, Multi Cap Fund, et al.

The only defense they give is that they are just manufacturers, and that their job is to keep feeding the market with newer ideas. They compare themselves with fast-moving consumer goods (FMCG) companies of the world saying that if they can have 20 variant of soaps, why can’t we have different fund ideas? The problem with this argument is that we are in a fiduciary role, unlike our FMCG counterparts. When an investor puts money thinking that a new fund offer with a jazzy name is better than an existing fund as she is getting it at Rs.10, I don’t think we are bringing her in with the right set of expectations.

Unfortunately, the asset management industry has moved from its primary role of asset management to becoming asset gatherers. Surprisingly, mostly the ideas for new funds come from the sales teams and not the fund management teams (when ideally it should have been the other way round). What’s really disturbing is that even the larger fund houses, which are supposed to be flag bearers of the industry, are getting into this never ending rat-race. On the contrary, many small fund houses are now daring to be different by focusing on their core competencies rather than just aping their bigger peers.

At one end we are trying to launch new variants of the same fund and at the other, industry body, Association of Mutual Funds of India (Amfi), is contemplating reducing the number of funds that have similar attributes. What a dichotomy! It’s not that we are committing this mistake for the first time. All non-performing funds get merged with performing funds thereby hiding the poor performance, and we think the industry is doing a great job in creating alpha (outperformance compared to benchmark).

Investors’ trust will only be built if we are all consistent in our approach, treat clients fairly and keep their interest above ours. Innovation for the sake of newness can be disastrous. We can fool an investor once, we can fool many investors once, but we cannot fool all investors all the time.

Gajendra Kothari, managing director and chief executive officer, Ética Wealth Management Pvt. Ltd .

Original Source – Livemint 

Image Credits – wealth18.com

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