Mutual Fund Investments: Experts discuss risks and returns

CNBC-TV18’s Latha Ventakesh caught up with a host of mutual fund managers at the CII National Mutual Fund Summit.

Manish Gunwani, CIO-equity investments at Reliance Nipppon Life AMC, Navneet Munot, executive director and CIO at SBI Funds Management, Ashish Somaiyaa, MD and CEO at Motilal Oswal AMC, Vetri Subramaniam of UTI AMC, Chandresh Nigam, MD and CEO of Axis AMC and Lakshmikanth Reddy of Franklin Templeton AMC shared their views and outlook on key structural changes in the mutual fund (MF) industry.

“The first phase is where competition picks up because obviously historically the alpha creation in India is very high. Part of it is due to information asymmetry, asymmetric access to management which used to happen a decade back. Now, clearly that part is going out of the game because the markets are becoming more and more efficient, the markets are becoming more and more institutional. So to that extent, I think there will be a first phase where alpha generation will become bit more challenging in next few years. Then there will be a phase where exchange traded funds (ETFs) will do well,” said Gunwani.

“There are two large forces, democratisation of information and institutionalisation of markets have reduced the alpha. Looking from the Indian context, one can see the last few quarters, a year or two and say that whether the alpha generation is over, are we not be able to generate the alpha going forward, I still think there is a lot of arbitrage so you have to start with a fundamental believe that markets are efficient, there is wisdom in crowd but at the same time, the wisdom of crowd at times becomes the many of the mob or there are lot of other opportunities, there are a lot of other arbitrages which are available. As long as we exploit them in a systematic manner,” Munot added.

Talking about the risks faced by fund managers, Somaiyaa said, “If you are in active management, losing the fund manager is a real risk, investors should be aware of it. When you are betting on active management, fund managers making the right or wrong decisions plus the fact that fund managers may not be there forever with a particular firm or managing a particular fund is a real risk but of course it is our job as a manager, promoter, owner to ensure that the best talent is ring-fenced in whatever way that we can. Processes play a very important role. We are in a business of uncertain outcomes, we don’t control the outcome. When you cannot control the outcome, the only thing you can control is the consistency and quality of your inputs so that is where the process comes in for continuity but the risk is real."

“As somebody from the investment side of the profession, I would certainly think that the most important thing today is to make an investment process not be individual driven, not be personality driven and we need to think about the fact that these people who have invested their money to us are not giving it to us for one year or for three year period, they are actually thinking of 15-20-25 years. So how do we build an investment organisation and investment team and investment culture and very crucially an investment process which will be the anchor around which good people are always needed but it needs to be the process which is the anchor around which good people will collaborate for 20-30 years and that is how we ensure that the alpha is not just one moon shot kind of affair, it is a sustainable, repeatable process and can be done over an extended period of time,” Subramaniam added.