'No need to create more identification numbers here'
The shift towards close-ended schemes may not be a great thing from the investors’ point of view, feels Ajit Dayal, director, Quantum Asset Management Company.
By Santosh Nair, TNN |
MUMBAI: The shift towards close-ended schemes may not be a great thing from the investors’ point of view, feels Ajit Dayal, director, Quantum Asset Management Company.
In an interview with ET, he says the Indian market must have 10,000 domestic fund managers so that it is not over-reliant on foreign capital. Excerpts from the interview.
After Sebi’s ban on amortisation of initial expenses, fund houses are coming out with close-ended funds. What are the implications of this trend?
Close-ended funds are generally inferior products from the perspective of an investor. Every close-ended fund has a net asset value (NAV) — the true value of the unit that represents the underlying wealth created for the unitholders. Yet, these funds rarely trade at their NAV.
The investor is now taking a double risk: First, the fund may make correct or incorrect investment decisions which will affect the NAV, and the second that the fund’s share price will trade at lower than its NAV. The close-ended funds still have loads — expenses paid to distributors — that still reward the asset-gathering and asset-churning mentality. We already have around 30 AMCs and 1,000 schemes. Many foreign AMCs are keen to set up shop in India.
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Do you think there is enough room for everyone? There are asset gatherers — those who keep on trying to climb the ladder of size to be the largest, and there are asset managers who wish to manage the growth of their clients and the returns to their investors. I think that there is room for asset managers and not asset gatherers.
Another point of caution: India is out from the innocent financial market in the 1990s to a more western capital market. There is an increasing risk that the malpractices, which have dominated Wall Street and the capital markets in the more developed economies, have been blindly imported into India.
Global knowledge has become localised misuse. How else can one explain this excessive dependence on distributors and the creation of 1,000 MF schemes, many of which end up buying similar portfolios for gullible investors.
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What are the changes that you see happening in the industry over the next 3-5 years? If Wall Street is our guiding light, then we will have more of the same: asset gathering, high-turnover portfolios, and high cost products. If we decide, as a country, to take some bold steps and redefine the role of capital markets, then the establishing of rules and taxes, which punish high-velocity trading and funds, will go a long way in setting the base for mutual funds to be more long-term in their investment focus.
The regulators have already indicated their desire to set right the distribution mechanisms in the country in a way that does not hurt the retail investor. There must be more competition and the encouragement of more asset managers.
What do you think of Amfi’s plan for issuing unique identification numbers (UINs) for investors?
There are too many numbers floating around, many identification cards: the passport, the ration card, the PAN number, the Sebi registration card. Every issuing authority feels that they cannot rely on another authority due to forgeries that seem to be common place.
That is a sorry state of affairs. I think that the solution is not to create more issuing authorities but to ensure that one entity is strengthened and devoid of any fraudulent practices. I think the PAN seems a great number to win that pride of place. The tax department has data that can be used to know about the source of money, which is part of the Know Your Client norms.
One would imagine that with all the software prowess in the country we can work on one number like the Social Security Number in the US which is needed for everything you do — opening a bank account, a broking account, getting a mortgage or home loan, and filing taxes.
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