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How are mutual funds preparing for growth?

LiveMint logoLiveMint 04-10-2017 Staff writer

Are mutual funds ready for exponential growth?

Speakers:

Anuradha Rao, managing director and chief executive officer, SBI Funds Management Co. Ltd

Kalpen Parekh, president, DSP BlackRock Investment Managers Pvt. Ltd

Milind Barve, managing director, HDFC Asset Management Co. Ltd

Nilesh Shah, managing director, Kotak Mahindra Asset Management Co. Ltd

Nimesh Shah, managing director and chief executive officer, ICICI Prudential Asset Management Co. Ltd

Swarup Mohanty, chief executive officer, Mirae Asset Global Investments (India) Pvt. Ltd

Moderator: Monika Halan, consulting editor, Mint

Edited excerpts of the discussion:

Monika Halan: I want to actually start with a small story. This is ending 2010. I am at an airport. I will not name the person but it is a life insurance industry CEO who met me at that airport and said, “Ye to khatam ho gayi industry (This industry is finished).” 2009 was when the front load of the mutual fund product was taken away by Mr. Bhave (ex chairman of Securities and Exchange Board of India). So he said we will just come and clean up this industry. It’s over. Fund managers will just go home.

That was 2010 and today in 2017, we’re looking at a Rs20 trillion industry. So I just want very quick opening statements to say that should we have the question mark in the topic today. This is financial year 2018. So, are we asking a question or should we be making a statement?

Let’s just start with you Swarup and just walk down the panel.

Swarup Mohanty: I think these are days where we have honed our skills and our experience to see these days. We’ve always worried whether we will see these days before. I have worried whether I’ll see these days in my working lifetime. It’s great to see an opportunity where the Indian public is now willing to shift again to us. I say again because it has happened in the past. But this time around, I will not use the cliched statement that it’s different, but it is actually different. So, for us it’s all a good time. Having said that, it comes with a lot of responsibility on the fiduciary side. So I think we’re up to it. That’s how I look at it.

Halan: Nimesh, mutual funds Sahi Hai?

Nimesh Shah: See, I think what we have got is a very good product and thanks to the regulator the product is very pure. And as he (Swarup) said this time, how it is different is that in 2007 a lot of infrastructure funds were sold. After 70%, 80%, 100% return in one year’s time, infrastructure fund got sold. My banking funds had given 60%, 70%, 50% in the last 1 year but 1% of our sales is banking funds and 57% of the sales in the industry is balanced fund. So I think the distribution in this country has been (responsible). If there is one example the debt distribution has sold it very responsibly—as the markets are going up, balanced funds’ percentage has been going up. So it’s ultimately based on investor experience with a 3-year timeframe. We are also concerned. Why we have been pushing dynamic asset allocation or balanced funds in a big way is that we want a good investor experience 3 years down the line, even if closed-ended funds are coming with put options. So, I think the industry is behaving responsibly. So if the customer experience is good, we’ll continue getting the money.

Kalpen Parekh: I think I agree with what Nimesh said. There’s a big diversity in terms of range of products in which money is coming. And of course, the need to be responsible is timeless. It can’t be cyclical like the markets but history repeats. So I’m sure history will repeat in terms of volatility. We will go through some ups and downs, we’ll go through our own challenges and really keep emerging because as a product, I think that’s one thing we have to do more of, which is talk about the product and not the market. I think most discussions are around markets, which will change every few years, but less about the needs that the product fulfils over decades. And I think if we are able to make that shift, we’ll become a much stronger entity.

Anuradha Rao: I will say that the path we are on, the position, it is irreversible. And I think that discussion should happen in that light.

Halan: So, Milind and Nilesh, we are basically saying that should we have a question mark at the end of the name of the event’s topic today. Year of the mutual funds—should we be making a statement or should it be a question mark?

Barve: It certainly cannot be a question mark. I think it’s been a long time and I think we have been in this industry for almost 17-18 years. We are, I think, in the midst of a really very profound shift that is happening within savings. And I think we will probably be one of the big beneficiaries of this shift. The main shift is from physical to financial, as everybody talks about, and is well known. But I think what’s more important to us is that within financial assets, what are people buying? And I think a lot of that incremental money coming into financial assets is actually finding its way into smarter products, whether it is insurance or mutual funds. So, I think for us, when you look back and you look at these great numbers, I still feel we are just about at the beginning. So I see many more years for the mutual fund industry and for us.

Nilesh Shah: I mean it’s a comma not a question mark. I am one-fifth of the banking size but they opened 30o million Jan Dhan accounts and I’m not even 120th of that in terms of real actual investors. So, if I look at the size, yes, there is a comma. If I look at number of investors, we haven’t yet made a beginning. So there is a huge opportunity ahead. And with great power comes great responsibility. So there’s no doubt that we have to reinvent ourselves. We have to make us relevant for the future. I think there is a huge potential for the mutual fund industry in the days to come.

Halan: Yes, and I think we all get a sense of it because of the nature of our work. We do get asked by friends and family and we all understand how deeply the SIP has sort of made a mark in the minds of the people who are not really financially very savvy. The view of the panel is that yes, this is a product that will only grow exponentially. Then it sort of comes to worries about the product; people coming into equities and the kind of market we have. I will just read out a few numbers. The first company on the markets; the market-cap is Rs5.32 trillion. That’s company number one. The 100th company has a market cap of Rs26,000 crore. The 1000th company has a market-cap of Rs367 crore. The 15000th company has a market cap of Rs22 crore. I just worry that where is the depth? So there’s been regulation, there’s been the industry responding to it, there’s been distribution and there’s been literacy. The product is there, the market is there, the investor is there but where is the depth? Where is this money going to go into? If this SIP book grows from 5 to 10, what happens?

Barve: If you look at all of these numbers in the rear view, then it will overwhelm you. But I don’t see it that way. I mean, for all these numbers that you speak about, market cap and our ownership of that market cap is still barely 5%. And that’s not true for most sort of collective asset management pools of money anywhere, in even reasonably developed markets. So, I don’t really believe that to be a challenge. Yes, there could be looking back. If you look at certain group of companies, you may find valuations different from what they were a few years back. But I think there is enough opportunity. Yes, there is a structural issue, which at some stage will get a rest over time as valuations start opening up more—which is of the ownership pattern in India. So for example, 55% or thereabouts of our market cap is owned by owners or promotors, which includes the Government of India. And the free float is full 45%. So, we still own maybe 5% of the market cap or maybe 10% of the free flow. That’s not a large amount. When you look at it in retrospect, to what we owned some years back, it might look more. But to my mind, there is enough space for people. I think retail investment directly into the market to some extent will reduce. And retail participation in the market through institutions, through mutual funds will increase.

Halan: Swarup, so we have got three strong pipelines coming in. There is NPS (National Pension System) money coming into equities, EPFO is now beginning to invest and incrementally will do more. Again, I am still worrying about depth.

Mohanty: If you look at this broad question, this question could repeat itself every 2-3 years. And over the last 20 years, when you look at this broad space called mutual funds, I see the space having three actors—one is the investor, the other part is the fund manager and the rest of us—who are the communicators between these two. There is no doubt on the fund management today of having managed this money over the scale over the years. The rest of us then, over a period of time, have to believe that these people are skilled enough and they have demonstrated enough over the years to sort of give them that thumbs-up on their ability. I don’t think there’s any issue in the ability and I speak on the equity side any more, on the capability of the fund managers of the industry, and some of the NAVs (net asset values) speak for themselves. The rest of us then, if we agree on that, have to communicate in a very simple and active manner that trust these guys and they will manage and they will deliver. Ya, we need to check them out time and again, which everybody is free to do. But the bottom line is, they have delivered and they will continue to deliver. These are mostly open-end funds. If they don’t want it one is free to exit, which I always say. But broadly you look at the numbers and the numbers have been nothing short of staggering. So I’m not there to doubt that, nor it is my job to doubt that. I do believe they have the capability. Now the funds have built infrastructure on that capability to handle that depth. That’s my view.

Halan: So Kalpen, in a roundabout way, I am asking valuation again.

Parekh: I again repeat that this has happens every few years. Nothing is new or different. There’s a business cycle, there is a profit cycle, there is a flow cycle. Right now we are going through a flow cycle where flows are more than we ever expected. And in that sense, there will be a moderation of returns. If you are able to manage that well and tell investors some basic first principles, then this is a product for the long term. And I still feel, talking 2-3-4 years is a fixed deposit language. Comparison of our funds in our fact sheets and your rankings in few years is also fixed deposits language. We will make a huge impact if you start talking 10 years for this product category and set the right expectations. Also, there’s a shift happening. You mentioned three pipes, but the biggest pipe, which was FIIs is right now shifting some pool. So there is reallocation happening. So Prashant mentioned that almost 9.5% a year return is 5%, 4% on the benchmark. Funds have given 9%. So if you had invested on the worst day, which is 7 January 2008 in a diversified equity fund, the return is roughly around 8.5%, which is not great one can say because even fixed income gave the same return. So you had volatility with a similar return. But that was on the worst day and not all would have come in on the worst day. But since then till date on SIPs, the returns are around 14%. I think a lot of money which is just coming through SIP will benefit as we see more volatility. But if the volatility starts shrinking, the returns will moderate. So the only way is to then elongate time horizons and expect moderate returns, which is also still okay because fixed deposits as alternative instruments, which were giving 8-9-10% are now giving 4-5%. So the real rate still remains very attractive for an investor to come in and buy. The only challenge is going to be expectations management. And I think that’s a bigger thing to focus on.

Halan: Nilesh, so we are all expecting this cycle to turn. But there’s been a sudden shift in the perception within the country. Suddenly the numbers are looking really bad and there have been sort of enough editorials written on a free fall. How would you respond to that? Because the question of valuation and disinvestment, everything is now linked to what lies ahead.

Shah: So I just want to add my one bit on size. In 1991, when I started my career, UTI was managing roughly Rs60,000 crore. I hope I’m remembering numbers correctly. And if they would have compounded their equities at normal level, UTI’s size alone would have been more than what the entire mutual fund industry is today. So in 1990, they knew how to manage money. In 2017 also we have to have the same level of knowledge and skills to manage money and we will do well. The second thing obviously is in terms of investor performance alpha generation. So here we will have to approach Sunil Gavaskar to Tendulkar to Virat Kohli methodology. So Sunil Gavaskar would go and play Malcolm Marshall with the skull head but Tendulkar required helmet to play against Glenn McGrath and Virat Kohli requires a helmet as well as a fair amount of physical training to go in and face whosoever is bowling today. So we’ll have to change our style and those who won’t be able to change will probably have to move out. But by changing our styles, we will be able to manage the size and I think, as Milind mentioned, at the end of the day, we are just 5-6% of the market-cap, and 10% of free float. Our immediate aim should be to get that to 25%, which we have given away to FIIs and then will think about the promoters.

Halan: Anuradha, you are coming in with a banker’s point of view, as a new entrant into the mutual fund industry. Is that a contrarian view? And I am staying with the thought of where is the depth leading to valuation and not disappointing investors who are coming in with so much trust.

Rao: I will answer it from a slightly different angle, maybe from the banker’s point of view. We are talking about financialization of savings and financialization of savings started by people actually opening bank accounts and coming to the bank. That was the beginning of the risk averse customer. Bank deposit was actually 5% of his total savings and the rest of it was going into real estate and gold. Let me talk about people of my age (55+). We have traditionally invested in real estate. We have a house, we have a second plot or a house. Why do we have it? Because we believe that in retirement it will give you another stream of income and we will leave something for our children. Now let’s just examine this presumption that we want to leave this piece of property for our children. Where are our children? Our children are somewhere in India following their own careers and their own path. Are they going to be very excited—someone working in Delhi or Bangalore—to hear that they have inherited a property in Hyderabad? No. I’m addressing people of my age—they don’t want your property. They would be much happier if you liquidated that extra house or property that you have, anything in which you are not actually living, convert it into money, invest it in financial form, enjoy the returns while you’re living and leave the corpus to them as an inheritance. That is what they would value. Therefore, I see no option but for this to happen, which means the flows are going to grow even from people like me. Talk about gold. I think at a country level, if you look at your gold import figures, and the way every time something happens on the trade agreement and people manage to find a loophole and manage to import the gold, it looks like it’s a bottomless pit as far as appetite is concerned. I don’t want to tell you the story of my life but I have to cite this example. My daughter refused to wear gold on her wedding and she is not alone because what they wear at weddings is much better looking jewelry that goes with what they wear. And you can leave it lying in the house and nobody will steal it and you can wear a different piece of jewelry every day and enjoy life without worrying about where I am going to keep it. That is what that generation is using. They care two hoots about gold. It is us again who keep buying the gold and putting it in lockers in the firm belief that one fine day we are doing good for our children. They will hate us for it. Therefore, there is no getting away from the fact that the flows are going to grow even if you think they are more today. And that’s why it is irreversible.

Halan: It’s a leap of faith when you talk about the house. I completely agree. Nimesh, is the industry ready to take this leap of faith?

Nimesh Shah: Whatever you ask me, I move to the same point. When I started off I said the industry has done a brilliant job of selling the right kind of products, the amount of balance and balance advantage funds that are being sold in the market—57-60%. We are conscious of the fact that our business can grow only if the customer has got a good experience 3 to 5 years down the line. So, it’s a brand game. If a customer has got a bad experience in you, you’ll lose him forever. He’ll never invest in that brand again. So, we all are very conscious of the fact. At ICICI Prudential, we believe that the market is stretched. So, all the kinds of products that you do in the market are (to) get into defensive products and that’s what I think a lot of the industry is doing. In fact, the distribution community, again I am re-emphasizing, is more conscious than us because they have to face the customer tomorrow. Most of the distributors who are left are agents who will have to face the customers 3 years down the line. So, they have to worry about their brand also. So I think it is positioned well.

Halan: So in this industry hit and run is pretty much over. Which brings me to the next piece. As the industry grows and we are all saying that it’s going to grow exponentially, with this big boom of retiral money coming in. As the third-generation reforms that Sebi is now trying to carry out, we are hearing the merger of schemes, the naming of schemes, defining asset allocation. Milind, do you think this is the right direction because there is going to be a big disruption in the industry as categories get fixed? So, for those who don’t know, categories will get fixed and every fund will be allowed to have one mutual fund scheme in that category.

Barve: No, I think it’s good because I think as a part of this debate, I heard somebody say something that struck me as very relevant. If an ordinary person should move to mutual fund, there are so many stocks to choose from. And now as an industry, we have so many products that it is becoming a job to choose and get to the right scheme. So, sort of streamlining of what a scheme should do and should not do, and the best part of what Sebi is undertaking is actually ‘truth in labelling’ so that the customer at first sight understands what is underneath the product and not just in the name. So I think it’s a good move. I don’t think there is an intention for Sebi or anybody to be disruptive or anything. So I see that as not a problem. I think that could be a transition management that needs to be taken care of. But I’m quite optimistic about it. I think it’s a good move.

Halan: Nimesh, how will the transition play out? Because now they are legacy funds and we know they are very large legacy funds which may need a merger...

Nimesh Shah: Since 2009, a lot of transition is happening, we are managing it well. So, while it is a very important issue because we have a certain view, we believe that we manage money in scale. So Sebi has had a discussion with us etcetera over a period of time. So I’m sure the regulations, whatever comes, will come in a very responsible manner and it will not cause any disruption in the market because people have come into schemes with the belief of what they have come into. So I think it will happen. I don’t have doubts on that.

Halan: So you believe that the sort of legacy funds would be grandfathered. Do you think that would happen?

Nimesh Shah: I don’t know the details, so I’m not getting into it...

Halan: No, because you seem very confident that Sebi will be kind to...

Nimesh Shah: No, it’s been 10 years in this job. I have been doing the same job and there have been huge changes. I have been always told by a lot of community around me that these things are going to be very bad. But I’ve never felt that. Changes are happening. The intention is good. The intention is not to confuse the customers. But nobody wants a disruption in fund management also. So I believe Sebi will balance it out well.

Halan: Swarup, how would you look at it as a small emerging AMC (asset management company)?

Mohanty: When you look at us as a player, we are one fund per category by choice. So it plays both ways. It takes the storm away from us. We believe that while it remains a business of simplicity and continuity, it is a business of conviction. And it is a conviction on each of your products, every day and every time. We are going to cross 10 years of management next year. We would be the only fund house in the market stating the fact that we’ve stood by one fund in one category for 10 long years, and saying that we are capable of managing long-term money. That’s a statement to make. And when this happens, the simplicity of the communication which goes out from our end to our advisers and then to the customers is very clear. One large-cap, one mid-cap and we add to that the caveat that we are not capable of managing all categories. We will manage that category if we feel we can and that itself gains power over a period of time. Now when you look at it in totality, and this forms the entire basis of the industry, it then becomes a business of conviction and that’s what the customer is looking for. I can say that for a fact on the equity side but I can’t say that on the debt side because if you look at the names—and I look at my father as an investor; he asked me which is a good fund, and I say Corporate Bond fund, Credit Opportunities fund is a good fund one for you—he will look at me and say, what are these funds? A lot has to be done on the debt side. But the equity side is getting its act right.

Halan: Kalpen, still too many categories when we think about what lies ahead?

Parekh: So you know I just looked at some data that on an average between 16-29% of the total scheme, there are some 2,200 schemes; at best 30% of the schemes absorb almost 85-90% of assets. So 70-85% schemes are probably not relevant to whether they exist or not. The do help thematically at different points in time. Honestly, it’s not just the fund house which is a challenge, there are investors that time the market that want thematic tactical ideas. So it’s a combination. This clean-up will in a way bring focus. The most important advantage is the uniformization of definitions and comparisons become very easy and legitimate. That I think will go a long way in helping investors and advisers choose how various funds are doing versus each other. But having said that, I still feel we will end up with around 40-45 categories, which in a way is balancing out what Nimesh mentioned of where we are right now.

Halan: Anuradha, how will your fund house think about the coming change because again, it’s an old fund house and there are lot of legacy schemes.

Rao: I agree with what has been said. Definitely, for an old funhouse there would be certain issues. The sizes of certain funds will become larger and throwing up a little bit of challenge in managing those larger funds. Of course, there are so many examples of larger funds being very effectively managed over time. And therefore you know that specific fund managers would need to move into a different gear. I think it will help all of us if we try to understand from Sebi’s point of view what are they trying to do? And basically, I feel that what they have in mind is the healthy growth of the industry as a whole. And if you’re trying to bring it, the 95% of the investors who are out there and just looking over the fence; what will help them cross over the fence is simplicity and clarity. If by going for the merger, if you are helping people to make fewer choices and have less confusion, definitely it’s good for the industry even if in the short term individual fund houses might have a few challenges. But I think the overall growth trajectory for the industry as a whole, it seems to be the right step.

Nilesh Shah: We have been very vocal and now we’re very thankful to Sebi that the timeline for doing this is less than 1 week. Otherwise there is a caste system in mutual fund. There are brahmin funds who have told that your mid-cap could be Rs1 trillion but shudras mid-cap should be Rs15,000 crore. If you are a brahman in balanced fund, you could put 90% in equity. But if you are shudra mutual fund, you should put only 50% in equity. You can’t create caste system in today’s society. In India, it was banned in 1947. We’re very hopeful that in 2017, it should be banned in mutual funds. There should be a level playing field. It should be the fund managers who should create performance and not your compliance officer who got approval from Sebi in terms of offered documents. So, we are looking forward to that day when caste system gets abolished in the mutual fund industry and we are really thankful for Sebi...

Halan: But why did it take them so long? We’ve known about this issue for years and years.

Nilesh Shah: I cannot understand this because as a regulator everyone wants to create a level playing field, and everyone wants to create competition. And these are all glaring examples. Sebi itself when it brought liquid fund regulation, didn’t bother about whose offer document was mentioning what. There were liquid funds that were running 1-year maturity, there were funds that were running 1-month maturity. They simply said that forget about offer documents. Here is the definition of liquid fund. You can’t invest for more than 90-days, period. So Sebi brought or removed the system in liquid fund in 2009 or 2008. But to do that in equity funds, to do that in debt funds, it has taken us about 8 more years. So anyway, what has happened has happened. But we are very happy to know that there will be a level playing field, there will be abolition of caste system in mutual fund and we will be a free society. So really looking forward to it.

Halan: So a lot of change and new innovation and ideas have come from small and mid-sized fund houses and Mahalingam also spoke about this total return index. Kalpen, how does this help the investor and Nilesh, I want to toss to you after that is that really what the industry needs right now? So just a couple of lines on why investor benefits.

Parekh: I think it’s become a big talking point than what we had anticipated. The journey of moving to total return was random discussion, which happened in the investment teams. I think someone from media had asked this question that is it not right to measure (returns) versus TRI? And the answer was yes it’s right. So the question that was posed was why don’t you do it then? And there was no answer to it. So then we collectively decided around 6 months back that should we go to this direction. Now from an investor’s point of view, what it does is that it helps the investor understand the real side of Alpha, which otherwise is overstated. Two things have happened in the last so many years because fund definitions, market-cap competition have been very loose. Returns could have come from a dispersion or a deviation from the core mandate which will get fixed anyway as Sebi defines them. And a comparison of that excess alpha from excess risk or to a price return index tends to overstate. I think we just felt one issue is getting fixed. The other one is something which is our own responsibility to fix that and we took that step. It coincided with Sebi also talking more extensively about it and then nudging the industry that you should migrate to that. Now I am not sure whether it’ll really matter too much from investors’ point of view because investors at large who are in gold and real estate and fixed deposits at 4% and 5%; it’s not maybe going to change a lot from their point of view because they still are going to look at 10-12-15% sort of returns. And investors don’t only buy an alpha but it will help in right comparison and right benchmarking amongst various fund houses and the real sort of alpha will come out.

Halan: Nilesh, isn’t it a good time for such reforms to happen?

Nilesh Shah: So from an investor point of view, whatever Kalpen mentioned is right. But look at it from a fund manager point of view. In developed world, the dividend yield is a significant portion of return. That’s not true in Indian context. Second, in the developed world, indexes by and large remain static. In emerging markets, indexes change quite frequently. When indexes change, they don’t have to worry about impact cost but when a fund manager has to change portfolio there is a significant impact cost. Indexes don’t have to keep cash for meeting redemptions. Fund managers do. So what are we trying to do? We are trying to portray a total return index which is more suitable in developed world and bringing that concept ahead of its time in an emerging market. But indexes are not stable where there is a high impact cost, where there is a cash gap for day-to-day redemptions. Now the best part is that in the global market, people are comparing themselves with TRI or are they comparing themselves to PRI? So whatever limited Google search I have done, so don’t take me at face value, but whatever limited search I have done, in the developed world, they are comparing their returns with TRI, primarily driven by high dividend yield but when the big names of mutual fund industry manage emerging market funds, they compare themselves with PRI and not TRI. So it’s an innovation which is ahead of its time. From an investor’s point of view, absolutely right, you need to do it. But I think we need to be gradual in our speed in bringing innovation into the market. Otherwise, it may end up destabilizing the whole thing. And please look at it from a fund managers’ point of view—he is managing the changes, he is managing it without impact cost and he’s providing you day-to-day redemptions. It’s comparing apples to orange.

Halan: Is there a rebuttal?

Parekh: Not a rebuttal but just one comment that all along so far in the discussion in the evening, the broad thought process is that impact cost is not very high because you’re willing to accommodate floods of new money, which are likely to come to us because size is not so much of an issue. We are only 2% of the whole market-cap, GDP etcetera. Plus, I don’t think that is an issue to our mind. Rebalancing should not be as much of an issue.

Rao: It’s an additional disclosure that you are making and therefore I don’t think it materially changes anything beyond adding transparency to the overall situation.

Halan: Swarup, so when you compare the returns on the total return index, the performance indicators look very different. So should the industry actually move towards that or not?

Mohanty: I agree with Nilesh when he says that it is a concept ahead of time. At this moment, let’s address the reality. There is the financial world and there is the retail world. The retail world is least bothered about the benchmark. It’s not even aware of the benchmark. It’s like something we just created in this room and understood by this room. That’s the reality of this world, the benchmark. The investor is worried about his total return. And if that is going to be impacted in any way, there is a concern. And that’s what we should be addressing more than anything.

Halan: Nimesh, I will bring the question to you specially because this is under the bonnet, right? I mean we are seeing benchmark is under the bonnet. This is something that we in this room understand and that’s right, the retail investor does not. So shouldn’t what is under the bonnet be even more transparent and fair?

Nimesh Shah: The question is, if you had heard Nilesh completely, is that what is fair? There are many angles to look at, especially the cash and all. So it is just been something that you have heard of recently. We will debate it out. We have to still debate it out. And anyway what are the rules, we’ll follow the rules of the country.

Barve: I think this is just becoming more the subject of a nice debate. I simply believe that if you look at the profile of people buying into funds, it’s a job to just explain if you have a poor performance in the benchmark. It is hard to explain that or you have beaten the benchmark by 3%. But the absolute return is 5-5.5%. So that’s the relevance of the benchmark. You’ve got to go back to the developed markets which used TRI. I’m not against any principle on transparency or a better understanding of what returns are. The fact that you have so many institutional and sophisticated investors, who are investing because that also is the theme behind the passives. So for them, the benchmark is like sacred. Because they are looking at something that will beat benchmark by 50 or 100 basis points and that is seen as good performance. So in that sense, the nuances of what the benchmarks are are very relevant. For an ordinary guy who’s been sold an SIP of Rs4,000 a month by an IFA, this is a debate which is mostly not relevant. But that said, as Nimish said, if you have to do it, we’ll do it. I don’t have a very strong view that we should not do it. Is it going to make the industry a lot more transparent so people should not buy it now that I’m being told of a total return index? I don’t think so.

Halan: I don’t think the question is about, this is the one thing which will make the industry completely transparent. But I think with mutual funds, we are looking at third generation of reforms and it is going to be a tinkering here and a tinkering there. Your big reform is over, I feel. This is your third. So is this another tinkering which needs to happen?

Parekh: Just to clarify, it is not with some vision that we took this decision. It was just a conversation. And there was no reason to say no to it. Having said that, when I hear all the seniors here, the comment I have is, since we are talking fiduciaries, since we are saying that we have been generating massive alpha for so long and we have the capability to do it, why worry about it? And if we think it’s right, sometimes do right things ahead of time.

Nilesh Shah: I just want to say one thing. Let the parents of companies whose subsidiaries and joint ventures are in India also start following that trend because we’ll be setting up a new trend.

Halan: Any rebuttal to that?

Parekh: India is the fastest growing economy, we take pride and we say that we are ahead of the world. So let us take the first step and let others follow. Let parents follow us and be proud about it.

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