From the MDs desk

Dear Friends,

We have come far from days when mutual funds was considered a difficult subject to understand for most investors.

Today the mutual funds industry has around 1.2 cr investors committing around Rs 4000 cr as equity investment through monthly SIP alone.  Despite the volatility that the market saw in the last few months, the steadiness of the retail investors instils confidence and gives much hope. It also underscores the fact that the quality of investment advisory has been stellar.  But it is time to take on the higher challenge.

The fact remains that still the significant portion of Indian investors' financial savings is channelled into banking investment products. The investors' perception of security and certainty of return from their banking investments has a very strong emotional rooting. Changing behaviour from that will require much skill, knowledge and communication. But it may prove to be rewarding in the long run.

And the time is opportune. The declining interest rates have reduced the real returns for such investors. In contrast, the investment into mutual fund accrual funds may emerge as a competitive option.

Today, the fresh fixed income investors can look at investing in well-managed corporate bond based short term/credit funds for a higher yield. More so, a 10-15% allocation in duration play, especially given the present yield levels may also be opportune. Fixed maturity plans (FMPs) also look good to lock into yields given the upward movement in rates. Investors with marginally higher risk appetite may look at MIP category with a 3 year time horizon.

But the real communication and convincing that is required is to convert the long term bank investor into a long term equity investor. Nobody has come across a person who has become rich by investing in deposits. The wealth is created by doing, or being part of profitable business. And doing business involves risks. The high wealth is the reward for taking that risk and yet providing goods and services profitably.  

From the investors' point of view, a convenient and a more reasonable option is to participate in such businesses by investing in their equities. This gives investors a proportional ownership into that business. But the question arises, as to which business (or its share) to buy. That's where the mutual funds come in. They provide a portfolio of businesses to invest into. They have years of experience in analysing the businesses, understanding their value, their long term potential; and have the understanding of the risks involved while investing in such businesses. And in return, the fee they charge is one of the lowest.

So from investors viewpoint, unless he/she has ample time, stock picking skill and discretion about the economy, sectors and businesses; it makes more sense to invest in equities mutual fund and see their investments in businesses grow (measured through NAV) over long term.

Now, it is understandable that many won't have the necessary monies at hand for investment. This is where SIP comes in. SIP helps the investor to invest in equities mutual fund with as little as Rs 500 per month. Through this method, even a small investor can create long term wealth by remaining disciplined and steady through market highs and lows.

India today stands at the cusp of high growth trajectory. The inflation is relatively low, the infrastructure bottlenecks are getting sorted and the GST is about to come in which will make India a common market. This may create a potential for a long term growth in the times to come. And it is the important that Indian investors are well positioned to gain from it.


Thanks and Regards,


Nilesh Shah

Managing Director

Kotak Mutual Fund