‘There is volatility, but there is also opportunity’

Last week, Mirae Asset Mutual Fund surprised the mutual fund industry by cutting the commission paid to distributors in three of its flagship schemes. The move, as expected, met with mixed reactions from the intermediaries. Swarup Mohanty, CEO, Mirae Asset, says the step is aimed to discourage heavy inflows in the mid cap, focused and tax-saving funds. Read the full interview.Mirae has decided to cut distribution fees in your mid cap, focused equity and ELSS funds. What is the thought behind this unprecedented decision? First of all, we have nine schemes in our equity basket. We have taken this decision on three schemes. People are saying we have cut brokerage, we haven't cut the existing brokerage, the decision is for the new investments. The SIPs that are ongoing will continue on the same brokerage. Fresh allocations in terms of lumpsum and new SIP registration will have the new brokerages. As a fund house we have always highlighted one simple fact- excessive inflows can damage fund performance. People construe it as a size issue, but our bluechip fund is Rs 16,000 crore, our large cap fund is Rs 23,000 crore. If you look at the focused fund, it is not a diversified fund. It has a concentrated portfolio of 30 stocks. Now, within 2 years the focused fund has AUM worth Rs 6,000 crores. That kind of inflow in a 30-stock portfolio comes with its own challenges. That is something that we are addressing. The mid cap fund is also worth Rs 4,500 crore in less than 2 years. In the backdrop of the industry losing assets for nine straight months, this fund is getting a 10% addition in AUM per month. That is not a small number. We all know that a lot of these flows come with past performance considerations. We have to retain the basic essence of the fund. Brokerage is a big lever for inflows in this market, but we feel that if we retain everything as it is and curtail future flows, it will be easy to manage the fund. The logic is to keep the interest of the investors intact. Does that mean the size of the fund is becoming an issue? Also, direct investments might continue to flow into these funds.No. Certain amount of inflow and size becomes easy to manage with time. If the same fund became Rs 6,000 crore in five years, it is a natural progression and won't be as difficult as it is at such an early stage. Also, we believe that these two funds- focused and wid cap - have been hugely owned by distributors. It is a huge part of the AUM. These are young funds.How do you think the distributors are going to react? Have they given you the feedback?It might be a new idea, but every fund house has a way of working. Our point is that if there is a risk that we can see could hit the funds, our job is to communicate that honestly. That's what we have done. I have been very pleasantly surprised with some of the reactions I have got. Some amount of it was negative and we anticipated that. Our point is - there are two types of discussions that can happen- one is the one that we are having right now. The other discussion that can happen is about the fund performance going down. I would rather have this discussion over that one. If I know something that can impact the fund performance, I have to do something about it. We can't let inflows damage the fund performance. That defeats our fiduciary role. As I told you the assets that we have got, no changes will be done to that. We have kept the interest of the distributor community intact. Future money shouldn't be given on these levels. Some one of them have reservations and we respect that. One thing that we have seen fund houses doing is capping the inflows, generally in the mid and small cap funds. That comes with its own risks. Have you thought about taking that route?We have. It is not like we didn't think about this. However, capping funds in a mid cap space comes with its own challenges. We did discuss this but we didn't believe it was the best for the funds. It is a very young fund, as I said earlier also. We want to be extra careful.With the second wave of covid hitting the market, how difficult will fund management be? What is your outlook?It is going to be difficult and that we have seen over the last two, three years in our industry. It is important to understand at this point that this business of fund management is more of a risk management business than a return generating one. The stronger you are in your risk process, the better you will be in the long run. My view is that as a fund management unit we have to be extremely cautious of the risks we are taking in the market. We have to safeguard the money and the trust that our investors have with us. Speaking of the current market, sure there is volatility but with that there is also opportunity. The second wave has led to corrections in sectors like BFSI, that's an opportunity. Some stocks are available at a price much lower than what they were 30-days ago.What is it that you would want to advise mutual fund investors at this point in the market?My advice remains the same- stick to your asset allocation and risk profile. I would want to add now that times like these actually tell you your real risk profile. If you believe your risk profile has changed in the last one year, stick to that. Get out of whatever makes you nervous and then stick to a confident portfolio. The last one year has proven that there is no such thing as waiting for a good time to invest. Those who stayed invested during the bloodbath, reaped the returns. So, stay invested.

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