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Reliance Mutual Fund, India's largest fund house managing Rs 1,02,066 crore in assets at the end of December 2010, sees the budget announcement to open domestic mutual fund schemes to foreign individuals as a booster for the local capital market and not just the fund industry.
When Financial Chronicle invited the chief of the fund to comment on the development, he painted a futuristic scenario, which may also see Indian fund houses tying up with foreign partners to sell domestic mutual fund products to their clients abroad. He strongly believes fund houses with strong track record and superior performance will attract overseas households, who are savvy investors. FROM our point of view, the move to open up mutual fund investments to foreign investors is a significant step. This move will help the Indian mutual fund industry to mobilise more foreign assets into Indian capital markets. Also, the announcement reaffirms our view that the finance ministry sees big potential in Indian mutual funds in attracting household savings not only from India but also from all categories of overseas investors into the domestic capital market. I believe this is a step in the right direction.
Now let us see what it means for the Indian mutual fund industry and for Reliance Mutual Fund. At the moment, there are 40-odd India focused funds that operate globally. Most of these funds are managed from London, Dubai or Singapore. If you see the returns of these funds, we realise that onshore fund houses have been able to generate better performance on a regular basis.
Why? Because, today if you are taking a bet on India growth story, based out of New York, all you can do is track the top 30-50 stocks. India being an emerging market, what gives an edge to onshore players is that they can look at more stocks and not just a few large caps.
For instance, at Reliance Mutual Fund, we track more than 700 stocks real time. We have the largest research team in the country on the buy side. We not only rely on external reports but also on our research team visiting managements and factories to get an on-theground feel of things. That’s the reason why we are able to generate lot of fresh mid-cap ideas, which become large caps over a period of time. So, while the fund managers sitting abroad may be able to track Infosys of today, the onshore fund manager is looking at the Infosys of tomorrow.
From our point of view, this has been the main reason why onshore fund houses are able to generate far better returns than offshore funds.
It is not that overseas investors were not able to invest in Indian market earlier. For instance, if an US investor wanted to invest in Indian stocks, he can invest in an ADR or he had to go for offshore funds, etc. But it was not a very convenient way of investing.
In the Western economies, the mutual fund industry is the size of the GDP. About 60-70 per cent of the population invests in mutual funds.
These investors are looking at the consistent performance of Indian markets and want to invest.
We believe onshore fund houses with their better performance can provide a better vehicle for participating in Indian capital markets.
It is not that things will change overnight, but it is a step in the right direction; gates have been opened. As things play out, I see Indian mutual funds going abroad for distribu tion tie-ups to sell their products to foreign investors.
Also, international advisers will get in touch with Indian fund houses. Yes, initially, international names that have presence in India will have an advantage, but this will only be for a short while.
Ultimately, the core of the matter is product performance and differentiation. If you are able to generate superior returns for investors, money will follow. It will not matter if you are a foreign asset management company or a domestic AMC.
There are many domestic schemes that have a phenomenal track record.
For instance, in our Reliance Growth Fund, which has a track record of more than 15 years, initial investment has grown nearly 50 times.
Through this opportunity the potential for garnering more equity mutual fund assets is tremendous, considering that equity assets of Indian mutual funds are only $50 billion compared with foreign investment of $350 billion in Indian equities. So, it is nearly 10 times.
Now we are waiting for clarification regarding know your client norms, whether the international KYC norms are applicable or they need to comply with local KYC.
Source :- mydigitalfc
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