'MF Industry Holds Potential To Reach A Size Of Rs 94 Trillion By 2025'

What with the markets booming big time, the av-erage investor is a bit too overawed, not knowing where to enter or to exit. It is here that mutual funds come into play as they serve investors across a range of risk appetites, says A Balasubramanian, Chairman of the Association of Mutual Funds in India (AMFI) and CEO, Birla Sunlife Mutual Fund. While mutual funds are a safer option for those wary of direct equity, Balasubramanian feels that ‘lack of conviction’ is among the chief reasons that keep people away from mutual funds. In this vein the AMFI chief also talks about the association’s efforts to increase investor awareness, MF penetration in smaller cities and the path ahead for the industry, in this interview to the Finapolis’ S Vijaykrishnan. Excerpts:

- S Vijaykrishnan

With the markets clocking new highs almost every other week, do you believe that mutual funds are similarly overvalued? On what factors should investors choose a mutual fund in these times?

Mutual funds are a platform to invest for the long term. Once the purpose, or in other words, the goal is decided, irrespective of market conditions, one should focus on asset allocation. One should remember that the money being invested is for long-term wealth or income creation and therefore one should stick to the asset allocation model. Once mutual funds are associated with the investor’s focused investment objective and its respective time period, short-term market movements become immaterial.

Even though equity mutual funds have gained share steadily over the past year, debt funds still hold the lion’s share in total AUMs. Even as interest rates have fallen steadily, are debt funds still an attractive investment?

Mutual funds offer both width and depth. They serve investors across varying gradient of risk appetites , and investment periods. As a nation, we have been classically had a ‘safety’ orientation to investments. Large holdings in savings accounts and the FD (fixed deposit) culture are testimony to this. Debt funds serve a large pool of investors looking to make tax-efficient gains while preserving capital. The last three years have brought in a positive wave in the market, which has been driving resurgence in equity as a category. This is a very healthy trend, and one which is very good both for the economy and the capital market. We are at a point where macro-indicators are in check, and our economy is steadily getting stronger. The economic environment and macro indicators are in place for debt funds to serve investors optimally, while complementing the equity component in their asset allocation.