G Pradeep Kumar, CEO, Union KBC Mutual Fund, has over two decades of experience in Investment Funds business in India and abroad. Earlier, he was with IDFC Investment Advisors Limited as the Chief Marketing Officer. He has also had a stint with UTI Asset Management Company Private Limited as Senior Vice President with overall responsibilities for the Western Region Sales and International Sales. Between May 1997 to March 2004, he was with UTI International Limited as Director & CEO with responsibilities of the entire business.
Union KBC is a Joint Venture setup between two large institutions, Union Bank of India and KBC Asset Management NV., while Union Bank of India holds 51% stake in our organization the remaining 49% is held by KBC Asset Management NV through its 100% subsidiary KBC Participations Renta. Union KBC Asset Management Company Private Limited (the AMC) offers approved investment funds, open-ended equity funds and other structured products, so as to bridge the gap of investor's financial needs. The AMC will leverage on KBC Asset Management's expertise in the global fund markets and KBC Asset Management's Joint Support Model with Union Bank of India’s unrivalled brand value, knowledge of their customers and extensive network, which will represent the perfect blend of ingredients to create a strong asset management business in India.
Replying to Anil Mascarenhas of IIFL, G Pradeep Kumar, says, “Mutual fund industry is going through a tough phase. Investing at all possible market dips is an ideal situation, which can be availed by investing systematically.”
Give us a brief overview of the mutual fund industry.
Mutual fund industry is going through a tough phase. For the whole of last year was dominated by Fixed Maturity Plans (FMPs) on back of expectations of declining interest rates and lack of interest in equity funds. Apart from FMPs, other type of mutual fund scheme that were able to see some traction were Capital Protection Oriented Funds (CPOFs), hybrid funds and a very few equity scheme from newer AMCs. Gold ETFs started losing their sheen as global gold prices started declining after seeing good growth in previous financial year.
How do you view the RBI moves especially in the last couple of days? What impact do you see on your funds?
On the concern that the US Federal Reserve may start tapering it’s Bond buying program earlier than expected, Emerging Markets (EM) have seen sharp fund outflows over the last month. This has put almost all EM currencies under pressure as they depreciated sharply last month. EM countries like Brazil, Indonesia and Turkey have responded by raising interest rates. Instead of raising the benchmark rate, RBI has chosen to tighten liquidity through the indirect measures announced last week.
In our view instead of raising benchmark interest rates, which is a structural change, the RBI capped the REPO window and raised the MSF rates. It is interesting to note that RBI chose these measures instead of more conventional ones like hiking CRR or Repo rates to tighten liquidity and raise short term rates. It seems that RBI decided on these measures as they can be more easily reversed than signaling a change in direction in the broader monetary policy if it had raised Repo rate. Raising CRR would not have had the same effect as the above measures as banks would have continued to have access to liquidity from RBI at a lower rate of 7.25% through LAF. The point I am trying to drive home here is that these are temporary measures to curb forex volatility and are likely to be reversed within a few months. RBI might want to wait till September to see how US Federal Reserve progresses on QE tapering. As and when these measures are reversed, I feel we are likely to see rates at both the shorter and longer end moving lower.
Tell us about Union KBC. What is the investment objective of the fund?
We are a joint venture of two complementary partners with Union Bank of India holding 51% and KBC Asset Management NV 49%, through its wholly owned subsidiary KBC Participations Renta.
Union Bank have spent over 90 years (estd.1919) building a well-respected brand. Union Bank’s network of over 3500 branches is spread across the length and breadth of India. It has approximately 30 million customers, to whom they offer a wide range of financial products and services. Union Bank is committed to the Bancassurance model, with the establishment of Union KBC AMC being a logical extension of the banks vision to become a financial super market for its customers.
KBC Participations Renta is a 100% subsidiary of KBC Asset Management NV which is a leading European Asset Manager active mainly in Belgium and Central Europe. KBC Asset Management is well known for its expertise and know how in the asset management business, innovative products and close cooperation with its distributors and extended focus on trainings, coaching and offering of investment advice.
Union KBC AMC shall endeavour to manage the investment portfolios with the objective of delivering long term, consistent and superior risk adjusted returns as compared to the respective Benchmarks.
Further, the AMC shall ensure that the various portfolios are managed as per the investment objectives of the respective schemes and in compliance with the letter and spirit of regulations.
Brief us about the investment philosophy.
The investment philosophy of the AMC is directed towards providing optimum returns to investors and each Scheme of the Mutual Fund has a different risk/return profile which determines its investment strategy. The fund house follows a combination of the bottom up and top down approach for making investments, based on in-house research.
What factors would increase appetite for investing in mutual funds?
Mutual Funds are, as a class, very good saving instruments for retail investors. They are transparent, cheaper and more liquid compared to other comparable instruments. What is required is a more effective distribution model that would take mutual funds to the door steps of more and more investors. In our experience, we have seen that wherever we are able to reach out to investors, the penetration has been very good. The other factor that needs to be worked on is the positioning of different products. I think there is a strong need to communicate the value proposition of products in a more easily understood way to potential investors.
Your outlook on the economy, currency, debt markets over the next 12 months.
External situation is the biggest concern for our country right now. Depreciating currency puts enormous pressure on the economy as a whole and broadly lowers standard of living for the populace. Government has tried to bring current account deficit under control by targeting gold imports. We can expect further measures by the Government to rein in the CAD. On the fiscal front, the Government met its target last year by sharply curtailing planned capital expenditure. It would have been more encouraging if the government had instead controlled the revenue side of the expense. Coming general elections put a question mark over the likelihood of the Government meeting this year’s target. Till these twin deficits are in the comfortable zone, currency would continue to be at the mercy of global short term flows.
Your view on the debt and money market. What kind of balance should investors have in these times?
Recent IIP number figure of -1.6% for May highlights the headwind that industry and the broader economy are facing. Analysts have lowered their GDP forecasts for the current fiscal year. High interest rates would further smother the economic activity. Thus RBI would be keen to get back on the monetary easing path as soon as the global and domestic macro situation allows them. Meanwhile the Government is continuing to take steps to improve the BoP situation. On 16th July it released another round of measures to improve India’s position as an investment destination and attract longer term flows. Government announced increasing the FDI cap in Telecom and a dozen other sectors. After the recent sharp surge in longer bond yields and considering the above mentioned catalysts in place, we believe the longer tenor Debt funds are well placed to capture the downward rate movement as and when it happens, however, investors may have to be patient in the short run. Money market funds have also grown attractive on the back of sudden spike in short term rates.
Your view on the regulatory conditions. What are some of your suggestions?
There have been some positive regulatory developments like introduction of special cadre of mutual fund distributors, additional expense that is allowed to be charged to the schemes for generating business from cities apart from the top 15 cities, introduction of direct plans to incentivise investors who do not come through a distributor for investing in mutual funds etc. All these investor friendly regulatory measures are poised towards increasing the retail penetration of mutual fund products and will help the industry in the long run.
What books have you been recently reading? Any key takeaways.
I have been an ardent P G Wodehouse fan for a long time. I am not really into too much of heavy reading. However, I liked Outliers by Malcom Gladwell which really gave a completely new perspective on the role of circumstances in the success of people.
What advice would you give retail investors in the present situation?
In the current market scenario I would like to advice retail investors to plan their allocation based on their short and long term goals. A disciplined approach towards investment and investing at all possible market dips is an ideal situation, which can be availed by investing systematically.
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