“The Mutual Funds Industry will only get bigger”, says Lakshmi Iyer, CIO, Kotak Mutual Fund in interaction with Paytm Money.

Paytm Money
Paytm Money
Published in
5 min readJul 30, 2019
Lakshmi Iyer with the Paytm Money Team

Ms. Lakshmi Iyer, CIO — Fixed Income & Head-Products — Kotak Mahindra Asset Management Company, spoke to the Paytm Money Team answering some key questions on Mutual Funds. Excerpts from the conversation.

Paytm Money: How has the mutual fund industry evolved in India? How effective have mutual funds been in achieving the objective with which these were started?

“SIP has become a household name among investors. Industry — including manufacturers and advisors getting together to create awareness among the investors about mutual funds has resulted in the overall growth in the industry. Showing the right things will help investors in absorbing the right concepts of investing and implementing the same. Platforms like Paytm Money have also contributed a lot to encourage small investors to venture into the domain of mutual fund way of investing in financial asset classes, which was a very new concept as compared to gold or real estate. Demonetisation had a big impact — mobilizing savings into mutual funds” - Ms. Lakshmi Iyer.

Paytm Money: How has the mutual fund industry evolved in India? How effective have mutual funds been in achieving the objective with which these were started? (Most decisive factor as per you which has led to this growth)

Ms. Lakshmi Iyer: SIP has become a household name among investors. Industry — including manufacturers and advisors getting together to create awareness among the investors about mutual funds has resulted in the overall growth in the industry. Showing the right things will help investors in absorbing the right concepts of investing and implementing the same. Platforms like Paytm Money have also contributed a lot to encourage small investors to venture into the domain of mutual fund way of investing in financial asset classes, which was a very new concept as compared to gold or real estate. Demonetisation had a big impact — mobilizing savings into mutual funds.

Paytm Money: Owing to the recent liquidity crisis, investors might have developed a perception that debt funds are risky. What steps can investors take to reduce the portfolio risk?

Ms. Lakshmi Iyer: The fundamental mistake which investors make is to check the NAVs every day. This not only induces stress but may also lead to a tendency to exit if they see that the NAV isn’t growing as per their expectation. You need to understand that money will take time to grow and wealth isn’t created overnight. It is necessary to understand the difference between mark to market loss (notional loss) and actual loss. Actual loss happens only when you sell the units of the fund.

Don’t get carried away by noise and learn to differentiate between noise and news. If you are able to control greed and conquer fear, then you will be on the right track. If you stay the course and have a diversified portfolio, then your returns will be in line with your expectations.

Investors need to define their investment horizon properly and invest accordingly. If your horizon is one month, then liquid funds would be more suitable than a volatile product like a Gilt Fund. Basically, fixed income is an all-season category wherein funds are available across various maturities for different interest rate cycles.

Even advisors need to educate the client about choosing funds as per their investment horizon. This can help in managing the portfolio risk to a great extent. The critical point to note is that no mutual fund guarantees assured returns as returns are a function of the underlying asset class.

Paytm Money: GILT Funds are known to be highly volatile. How far are these funds suitable for a long term investor?

Ms. Lakshmi Iyer: If you have a long term investment horizon of say 10 years, then getting into debt funds may not be the best option. If you are clear about your risk appetite and know that you can handle turbulence in the market peacefully, then equity fund is suitable for you. For a shorter investment horizon, you may invest in liquid and or ultra short term funds. In today’s market, given the benign interest rate scenario, one could consider gilt funds with a 3-year investment horizon. You can opt for SIPs in case of equity funds. You need to make fund selection decisions by keeping all these factors in mind. This includes your risk appetite and investment horizon.

Paytm Money: Which unique benefits of debt funds would you like to highlight to encourage investor participation?

Ms. Lakshmi Iyer: Apart from the often-repeated benefits of debt funds i.e. regular income generating potential and stability, other advantages of investing in debt via mutual funds are ease of transactions, liquidity, and transparency. Most open-ended funds offer daily liquidity.

Debt being a complex domain altogether may look intimidating for a retail investor. Mutual funds engage professional fund managers to handle your portfolio and free you from the stress of constantly tracking market movements. The beauty of investing via mutual funds is that they offer solutions to manage even very short term surpluses for the investor. For first time investors too, debt funds could be a good way to get their feet wet before going for a full-fledged equity portfolio.

Paytm Money: Amidst the rising bond prices and current levels of inflation, how beneficial will it be for a retail investor to invest in fixed income funds? Within debt funds, which subcategory may suit someone who is just venturing into capital markets for the first time?

Ms. Lakshmi Iyer: If you have money for less than 1 year, then it is good to start with ultra-short / low duration category funds. Those with an investment horizon of 3 to 5 years may look to allocate money to GILT Funds. If you compare the 10-year yields of sovereign bonds globally, Indian G-sec yields are one of the highest among large economies. As compared to other categories of debt funds, GILT Funds are safer with regards to the preservation of capital due to the sovereign nature of the underlying asset. Today, there would be more number of investors holding tax-free bonds as compared to GILT mutual funds. Tax-free bonds are quasi-sovereign in nature and tend to mirror yield movement in gilts too. Hence, one could look at Gilt Funds even for holding very long term monies in lieu of direct bonds.

Paytm Money is India’s largest online platform for mutual fund investments and the wholly-owned subsidiary of One97 Communications Limited that owns & operates Paytm. Headquartered in Bengaluru, its 250+ member team is led by Pravin Jadhav, Whole-time Director. Paytm Money is the only platform that has partnered with all 40 AMCs (Asset Management Companies) covering 100% of industry AUM of the mutual fund industry.

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