‘My retirement plan is very much driven by mutual funds’

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Milind Barve retired as the managing director of HDFC Asset Management on 31 January after a roughly two-decade-long career with the fund house, which he led from its very inception. Mint spoke to him about his experiences and thoughts on investment ideas. Edited excerpts:

What were the two highlights/successes of your time at the helm in HDFC AMC? What were the two challenges?

The acquisition of Zurich Asset Management in 2003 would be the first highlight. Before that, we were known as a good fixed-income fund house. We also had a good equity business. But what we wanted was a high-quality, high-performing equity business.

Zurich was doing extremely well and had a great track record and we were glad we were able to close the deal. If you recall, 2003-08 was a great period for the equity market and hence the AMC’s more rounded personality has been recognized as a good player in the equity business as well as the debt side.

Another important milestone for us was the listing of the company in August 2018, after many months of hard work.

In terms of challenges, the entire industry faced a challenge with the financial crisis of 2008-09. We realized that as a large fund house, we will have a bigger problem than what small fund houses will face. Again, in May 2020, there was a rush from investors to take out money, particularly from credit risk funds but we were able to navigate that challenge reasonably well. The liquidity provided by the RBI and Sebi improved the position quite rapidly and redemptions eased in a month’s time. Of course, the credit risk category as a whole has come down from 70,000-80,000 crore to 30,000-35,000 crore.

What has caused the industry to reach where it has and what’s holding it back?

Mutual fund products are still not well communicated to the common man. I’m not talking about people who are well educated or well informed, but rather the mass market. Over a period of time, with Sebi initiatives like investor awareness programmes and distributors’ efforts, awareness of fund products and tax benefits has begun to increase. However, there are so many products and product types and options like growth and dividends. People are well served if they have someone as a distributor or adviser. Commentators nowadays track at monthly inflows and outflows. However, note that there are only a little more than 2 crore unique investors in mutual funds. Compare that with bank product penetration. There is a huge scope to grow. So, I don’t worry about monthly industry AUMs (assets under management).

What is your advice to retail investors in a market that has recovered sharply post covid?

From 23-24 March, the market has run up around 90%. But if you look at the market before the lockdown, it is only up around 15%. There are parts of the market that have become very expensive. If you are investing in those parts, the upside may appear limited. However, there are parts of the market that are not expensive, which will provide reasonable value. The average PEs and other multiples of the market hide the distinction between the two. This is a stock picker’s market and you have to be careful to understand which part or theme will work.

How essential is the individual fund manager to an AMC’s performance? Has process replaced personality in today’s mutual funds? If so, to what extent?

Individual fund managers are integral to the industry and the investment universe. Fund management is still very much a matter of skill. If performance is machine driven, everyone could buy the same machine or algo and get the same return. Having said that, you cannot run an institution based on the whims and fancies of an individual. Neither can a fund manager alone drive the outcome nor can just the process drive the outcome.

What are your post-retirement plans?

I’m 63 and I have worked for almost 37 years in the HDFC Group. I don’t own the company, but I’ve been its founder CEO since 2000. I think there is a time when you should be willing to hand over the mantle to somebody who is competent. Navneet Munot, as you know, will take over from me a few days from now. Navneet brings long years of experience in the industry and an outstanding career in SBI Mutual Fund. I have been very impressed with his understanding of the industry and vision for the future and people-focused approach. You should retire when people ask why and why not.

You are a mutual fund veteran. But from an investor point of view, how have mutual funds helped you in your retirement plan?

My retirement plan is very much driven by mutual funds. I’m not a person who doubts active management. Of course, you may have a part of your portfolio in passives, but you need to create a blended portfolio of active and passive funds and have a reasonable eye on asset allocation between equity and debt, which I have done.

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