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Wed, 20 Oct 2021 | Mutual Fund Insight
A large part of active could be replaced by passive: Manoj Shenoy, CEO, IIFL AMC

A large part of active could be replaced by passive: Manoj Shenoy, CEO, IIFL AMC

The last year was a roller-coaster ride for many businesses, markets and investors. Fortunately, the world is bouncing back faster than anticipated. This year looks far more promising than last year. A large number of companies have carried out structural changes, which will ensure and boost growth in coming years. Corporates are clocking record earnings this year. The RBI and many agencies have pegged India’s growth between 9.5 and 10 per cent for FY22, which will hopefully bring us to pre-COVID GDP numbers.

Stock markets are at record highs after a lull of nearly five years. However, there is exuberance in stock markets and people should not get carried away and stick to their asset allocation. Have a model portfolio with the right mix of debt and equity to meet your financial goals and follow it in a disciplined manner. Investors should consult their financial advisors to make prudent decisions.

Reducing the expense ratio
All the above are welcome moves. Focus on cost optimisation by leveraging economies of scale is a great initiative. This will help us reach masses who will actually benefit from mutual funds. Our profits should largely be a function of scale rather than hefty margins. Passive strategies are an integral part of product bouquet, especially when creating alpha has become difficult for most fund managers. It doesn’t make sense for an investor to pay a fee when the fund manager is underperforming the benchmark on a consistent basis. This gives choice to investors.

Look at the US markets; the big boys like Vanguard and others manage more $15 trillion  in passive strategies. As we progress towards a developed economy and the information-asymmetry advantage dwindles, performing better than others becomes a herculean task. Hence, a large part of active could be replaced by passive.

Changing dynamics
In my view, large corporates, UHNIs (ultra-high-net-worth individuals), family offices and most informed investors have whole-heartedly embraced direct plans, thereby saving small costs on an annual basis. This makes sense for them since there is no need for financial planning.

However, a large section of society needs advisors/distributors. I believe an advisor acts as a mentor or guide to investors and walks with their clients for decades in the latter’s wealth-creation journey. What the advisor brings to the table is maintaining discipline, does asset allocation at different stages of life, educates on valuations, highlights promising sectors, sets investment objectives and manages the overall financial planning. These factors weigh far higher in value than mere cost saving of 40-50 bps in direct plans.

Rapid-fire questions

Investment guru/manager you admire the most: Warren Buffett

Business leader you’d like to emulate: Azim Premji

The most rewarding financial investment you’ve ever made: Through mutual fund schemes

Money mantra you swear by: Never follow the herd and stick to you asset allocation

If not a money manager, you’d be: A hotelier or restaurateur