Radhika Gupta, MD and CEO, Edelweiss Mutual Fund spoke to TNIE on current equity market situation, closing of SIPs and the right kind of mutual fund portfolio one should have. Excerpt:
With recent market volatility, how are mutual fund distributors coping with SIP closures?
A: The February data shows SIP growth has been stable despite market conditions. Interestingly, SIP closures are significantly lower in regular plans versus direct plans. Distributors play a crucial advisory role – when markets dip, they counsel investors against impulsive exits. Experienced distributors who have set proper expectations face minimal issues, while newer ones may struggle. The pain is more visible in direct channels where investors lack guidance.
Are thematic funds a necessary evil for the mutual fund industry?
A: Choice is essential in our diverse market. However, thematic funds must follow two rules: First, avoid ultra-narrow themes (like a hypothetical "cables & wires fund"). Stick to broad, sustainable themes like tech or consumption. Second, never launch a thematic fund at market peaks. At Edelweiss, we launched our IT fund when the sector was out of favor. Our philosophy is "80% dal chawal" (core funds like flexi-cap) and "20% pickle-chutney" (thematic/sectoral).
Explain your "dal chawal" investing philosophy.
Dal chawal funds are timeless, digestible core holdings – flexi-cap, large-cap, hybrid funds that work in all markets. Thematic funds are like pickles – flavorful but should never dominate your plate. Even mid-cap allocations are tricky in India because our "mid-caps" are often ₹80,000-90,000 crore companies! That is why I prefer flexi-cap funds that dynamically adjust across market caps.
How are younger investors changing the mutual fund landscape?
There's a generational shift. Older investors started with RDs and tax-saving funds. Today's 25-year-olds begin with SIPs and passive funds. But there's also dangerous speculation – crypto, SME IPOs, even borrowing for F&O trades. That is the scary part. Many youngsters don't realize that when you are 25, you have 10 years to build wealth – yet they chase "get rich quick" content. Recent market corrections, while painful, serve as necessary reality checks.
Institutional investors like mutual funds face criticism for participating in overvalued IPOs. Your take?
As managers of public money, we reject 70-80% of IPOs. Remember, an IPO is just one event in a company's journey. Page Industries fell 30% on listing in 2007 but became a multibagger. The problem is short-termism – judging funds based on single IPO allocations. Our retail IPO fund scrutinizes every opportunity, but investors must understand institutions invest with a 3-5 year horizon.
China proposes slashing fund managers' salaries for underperformance. Is this model viable?
Absolutely not. Indian fund managers already have "skin in the game" – 20% of my salary is mandated into our funds (I personally invest 70%). Performance-linked bonuses, ESOPs, and career risks naturally align our interests with investors. Extreme penalties would make managers risk-averse, harming long-term returns. Our trustees and boards already provide robust oversight.
With tax benefits shrinking, what is pulling investors to mutual funds now?
Pure growth potential. The 12.5% LTCG tax remains competitive globally. Interestingly, STT impacts traders more than long-term investors. The bigger shift is generational – post-1990s Indians have only seen rising prosperity. They invest not for tax savings but wealth creation, though we need to curb speculative tendencies.
As a mutual fund company, what should be the industry’s key priorities for the next 3 years?
The mutual fund industry has one mission. It should be to have 75 crore unique investors --
from 5 crore to 75 crore investors through initiatives like ₹250 SIPs. Second, expanding our distribution network from 1 lakh to 10 lakh advisors to boost financial inclusion and entrepreneurship. Third, fostering product diversity while maintaining rigorous standards – we will see more AMCs with distinct styles, and possibly more listings like ours.