'A large part of active could be replaced by passive'

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.

Revision of expense slabs by the regulator, the push towards passives, and the anticipated entry of several new AMCs translate into a greater focus on cost. Do you believe there is potential to drive the costs (expense ratios) down substantially from the current levels while still running the business profitably?

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.

How is the increasing proliferation of direct plans and the new age platforms changing the dynamics between the three key stakeholders - the investors, the distributors, and the manufacturers (AMCs)?

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 (basis points) 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