Interview - Nilesh Shah, MD, Kotak Mutual Fund at Outlook Money Conclave 2018.
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00:00 At the current market levels, what would be your advice to the retail investors?
00:15 My advice to retail investors have remained the same for last 25 years.
00:20 It doesn't change with market.
00:22 They have to do three things.
00:24 One be a long term investor.
00:26 There's no shortcut in life.
00:28 Second, please maintain your discipline.
00:31 Please maintain your asset allocation.
00:34 Don't become too greedy when markets have delivered excessive return.
00:38 Don't become too fearful when markets haven't delivered return.
00:42 And third and the most important, please do regular investment.
00:47 You cannot time the market.
00:49 It's your time in the market which makes money for you.
00:52 If you do regular investments, you will average yourself in by measuring the ups and downs
00:58 of the market.
01:00 That's good enough.
01:01 According to you, what should be the minimum horizon for a long term investment?
01:06 The long term investor is one who is looking to pass some dharohar to the next generation.
01:13 Stocks are like kids.
01:14 They are meant for passing to next generation.
01:19 With the new long term capital gains tax being imposed on equities and equity like instruments,
01:26 what would you think would be the impact on the mutual funds systematic investment plans?
01:31 And what is the kind of so called erosion in the NAV or erosion in the return that you
01:40 foresee for an investor?
01:44 So one, there is a non-level playing field created between ULIPs and mutual funds.
01:50 ULIPs does not have taxation when people shift between equity and debt.
01:55 ULIP does not have taxation like long term capital gains.
01:59 So to that extent, we have to run a hurdle race, whereas ULIP will run a normal race.
02:04 Clearly, taxation authorities should create a level playing field rather than allowing
02:09 one kid to run normal race and other kid to run hurdle race.
02:13 But subject to that, I think mutual funds are right.
02:17 They are becoming part and parcel of everyone's life.
02:21 And even after payment of tax, we will meet reasonable return requirement of our investors.
02:28 Now with respect to going through an intermediary or investing directly in a mutual fund, what
02:35 is the kind of alpha that you see an investor can get over the long term horizon?
02:40 And I am talking about the dharohar that you were talking about when I pass on to the next
02:44 generation.
02:45 So, mathematics suggests that if you go direct without advisor, you will save on expenses.
02:52 Mathematically that can be proven.
02:54 But the reality is that life is not mathematics.
02:57 Life is not run on Excel sheet.
03:00 I have seen in 2008 when markets were really cheap, people were selling because they didn't
03:07 have a holding hand.
03:08 In 2008 beginning when markets were really hot, people were buying because there was
03:13 no one to remind them of discipline.
03:17 So the value of advice is best demonstrated in Mahabharata.
03:21 Kauravas had more resources but they chose the advice of Shakuni.
03:25 Pandavas had less resources but they chose the advice of Krishna and ultimately they
03:29 won the war.
03:31 You need a mentor, you need an advisor who can hand hold you through the ups and downs
03:35 and for that if you have to pay a price, it's worth it.
03:39 And another issue is in India we see advice usually comes for free.
03:44 How do you at Kotak Mutual Fund instill into your distribution channel or instill into
03:51 your investors that advice needs to be paid for because even SEBI wants that to be separated
03:57 from the distribution and advisory should be separate.
04:01 So one, like we have mentioned in this question, the need for advisor, need for mentor.
04:08 So we have been educating our customers that if you have knowledge, if you have dedication
04:14 like Eklavya, then you can learn archery on your own.
04:18 But otherwise please go and get Guru Drona in physical form.
04:22 So we have been educating our customers, our clients that if they have the knowledge then
04:29 they can come direct.
04:30 But if they don't have knowledge, they must need an advisor support.
04:33 Second, we are also working with advisor to equip them in technology.
04:38 We have launched a program called Go Digital that's helping distributors connect to customers
04:44 on a digital platform that helps them service them better, that helps them mind them better.
04:50 And I think this kind of approach will ultimately make customer feel the value of the advice.
04:56 And last question, what over and above what is prescribed by the regulator and what is
05:03 done by the business at general initiatives in investor education that you are doing as
05:08 a fund house, over and above what is prescribed or what has been agreed to by the industry
05:13 body Amphi?
05:15 Sure.
05:16 So one, if you look at the past kind of investor education we have done is great.
05:24 We have gone to every nook and corner of India and potentially every language to spread the
05:30 message of financial inclusion.
05:32 But if I look at the future, I haven't even scratched the surface.
05:37 Total folios in mutual funds is 65 million, unique customers might be 15 to 20 million.
05:42 My potential is 250 to 300 million.
05:46 That means whatever I have done, I have to multiply 20 times, 50 times, 100 times to
05:51 reach out to every single potential investor in India.
05:55 And obviously what we have done is not sufficient when we look at the future.
06:00 And I think this is a journey.
06:03 What we are trying to do in terms of investor education is one, speak the language which
06:08 investors can understand.
06:11 It's all about jargonless communication.
06:14 Second, it's talking in the language which they can understand.
06:18 It's regional language, not just English, Hindi.
06:21 Third, it's also leveraging technology to give them ease of investment.
06:25 Combination of these three things put together is helping us create a momentum which over
06:32 a period of time will make every Indian mutual fund investor.
06:36 Thanks.
06:37 Thanks Mr. Shah.
06:37 (audience laughing)