``ELSS schemes are important investment vehicles which drive long term money into capital markets through funds collected from retail investors``, says Hiren Dhakan, Associate Fund Manager, Bonanza Portfolio in an exclusive interview with Leena Chandan of Myiris.com.
Hiren Dhakan manages two fund-of-funds for the company. He`s a PGP (Finance) from MIT School Of Business, Pune.
> What is going to be the biggest theme for mutual funds in 2011?
2011 is expected to be a volatile year for global equities. While the US economy is still struggling to show some concrete signs of sustainable growth, many Asian countries are suffering from high inflationary pressures. Besides that, with the inflation being more of a supply side issue now, its becoming very difficult for the Reserve Bank of India (RBI) and the government to control the inflationary pressures, especially food inflation, solely through monetary policy and liquidity management. We expect the government to step up spending and work out on the infrastructure bottlenecks and drawbacks in agricultural infrastructure especially storage. Thus, this expenditure is expected to benefit the bond markets broadly due to the reduction in pace of rate hikes. The bond yields which are touching new highs may soften gradually over the year. The move may also benefit infrastructure space and banks generally. Thus, income funds and short term income funds are expected to do good over the year. We might also see revitalized interest into arbitrage funds.
> Reliance Mutual Fund (MF) has launched systematic investment plan (SIP) in gold through Reliance Gold Savings Fund. What`s your view on the same?
We`ve been for long advising our clients to have atleast 4% of their portfolio into gold. The new fund is the most appropriate way to build-up the gold portion of your portfolio gradually over the long term. The fund is highly suitable to retail investors which may participate into the returns of gold with a monthly investment of just Rs 100. Moreover, the client doesn’t need to worry about key issues like purity, storage and demat account. However, one must keep in mind the high exit load of 2% that the fund has come out with if you exit for one year of investment.
> With the markets shedding over 2,000 odd points or 11%, what kind of trends are you expecting in Average AUM for the industry in the upcoming quarter?
We might see some redemption from money market funds and short term funds due to quarter end commitments. We might also see many FMPs maturing during the period. Thus this might lead to decrease in the debt AUM of the industry. The equity AUM may continue to be volatile, but if the budget proves to be a positive catalyst, we might see increased inflows into equity schemes, especially midcaps.
> What kind of funds will do well considering the current market environment?
In the current market scenario, fixed maturity plans (FMPs) are the best options available with the equity markets looking sluggish. These are excellent tools to zero-in into the high-yields that are prevailing in the bond street at the moment and that too with high tax efficiency.
> Which sectors as per your opinion are likely to emerge as star performers over next one year? Which sectors one should avoid at this point of time?
Infrastructure space, especially power is expected to outperform broader indices in the coming months looking at the hit the sector has taken and the importance and government spending the sector is potential of in the time to come. Banking is also expected to prove to be the lead runner with favorable credit-offtake and reduction in the pace of rate hikes by the RBI. FMCG could also be one the index drivers. One should be cautious about telecom until the uncertainties looming around are resolved.
> With the budget around the corner, what kind of reforms are you expecting in the mutual fund industry from Pranab Babu?
In the mutual funds industry, the short term capital gain tax on debt schemes is taxed as per tax slab. This rule should be relaxed to some extent to allow high networth individuals (HNIs) and to some extent even corporate to invest into these debt schemes for short term. This particularly applies to the case of FMPs where most of them are of duration under one year. This move would help the industry garner retail debt AUM and lessen the dependency on corporate money. The move could also help clients invest into these schemes and maintain their asset allocation.
The tax status of ELSS scheme which is exempt under Section 80C should continue to remain so and should not be withdrawn. ELSS schemes are important investment vehicles which drive long term money into the capital markets through the funds collected from retail investors. This move could deepen the equity penetration in India and make the domestic markets less susceptible to foreign flows.