Three public sector unit (PSU) mutual funds - SBI MF, UTI Asset Management and BoB MF - were selected by the government for the purpose.
It is speculated that 5-10 per cent of the PSU cash reserves of up to Rs 1,20,000 crore (Rs 1200 billion), will flow into the three PSU fund houses.
Syed Shahabuddin, chief executive officer and managing director, SBI Mutual fund, spoke to Priya Nadkarni on the company's strategies and future plans.
The Ministry of Finance has allowed cash rich public sector undertakings to invest their surplus reserves in state-owned mutual funds. What kind of inflows do you expect?
The kind of money that can come into PSU mutual funds is tremendous. Some public sector undertakings are in talks with us, though nothing has been decided yet. They will invest in the current schemes in the cash segment including 90 or 180 days fixed maturity plans (some of them may be rolled over), instacash (ultra short-term debt plan) schemes since they definitely offer better returns than a fixed deposit with a bank. We will not launch new schemes only for these customers.
You have come out with 18 debt schemes since January 2007 and one equity-diversified scheme (SBI Infrastructure Fund Series 1). Do you remain a debt heavy fund?
Not at all. In fact, of the Rs 23,000 crore (Rs 230 billion) total assets under management (AUMs) as of September 19, Rs 6,000 crore (Rs 60 billion), or around 26 per cent, is in non-equity schemes. The rest is in equity schemes.
We haven't seen too many new fund offerings on the equity side from your fund house. What is your take on the flurry of new fund offerings that the market has seen?
There are some equity schemes in the product development stage. We have plans to launch around six equity new fund offers (NFOs) during the year. Mutual funds need NFOs to increase their AUMs since they invariably collect more money this way rather than through existing schemes.
Being a PSU mutual fund, do you leverage on the SBI brand name to distribute your products? How do you look at the entry load issue?
We use three channels to distribute our products - big share brokers such as Bajaj and Karvy, which mainly sell our products to high networth individual clients, independent financial advisors such as small chartered accountants and the bank channel. Even within the bank channel, there are certain banks such as HDFC Bank, Citibank and ICICI Bank that treat it as a wealth management programme. Till very recently, State Bank of India was selling only SBI Mutual Fund products, but now it has also started selling other funds.
Though we adopt holier-than-thou attitudes, we should not forget that mutual funds were introduced to take the cult of equity investments far and wide.
Equity schemes need some amount of establishment. Why are similar recommendations not made for insurance companies?
Their first year premia are exorbitant, almost 60 to 70 per cent.
Sebi chairman M Damodaran has said that he is not very happy with the quality of inflows in MFs. There are instances when the parent firm will be parking their assets with their mutual fund subsidiaries to boost their AUMs. What is your take on it?
Why shouldn't they? I don't see anything wrong in that. There is more trust, more synergy that way, and you will put your money with someone whom you trust.