Is the Xerodha Execution Platform the only one eligible to sell mutual funds directly?
So we got a product called Coin a long time ago and we don’t charge for selling these live plans. First, I think these direct plans are great. They save customers a lot of money and that’s what SEBI is doing now because historically many distributors have been paying a lot of fees to sell different schemes, different mutual funds. So I think this is a good thing.
Now I feel that allowing a fixed fee or a subscription based model will further encourage platforms, especially new age platforms. It allows them to sell the right product with some kind of income coming to them. I think the main thing here is to reduce how much you charge. I think it should be a nominal amount that doesn’t affect the end retail user when the retailers buy a direct plan. I think the Net-Net is good for the ecosystem.
So when SEBI says no fees and no commission, be it a fund house, be it an investor, of course, how do you think it should be structured to make it better for the overall ecosystem. platform?
Well prima facie I just read the circular and if I were to guess I would say that the end user or retail consumer should probably pay no more than a quarter percent, 20-25 bps on a one time basis. It’s not likely to be a recurring charge but I think it can be tied to something like that and people can compete under that price band. But I guess you can charge this 20-25 bps per subscription, one time payment.
I don’t think they’ll charge more than that regardless of every new enterprise model that allows retail to buy these direct plans. Underneath that is a good thing but I don’t think it should be above that.
So we will start to see circulars issued to this effect, said the Seibi chairman? The options can only be viewed through execution platforms by AMFI, the industry body for mutual funds or brokers. We don’t have many details. However, a consultation paper has already been released stating that the platform should be allowed to pay the clients or the fund house for each transaction. You are talking about some kind of cap. Is this basically what you mean and being able to monetize will be the platform’s need?
Yes, in recent times, a lot of money has gone into fintech startups and they have been able to provide free services to many customers and retail audiences. As the underlying ecosystem changes, this capital infusion will be harder to come by in 2023 and 2024, so it will be appropriate for the regulator to implement these platforms. An entrepreneur should be able to run these companies in a viable way and be allowed to charge something that goes a long way.
In addition, another important requirement must be fully disclosed here. I think that if distributors are paying some fee from the fund house, this should not be information only for the fund house, the manufacturer and the distributor and this should be open so that the customer can understand exactly how much he is earning. And where does he get it from? If these things are taken care of, the ecosystem will be a little more productive.
He believed that platforms also gained popularity simply because these direct products had no commissions for mutual funds, so it was cheaper for the client. Could this perhaps be seen as leveling and leveling the playing field?
Yes, definitely. Some good publications that people often miss are in many cases distributors for different schemes. I won’t fix it on a specific plan here, but they are often paid for by the manufacturer and this information is often not disclosed to the end user or retail customer. If you force this to be stated clearly, I think it will bring some clarity to all three parties – the manufacturer, the distributor and the retailer who invests in the retailer.
So what will change for Zerodas, Upstox, ICICI Prus, not just the grown up investors?
I think it’s too soon for us to give a good opinion. I don’t know if it will make any difference for the retail customer but I think SEBI is doing the right thing. This is another step to increase transparency, and what CEB has been doing, the regulator has been working to sell the net-net in many ways.
The level of transparency in the ecosystem is increasing and this makes the whole financial ecosystem in India a little bit weaker so we are definitely moving in the right direction and I hope that there will be no problems and adverse events like intermediaries and participants in this finance. Due to all the control changes brought by the controller, the ecosystem explosion is greatly reduced.
As the year draws to a close, it’s a year of all-time highs in the stock markets. Has it been the year when India was released, when India was better than the rest of the world and Nikhil Kamat was going to make it to 2023?
I feel that optimism is a very relative term. In the year I don’t think 2023 will be as good as 2022. Most of the headwinds we’ve had today, I was looking at the news from China earlier today and they’re expecting a large number of COVID cases to come back. I feel that geopolitical tensions, inflation, the rising interest rate cycle are probably the factors that are tempering sentiment around the world that is not going away anytime soon.
As we speak, India seems to be free from international violence. While most of the world is adjusting 30%, 40%, 50%, we feel like we’re at an all-time high, so from a valuation perspective, we’re entering the New Year with a lot of headwinds in what one might call bubble territory.
So I am not very optimistic about next year. I feel like last year was better than last year in any situation I’ve ever seen. I feel that return expectations should be very upset and given the high valuations we are currently sitting on for retail it would probably be prudent to multiply more than they did. If they have 70-80% equity exposure it would probably make sense to put some income in there, fortunately in a rising interest rate cycle one can get 7-7.5% return by investing in risk-free instruments. That bet in between I want 7.5% risk free return or 7% risk free in bank FD or risk free return of 10-11% in stock markets which is what Nifty normally did. In the last decade or two.
I don’t know how much that 2-2.5% delta is worth for the added volatility and risk that stock markets can bring. Doing well with high inflation and perhaps building a more diversified portfolio.
And speaking of new age companies, this is the year where we have seen a complete price cut from the US to India. However, these companies are considered the future of the policy market. Being someone who has talked about breeding, what advice do you have?
However, as technology adoption and participation in India increases and the middle class grows, these companies can be very relevant and very profitable in 10 years. But I don’t know if it’s worth valuing these companies as if it happened tomorrow. You have to wait for these companies to become profitable, wait for them to grow and mature, and then value them accordingly.
For example, if you look at America today, there are companies that are more innovative, take Meta for example, these companies are at 10-11 times revenue and they are spending a lot of money behind innovation and research. So why would one value domestic companies so much more than Nasdaq-listed equities that are practically putting more money into research and innovation, I think is a hard argument to justify.
I still feel that we are in a very expensive region, especially in the correction that these companies have seen in the past, most of them are still not profitable, and in the last five to ten years, a lot of foreign capital supply money has continued to flow into these companies. It has become because the people are more considerate.
The retail business is very careful and I really try to deal with the financial issues before allowing them to collect more money from the retail audience. So I think it’s a tough time for a lot of companies, it’s a big time for a lot of the big index companies. moats as well. So I will be more cautious about 2023. I don’t think it will be as good a year as we saw in 2022.
If I held a gun to your head and gave you 1000 rupees and said invest on the first trading day of the new year, where would you put that 1000 rupees?
Well I’m probably 30% debt, 20% gold, another 40% into equity and maybe 10% into options and in equity I prefer high quality, profitable tech companies in the Nasdaq over crappy, overpriced tech companies. I think that would be my ratios, 30, 20, 40 and 10 for options.
(Disclaimer: The advice, suggestions, opinions and views given by the experts are their own. These do not represent the views of The Economic Times)