The mutual fund industry in India consists of around 60 million unique PAN folios, indicating a penetration of 2.5 to 3% amongst the 1.4-billion people living in the country. One company that is looking to increase that proportion is investment company Zerodha, which aims to increase retail investor participation in the capital market by offering simplified mutual fund routes. Vishal Jain, CEO of Zerodha Fund House, feels 10 million more investors need to be brought into the mutual funds space. In a free-wheeling chat with BT Money Today’s Navneet Dubey, Jain talks about his journey in passive fund investing and how it could boost MF investor numbers. Edited excerpts:
ND: Can you tell me something about the professional journey?
VJ: I have over 25 years of experience in financial services, including 20 plus years building ETFs and passive products. My career in the AMC industry started as part of the founding team of Benchmark AMC, which launched India’s first ETF in 2001—Nifty BeES. I then joined Goldman Sachs AMC India in 2011 as CIO-Passive after the acquisition of Benchmark AMC. In my previous role, I was Head- ETF at Nippon Life India Asset Management Ltd.
I have been part of various committees and groups relating to the development of passive products in India. Recently, I was part of the “Working Group on Passive Funds” constituted by SEBI to recommend changes in Regulations and Market Infrastructure to foster the growth of ETFs and Index Funds.
Apart from work, I love to play tennis, listen to music and spend time with family.
ND: What is Zerodha Fund House?
VJ: Zerodha Fund House (ZFH) is an asset management company that is a joint venture between Zerodha Broking Ltd & smallcase Technologies Pvt Ltd. ZFH is a passive-only asset manager creating simple mutual funds in the form of Index Funds and Exchange Traded Funds (ETFs).
ND: What do you mean by passive-only AMC?
VJ: Passive management is an investment style associated with mutual fund products wherein a fund's portfolio mirrors a market index. Passive management is the opposite of active management in which a fund's manager(s) attempt to beat the market with various investing strategies. Mutual Fund products based on passive management are usually available as Index Funds and ETFs.
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ND: ZFH has launched its maiden funds. What are your projections?
VJ: Yes, the NFOs for the Zerodha Nifty LargeMidCap 250 Index and the Zerodha ELSS Tax Saver Nifty LargeMidCap 250 Index Fund are currently open and close on November 3, 2023.
It’s our maiden offering, and as a fund house, there are many firsts we are attempting with our focus on simplifying the experience for investors. Whether it may be our passive-only product suite or the way we approach communication and customer service, we are keenly awaiting investor response.
ND: How will your AMC be different from others?
VJ: ZFH is India’s only passive-only AMC. Our vision is to help individuals build meaningful portfolios through the use of simple, transparent, cost-effective mutual fund products that will help them achieve better financial outcomes.
ND: ELSS is an open-ended passive equity-linked savings scheme. What is the strategy behind launching such a scheme?
VJ: An ELSS scheme allows investors to take tax benefits under Sec 80C of the Income Tax Act with a 3Yr lock-in. As per regulations, any AMC can have only one ELSS tax saver fund that's either active or passive. Most AMCs have active ELSS funds, and we are launching a passive ELSS due to the strong proposition of the Nifty LargeMidcap 250 Index.
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ND: Please shed some light on the Nifty LargeMidcap 250 Index. How risky is the fund?
VJ: The Nifty LargeMidcap 250 Index aims to reflect the performance of the large and midcap companies listed at NSE with 50% weight allocated to each segment.
The Nifty LargeMidcap 250 Index consists of 250 companies which are part of the underlying Nifty 100 and Nifty Midcap 150 indices with 50% aggregate weight to stocks from the large and midcap segment each.
The Nifty LargeMidcap 250 Index covers approximately 84% of the full market capitalization, around 87% of the free-float market capitalization and approximately 69% of the total liquidity of all traded equity stocks on NSE based on 6-month average as of September 29, 2023.
The largest sectors in the Nifty LargeMidcap 250 Index are Financial Services (27.74%), Information Technology (9.06%) and Capital Goods (7.89%).
Being a balanced fit between the Nifty 100 and the Nifty Midcap 150 index, the Nifty LargeMidcap 250 index witnessed returns between the Nifty 100 and Nifty Midcap 150 index.
Since its inception on April 01, 2005, till September 29, 2023, the Nifty LargeMidcap 250 Index has delivered 15.8% CAGR as compared to 14.5% CAGR by the Nifty 100 Index and 17.3% CAGR by the Nifty Midcap 150 Index.
The Nifty LargeMidcap 250 index never witnessed negative returns in the 7-year and 10-year investment horizon, based on daily rolling return analysis.
(Source: Nifty Indices. Data as of September 29, 2023) Past performance may or may not be sustained in future.
ND: How should investors look at investing in these funds?
VJ: We believe this product may be suitable for all investors, whether conservative or aggressive. This product may form the core of any portfolio, whether one is a new investor starting their investing journey or an existing investor.
Investors may allocate based on their individual risk appetite, their financial goals and time horizon. Ideally, one must look at a 5-year horizon at least while investing. It goes without saying that mutual fund investments come with risk. Please go through all scheme-related documents carefully before investing.
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