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And welcome back, Mr. Aragoness, thank you so much for doing this for a listener and welcome to Paisa Vaisa. Thank you. Thank you Anupam. You've been with Tata Mutual Fund for quite some time. Yeah, yeah. So almost 30 years now. Wow. And if I remember correctly, like you said, Tata Mutual Fund started in 1994. Amazing. So if you could just tell us a little bit more about Tata Mutual Fund, the history, the kind of products they've got in where all are they placed.
Because this is the first time I think that we've got someone from Tata Mutual Fund on our show. Yeah, yeah. So we started with the initial purpose of five grows, that is what Tata's food there. And then afterwards when we started, we started with equity and we were really small. So when I joined it was around 700 rows. Now we are on one like for 53,000 rows in terms of size. So basically we have consistently been following the value investment philosophy.
So what we have done, we say value at the garden, they say so what on the equity side we follow guard growth is reasonable price. On the dead side, we got the SLR philosophy, safety, liquidity and return. So we always look at for the debt, we always look at safety, then liquidity, then afterwards only we go to returns. So we are saying that we are competing with banks, so we want to be as safe as banks for the investments.
You just help us help us understand how the debt mutual fund product has evolved in these 30 years. Now equity, of course, people understand in the last five years or the whole equity side, your mutual fund say whatever has has really picked up. What's been the retail participation, the retail attitude, the retail awareness towards debt mutual funds in these last 30 years? Yeah, so if you go back in 1994, 1995 and all, actually people used to invest more in debt rather than equity.
But at that time the rate and returns were 12%, 14% also, people were more interested to go into these type of products because they were getting a good return. Now the returns of the white teams have come down, the returns are at 7%, 10 year old's purchase at 12% now does come down to around 7, 7 quarter.
So that is a band where the rates have come. But on a relative basis, yeah, for the retail guys, what they also understand is that we have to also look at some amount of money to be just be safe. So if you look at equity markets and all, you will have a 10 year cycle, you will have 5 years which are good, 2, 3 years which are bad, 2, 3 years which are okay. But debt is where you will get some decent returns in your portfolio and you can switch into equity whenever you require.
So that is what I think. Basically people have to graduate and not look at 20% or 25% return in debt. They have to understand that this is a, this is the thing which gives you normal return like what an FD will give you. And that's what they compared with quite, quite often too. So if I were to pick up from that point, why are debt mutual funds imported in a retail investor's portfolio?
So one, you required her diversification in a portfolio, then other thing point which I would like to tell guys is that let's say that you are a guy who's investing in savings account. You are getting 3.5%. A liquid fund is giving you around 7% return because of a report it is at 6.5 levels. So the investments that I am doing is only in 3 months paper in tables or in CDs which are very safe.
There you are able to get a 7% almost double than what you are getting in every. So I think for that reason itself, you are getting almost double return. And the way in which it happens that today you want to put a redemption tomorrow, you get back the money. This is one thing which I think people should look into this very importantly because now people have always looked at returns as one function.
But convenience is and getting a slightly better return than what a, what a bank savings account gives you that is what people should look into. Yeah, convenience is and the potential for making a slightly higher return. And the one product that debt mutual funds are usually compared with or fixed deposits. So you have any point of view here about FD's versus debt mutual funds.
So FD's if you see you keep money for one year, wonder if you saw what I have seen is that at least a bigger bank, I'm seeing around 7, 7, 10 type of, type of returns. So I think definitely I think debt mutual funds will give you better returns than this plus there is these of convenience also you can withdraw money any point of time and you can also time your, your redemption is in such a way that it is fact beneficial for you. Yeah.
When you speak to people about the debt mutual fund product retail investors again that's what I'm specifically talking about. Do you see any myths or any misunderstandings or any misgivings that some retail investors might have about debt mutual funds that keeps them away. I mean, for example, is it ingrained in the head that debt mutual funds are low return products less safe products and maybe that's what keeps them away.
So I think what I think is that basically the way in which we have to look at this industry as we come 50 like industry bank banks are 200 like crores. So we are one fourth of what they're right now and if you go back 10 years, what do you have 110th of what they were.
Next, I think over the next 10 15 years, we'll come back to the what the bank has got to deposit. So definitely their interest will start basically it is more I think people not knowing on debt debt products rather than these people and right now the point is that what is happening is that returns people are selling returns based on the past performance.
So if you look at equity past performance, anybody could have given you 15 to 20 person return. Right. Yeah. Where debt will give you 7% to 8% so that is something which is not so appealing for the investors right now, but they have also understand that OK, instead of keeping money.
A D's or in banks that is where you're competing that is not competing with equity that is competing with banks for money. So I think once people have got that idea and understanding more and more they will start coming into those products. Yeah, so let's talk about that event last year because of which a lot of turmoil happened within the debt mutual fund.
The industry which was the removal of indexation benefits for capital gains purposes for retail investors. How has the how have things changed for the industry since then. So yeah, so that is one basic point which was there where investors used to come for three years and get the capital indexation benefits so you could make around
28% as tax returns right now that is not something which is possible right now. I think they should have they should have stuck with this and we are also representing or at least they should bring it on par with how others like equities are being tax 10% flat. If they if we come to that level also, I think more and more money will start coming right now people what you had understand is that a company once once they start a company.
You require equity and debt also it is not that you require only equity. So you require so so the point is that for growth purpose and all people look at debt and these are the channels through which you can go through mutual fund or insurance company. I think the overview is that what we have been representing is that at least have taxation at the same level like what you're doing for others rather than keeping tax at the marginal tax rate.
That comes I think things might change yeah talking of things in what's your view of the debt mutual fund industry as such going forward from here. So what we had also look at it we had to look at how the global markets have been global market if you see a debt has always been higher than equity in US and all. Actually mutual fund industry is bigger than banking sector in the US.
So I think they have got check rating facility and all but I think these are all small things which are there over a period of time once people get more and more convinced about mutual funds and all they will start coming into this products. What's the breakup of institution versus retail today in the debt mutual fund debt mutual funds around 75% is in just 25% is retail and of the retail industry roughly where are the products I mean where are the investments.
Investments are more in fixed maturity plans okay most of the retail guys are coming there there are some money which is flowing into this ultra a low duration products and short term and corporate bond fund so there we are getting some amount of retail money.
But most of the money seems to be predominantly in should right now yeah think over a period of time it should grow so if I've understood correctly the retail money that's there usually in FMPs or in the lower end of the site people are just playing it safe.
They just want to pocket the for liquidity so would be right to assume that retail investors have really still not really aware of concepts like duration like capital appreciation because of that interest rate risk and the play that's a do you think that that might be maybe some education is required out there.
Yeah so right now people are not very much I would say that on the duration site people are not taking that type of calls right now what this even the distributed channels and all are not taking that type of call basically this product has always been sold as a product for three years actually what has happened in the Indian context is that for equity people say one year and for that this to say three years because the indexation thing that's how it has been sold.
But now there is a decent amount of money that you can make in duration products because right now the feeling is that you will definitely get a return better than an if the expectation is that now going forward rates will remain like this or it will come down. So when because the CP inflation is expected to be around 4 4.
We'll come to that yeah yeah yeah so that that actually should see to that investors at least if they are there in those products they will make something better than what you're making in FDs.
And I mean I've always thought that the debt mutual fund industry actually has more retail oriented products than the equity mutual fund in industry has had you've got 10 year which is that you can put it for something has short term and liquid from overnight to 1 1 2 3 month and you've got right all the way to the long end of the curve and I know yet people seem to be a little bit
either it's ignorance either it's a reluctance or it's just like you said if equity is offering a much better rate of return right now than the debt mutual fund industry.
I hope that will change and we're actually going to be talking about that on the other side of this break folks you're going to talk about the interest rate cycle what some would say just said about how I'm going forward where interest rates are right now and the possibility of them going down and how that affects that mutual funds all of that after the short break.
And welcome back okay so now let's talk about the your outlook and your view let's start with the interest rate cycle per se where you think we are but I think there's been a lot of activity. The way the market perceives the US fed or the RBI out here in terms of rate cuts I think I have let's start with where you think we are and therefore where we are going.
So what we are told to understand is that we are got a inflation target regime from RBI so they say that our inflation should come towards 4% levels so right now we were at 6% plus levels 2 years back during covid times and now we are coming towards 5% levels and as we come towards 4% type of levels which is what are they saying next year we bet 4.5.
Then there is a scope for 50 basis point of rate cut starting my view that will be much higher than 50 basis points and we also have to look at what is happening in US market the US economy is growing at 2% they are at 5.5% in overnight rates.
So there will be further rate cuts which will happen so that a lot of money which will flow into the emerging market the India will be significant beneficiary of that because we already are coming into the emerging market born index so JP Morgan that's around 30 billion will come there itself and people will start looking at better alternatives which are available in the Indian markets compared with global market so what you have to understand is that we are got we are got an economy which is doing well it is expected to grow.
Our debt ratios will start coming down over a bit incrementally will be much beneficial compared with developed markets where the debt to equity ratios are actually going about 100 our ratios will come closer towards 70 75 levels so we are much better of them and there is decent or money which will flow into the Indian market so you will say good amount of flow of money coming into Indian market my views that this year you will have more debt money flowing into India compared with the equity money which is flowing into India.
That actually will see to it that what we have seen the equity market in the last two to three years because of money flow coming in where the markets are always point the same type of thing we will see in the equity markets you debt markets you will not get that type of returns what is the equity gives you but you will definitely be able to get a returns better than what an FD gives you.
So I want to talk about that money flowing into to the debt market now you we've obviously made the case about money flowing in where the supply do you think because the government themselves have said that this year I will I think the estimate surprised a lot of people being on the lower side then then expected and in the next couple of years the fiscal consolidation will continue.
Do you think that you know that private Indian corporate will actually raise money I put you think about that yeah so right now the biggest guys who raising money is a government right now and then you are looking at the PSU who are raising money private has not raised money one because they are they have already got some amount of excess capacity and plus they have got cash which again is sitting in the mutual fund.
That means your funds that actually will have to come down to some level and then afterwards they will shoot this capex so my feeling is that good amount of equity money good amount of debt money and equity money is coming to a market so you will see that okay there's both this market will do well going forward. This is my take okay yeah the inclusion of India in the bond indices globally where in which instruments will that money come in I mean just like equity is going to index.
So you know the index broadly and not lower down how will that play out for the debt market so it will play out in the three and up to 10 year type of buckets where the money will flow that is what they're saying that is where the index will be and some money will flow in 14 year also. But regardless of that what is happening is that the supply in the fiscal side is on the lower side next year it is 14.13 lacros.
This year we are ending at 15.34 so next year we are actually an absolute number we are lower and the demand is higher so around three lacros will come from the FI only. So with this and then we are got this NPS they are got the EPFO all these guys lot of demand is there for that side so the point is that we feel that the 10 year will spin out go below 70 on the upper side.
We will be at 7.707 so 3 4 business ones here and there and downside we will have to see depending on how the flows whether we we go below 6.75 or we'll have to see.
I mean where's the same question again I'm just trying to understand where can the supply come from because it's so much money is coming in from everywhere you know for domestic government sorry not government but if that's whether the supply is coming from who's going to issue that much to absorb that comes in I mean in the previous years I could.
Understand it's local but now I don't know what the numbers are if India gets into in the bond indices a quantum of that I always run 25 to 30 billion is what they are USD yes okay so that converts into around 3 lacros of money which will come okay so the feeling is that Arbe will come Arbe has been buying bonds in during COVID times so Arbe will come and issue some amount of bonds right or they will do switches but they will also do it in a non receptive way.
So because they also want the government borrowing program to go through and they also want that the PSU's which are there they should also be able to borrow to understand this next year or capex will start on 11.11 lacros so if that type of capex come definitely or supply thing will the logistic cost will definitely come down.
So if a logistic cost comes on a manufacturing infrastructure CPA core inflation will come down and is the monsoons are good then you see pay inflation will be closer towards 4 or below also. So what does happen what we are seeing is that in China and all when this thing happened interest rates come came down drastically when the FI money starts coming in so you actually in fact the Chinese interest rates are lower than US interest rates.
I don't know that. So we are caught one of the highest interest rates that we say that okay 7, 7, 7, 10 people may not find attractive but globally looking at how the global markets are where yields are at 2% 3% 4% in Europe and all.
So to give you a context the countries which are having higher interest rates compared with India or in the inflect Pakistan, Sri Lanka and all where people will not not know because of the currency issues which are there but here you got a stable currency you got very high we have got decent amount of returns for the for the foreigner. If they are looking at to invest so you will see good amount of low money coming in.
Okay now given whatever you said so far in this in our discussion on the money coming in and the supply of bonds by the government on inflation on interest rate cycle. You also expect you expect 50 basis points in the next one year maybe yeah okay then what is your strategy for our listeners that if they have a debt mutual fund portfolio if they want to start.
A debt mutual fund portfolio and if you can just help us on the spectrum of conservative all the way to aggressive yeah yeah so yeah good so what I would say is that if you right now what they should do is that if you got 100 rupees which are going to put in that. 40 rupees you can put in a kill funds or duration low duration high duration products and when you say 10 years plus 10 years plus so 7 to 10 year 7 to 10 year gone.
G's academic bond fund so these are all products which are there but 40% allocation can happen another 40% allocation can happen to your. Low duration products short term bond funds and all another 15 20% 20% you can put in ultra short term bond fund liquid fund and all so that's less than one year should be 20 1 to 3 or 5 year type should be around.
40% about 40% should be in your G say the dynamic bond fund and long duration products is for the conservative investment so this is yeah so yeah so that is for conservative investor if you are an aggressive guy then you can go up to 60% in guild fund and on. Another 30% and keep only 10% in cash why I'm not having credit risk here.
Credit risk right now the spread switch are there are not so great right now the point is that you are getting such a good rate in government security is an in triple a PSU bonds so there is no need for you to take additional credit risk what is happening now the spread switch are available between your triple a PSU and the credit funds will be around 870 100 business points so it's not a great. For the taking 100 base pointers you can make that type of money by the price of position only.
Do you think I will change there used to be a time I remember and 17 18 or maybe 16 17 18 where credit was actually a big thing yeah so at that point of time people were interested because they were getting around 10% plus type of thing because at that time the right now you are doing well we were growing at 3 and 4% at that point of time lot of people are issuing a date as a product but now with all this with tightness which has happened right now as far as
the regulation of concern I don't think we will go into that type of error because every regulations are very very clear that they don't want to take additional risk particularly so they don't want to take so people will be more focused the double a double a minus type of
that don't think people will go towards credit risk in a big way I mean we've already seen one fairly high profile event happening during the lockdown so where is the debt mutual fund industry on that matter do you think it's stronger now going forward what happens
with the regulations what is happening is that we sitting in the other side we can complain but the point is that over a period of time the fund has actually the copper of this mutual funds are actually grown so I think it's it is a thing in the right direction.
I mean at that point of time a lot of distributors are also aggressively marketing debt mutual fund products to retail investors given the kind of returns that some schemes are offering at that point of time and more importantly because equity markets were not giving similar returns I'm just trying to you know extra
polly going forward now retail interest towards debt is probably at a recent low I will see so much of dissentress out there given that equity is is kind of giving pretty good return I'm just saying that what can change going forward and how strong is a
debt mutual fund industry today given the lessons it's learned I don't know tomorrow if any panic happens do you think that we could have a repeat or do you think that we better off now so what has happened as far as debt is concerned there has been significant amount of portfolio.
Portfolio oversight from from CB so what we have got and from the industry itself so for any fund which you've got let's say you've got 100 rupees you have to keep 10 rupees into cash or in government securities another 30 40 percent you're going to keep in triple assets only so the balance only 50 percent 60 percent there and they're also like point is that if there is in downgrades there is a oversight from the trustees and on so right now the industry said that we are worried about
downgrade so for get a for defaults so now we are coming to the situation the industries are it about downgrade so point is that yeah to that extent the the this has become very safe over a period of time you'll get money obviously you're not going to get your 10 percent it and over a
prolonged period of time which was there in credit funds and on but over a period of time people will see that okay you're getting 7 percent people will be happy with that that's what I think so okay so I want to understand I mean you mentioned that you would allocate between 40 to 60 percent in the longish longer term G.C. guilt fund or even a dynamic fund help our listeners choose something good out I mean what should be what should be the general criteria what separates one from the other
so guilt so as far as duration products are concerned you have to look at their you have to look at the what is that duration of the particular products somebody's earning 70 years if your views that interest rates are expected to come down
and definitely should go into this product then you have to see to that they should they should be in G.C.X or in triple a papers only so that they will get the benefit of the fall in rates if you're going to be in a lower rated paper so what happens is that you will not get the benefit of fall in interest rates so that is what you should see
so all the things what you have to also see that if people are saying that okay they are buying short term papers you have to see the long term rating of that also there's a riskometer also which has been given by so that also tells you where the funds stands as far as the risk of the particular scheme is concerned so based on that they can take a call most probably I think most the focus should be more on credit
yeah what type of credit they are taking but returns will be for date products you'll have returns which are 10 15 ways once here and there you will not have too much of difference but you have to look at the credit aspect of it you better off looking at the credit the credit rating and the paper other than going out of the return yeah returns you have to look
quite duration like you sure since you're going for long duration funds then they're fun should have a higher duration more than five years okay my last question sir passive whatever happened to them passive does losing number there is some amount of money which is coming
now also in this the indexation benefit was there but people if you want to have a you want to have only g-secs or only triple s or those guys it is like an FMP for you three years four years you you go into those particular funds and you feel that after one year your media returns you can exit at any point of time you can internet any point of time but definitely there is a space for that also
so it's like an FMP passive FMP for you you can internet it at any point of time but I mean come on I mean given where interest rates are where they're being active would be better sense for you know probably if someone wants to take that kind of risk what do you think yeah yeah so yeah so right now yes but over a period of time if people
are depending upon the risk of it like you said there's a conservative guy yeah okay I said I need to I don't want to have too much of risk so I'll be in the three or four and I know what are the papers each other I'll go for that so those guys can come for that lovely so folks there you go that is your strategy for debt mutual funds how to allocate money for the conservative guy for the aggressive guy when you're looking at 50
50 bips cut in the next year one year plus yeah within one year within one year 50 which honestly can you know change debt mutual fund anyways meaning fully so what is the rough the rough calculation of nav appreciation versus interest rate fall I mean
so if you're running a five six year duration let's say 50 business point fall happens so three bucks should come back price up position and your seven seven and up so closer towards double digit returns not bad you should be able to get in the most table yeah in a competitive equity and you can sleep at night open yeah
okay so last question that is for our listeners standard question that we have is what book are you reading any content recommendations you have for us so I think so people should what I feel is that maybe I'm in dead guy I'm saying the psychology of money oh I think I think yeah so I think most people should actually look at what can happen wrong because I think that is one thing which we look into and accordingly plan because good times don't
large bad times don't last but now we are in good times so we should also plan for a bad times so that's why I think that people should look at psychology of money how people actually react once you get money once it's always like when they when you make money you put more and more right and then afterwards at the top you lose money what do you think can go wrong for the future ones industry as such industry as
we are pretty well regulated right now so I get the micro front row the macro friends yeah if oil goes to 100 okay if oil goes to 100 then afterwards we got some other events globally geopolitics geopolitics which is which again will be temporary I think so but things because we had gone we have seen we have seen this Ukraine war and afterwards we have seen where it all is right and where all commodity price are all the commodity
lower from your toes and you can go I mean I haven't seen this kind of Goldilocks situation to quite some time yeah so let's hope that stays that way or at least for good conditions good conditions remain for the market folks but that is it that is the Rapunzel episode this episode of Pesavais of my guest Mootsinagarajan head fixed income Tata asset management sir thank you so much for doing this for our listeners thanks Anupam thanks yeah
and listeners if you like this podcast you can subscribe to our YouTube channel where you get to watch the full video episodes you can check out other interesting podcast on the IVM network you can also follow us on our social media we are IVM podcast on Twitter and Instagram if you want to reach out to me I'm your host Anupam Gopta B50 on Twitter and thank you really for thank you so much for listening to Pesavaisa no material on the show should be considered as financial
advice the material on the show is for informational purposes only please consult a financial advisor before taking any investment decision