Interview- Ashu Suyash

BIG TALK: ASHU SUYASH,
MANAGING DIRECTOR AND COUNTRY HEAD, FIDELITY FUND MANAGEMENT-->
‘NFOs should keep investor interests in mind’

Sandeep Singh Posted online: Monday , September 10, 2007

Last month, Fidelity relaunched its flagship equity scheme, Fidelity Equity Fund, with the objective of shifting focus from new fund offers (NFOs) to existing schemes. Now, it is following that up with the launch of Fidelity Growth Fund, an equity fund that targets fast-growing companies. Isn’t there a contradiction? Ashu Suyash, managing director and country head, Fidelity Fund Management, doesn’t think so. In an interview to our correspondent, Suyash defends the new fund launch and charges of product duplication, and outlines the product suite ahead.


One more equity fund. How is this different from your flagship equity fund?
It’s the first fund in our bouquet with a growth bias. Fidelity Equity Fund is a go-anywhere fund, without any preference for sectors or market cap. The Fidelity Special Situations Fund focuses on special situations. The tax-saver fund, which has a lock-in of three years, is closer to the Fidelity Equity Fund.So, given this range, it’s a different product. It takes a 360 degree view on the growth happening in the Indian economy. It considers drivers of growth — demographics, consumption, infrastructure and the corporate culture evolving in India — and captures their benefits. It seeks to pick companies whose return on investment is higher than their cost of capital, and which are in position to continuously compound their earnings.Besides companies listed in India, it will also invest in companies that get a majority of their earnings from India, but are listed outside. So, it takes a 360 degree view on growth and there is an element of differentiation.

You say the investment ideas are different, but the portfolios look so similar, as in the case of Fidelity Equity Fund and Fidelity Special Situations Fund.
There will be common stock ideas. But it’s not just ideas that shape portfolio returns. It’s also when one enters or exits a stock, and the size of the investment. The perspective of the two funds is different. Special situations are more likely to be found in large-cap companies, not in small- and mid-cap companies. Reliance Industries has been through a big restructuring recently. So, one will hold Reliance in a special situations fund, as well as in other schemes.One can have the same stocks, but different weightages, leading to a different outcome. Fidelity Growth Fund is likely to have fewer stocks — it has the option to invest 6-10 per cent of its assets in a stock — and will therefore be more risky.

Barely a month ago, you relaunched Fidelity Equity Fund, and termed the domination of NFOs in new investments as a “worrying development”. Now, you have gone ahead and launched your fourth equity fund.
In the equity investing space, there are basically nine investing styles and at least 14-15 unique products for a mainstream player. We would like to be in each segment, as each investor’s preference and buying behaviour is different.

When you launched in India, you said you won’t indulge in product duplication. Are you faithful to that philosophy?
Absolutely. Like I said, we still have to complete the standard 14-15, and so it’s a long way to go.
That’s a lot of NFOs. Do you see NFOs as penetration tool or a way to offer innovative, new products to investors?
For a nascent market like ours, NFOs are a good tool to get more investors into the fold. There is a certain consumer psychology built around NFOs, and that will remain. What’s important is all steps taken are aligned to investor interests. Our charge structure in an existing fund and a NFO is identical, and will remain so.

What’s with the relaunch of Fidelity Equity Fund? Even other fund houses do it with their schemes from time to time.
When we relaunched, there was PR activity, advertising activity, investing seminars and distributor training sessions. With our track record, we expected investors would come, but that didn’t happen. That told us that there was a need for vigorous communication like in an NFO.

What new, innovative products are you planning?
The feeder fund route is an exciting way of bringing unique products to India. Internationally, Fidelity has about 1,000 funds, which can generate umpteen ideas. We have filed a prospectus for a feeder fund. This is not a fund of funds, but five separate funds targeting major markets — US, Europe, emerging markets, Pacific region and a global option. Investors can pick and choose.
In order to make the industry more investor friendly, you welcomed Sebi’s proposal to waive the entry load for direct and Internet transactions.
It’s not zero load, but flexibility to distributors and fund houses to price load. Within this, one can have a no-load fund, but it’s not a diktat. Even when we get an investor directly, we incur some costs. So, it could be no load or a tiny load. Choice and flexibility leads to better engagement, which is the need of the hour along with better penetration.

But Internet penetration is low, as is branch reach. For instance, you have just 10 offices across the country.
Internet penetration has to increase, and it will over time. We started with five branches, but because of distributors, we are in several hundred cities. As in other industries, the manufacturer is less important than the dealer. That’s why giving distributors and manufacturers the flexibility will help. It is hard to think of a manufacturing company having branches like a bank.

What are the other aspects of the mutual funds business that can improve and benefit investors?
One area under discussion is advice: what is it, who can give it and who should regulate it. Then, development of the bond market. The equity markets have developed; the fixed-income markets haven’t. The bond market still lags in liquidity and transparency in price discovery. Today, we have selective issuance and selective trading. If transparency increases, so will issuance.

Lastly, how do you see the markets moving?
We haven’t seen the last of the sub-prime issue. The good thing is that the US Fed is monitoring the situation and will take action if necessary. That will influence share prices in India. Having said that, the long-term outlook for the economy and corporate India continues to be positive

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