Why Nilesh Shah wants investors to focus on long-term debt funds

Last month, the 9th Edition of Sapient Finserv Conversations took place. It was graced by Nilesh Shah, Managing Director, Kotak Mahindra Asset Management, Shekhar Gupta, veteran journalist and founder of  ThePrint and Ashneer Grover, founder of BharatPe.

Kotak Mahindra Mutual Fund is the fifth largest fund house in the country and managed average assets of Rs.3.33 lakh crores from July to September 2023.

In addition to being the MD, he is also a part-time member of the Economic Advisory Council to the Prime Minister.

Here’s an edited transcript of the interview.

What is your perspective on India’s economic growth trajectory in the coming years?

Taking a long-term perspective on India, there’s a bullish outlook due to a convergence of three key factors. Firstly, robust earnings growth ranging from 12% to 15% annually, justifying higher valuations. Governance is a second factor, with India exhibiting strong standards compared to uncertainties in other emerging markets. The third and quietly transformative aspect is India’s green growth. This combination of earnings growth, governance, and green transformation instils confidence in India’s long-term prospects. However, short-term market volatility will be due to events like oil price hikes, unexpected US Fed decisions, or unfavourable election results.

How do you view the future movement of interest rates in India, and what implications might this have for investors?

We believe that the Reserve Bank of India(RBI) might cut rates from June to October 2024. So, borrowers are encouraged to consider short-term borrowing. Investors might benefit from long-term debt investments to lock in higher rates, particularly for senior citizens. Whether bank FD or Corporate FD, fixed deposits usually come with a maturity between one and three years. Investors can look at investing in fixed-income funds, especially those with longer tenures, such as long-duration funds and long-duration gilt funds, as it benefits investors during a declining interest rate environment.

What are some of your expectations from the budget regarding the mutual fund industry?

With the upcoming budget from the new government, there’s an anticipation of changes in the financial landscape. Currently, there’s a lack of a level playing field among various financial products. Banks, for instance, benefit from an implicit government guarantee.

There are different tax advantages for different financial products. Insurance enjoys tax benefits for premiums below ₹2.5 lakhs. National Pension Scheme (NPS) provides additional tax-saving incentives for employees contributing 10% of their salary, especially those in higher tax brackets. However, mutual funds currently lack such tax incentives.

The call for a level playing field involves standardizing tax incentives across all financial products, ensuring fairness and consistency. Additionally, there’s a need for a unified Know Your Customer (KYC) process for all financial products. Presently, buying gold is a simple process, whereas opening a bank account, Demat account, broking account, or mutual fund account involves separate KYC procedures.

The market regulator, the Securities and Exchange Board of India (SEBI), has taken the initiative to create a unified KYC for all financial services. The aim is to streamline and simplify the KYC process, making it uniform across various financial products, thus enhancing consumer convenience and fostering a more efficient financial ecosystem.

Could you elaborate on some of the key initiatives that Kotak AMC has undertaken to increase investment awareness in this region? 

We all communicate in English, but our customers and partners speak various languages. The most effective way to connect with someone is to speak their language. As a result, we are actively working on translating our investor awareness programs into different vernacular languages. Luckily, our multilingual team allows us to communicate in the language preferred by our partners and investors.

Additionally, we recently conducted a program in collaboration with CBSE, focusing on teachers in 1000 CBSE schools across 100 locations, including Guwahati and Northeast. The goal is to enhance financial awareness among teachers, believing that they will, in turn, pass on this knowledge to their students, creating a ripple effect.

Our overarching mission is to engage with customers, encouraging them to become more disciplined savers, ultimately transforming into confident investors. While we acknowledge our limitations, we are committed to making a positive impact, one step at a time.

I am associated as a trainer for the CBSE Teacher financial literacy program that is sponsored by Kotak Mutual Fund. In my earlier sessions, a lot of teachers told me that I should go to government schools to give this training as they earn more money than private schools. What do you have to tell them and people who think that they can’t save? 

Undoubtedly, there are many Indians who face financial struggles, living hand to mouth due to insufficient income. I lost my father when I was very young, and my mother was not very highly educated. She took on odd jobs to support our family.

When I got my first job, I chose to walk and save the money that my boss gave me to take the bus. It was nominal, but saving that money mattered a lot to us then. 

In addition, I used to take tuition after my 10th exam and did errands such as fetching sandwiches or bhel for the office goers. I also carried out calculations because we didn’t have computers back then.

This taught me to cut expenses to save money. So, everyone can find a way to save money, whether walking instead of taking the rickshaw, buying one less shirt or garment or seeing one less movie.

Then, investing these savings to compound over time is essential, just like little drops of water make an ocean.

What would be your advice for investors? 

Firstly, a lot of people ask, “Bacha ke kya hoga” (What will happen by saving). My advice would be to avoid procrastination and always take a proactive approach – don’t postpone, but rather, prepone your investments.

Secondly, people become greedy or want a tip that will double their returns within a short time. I tell them your money will double in five years, but they are not interested. So, please don’t believe money grows on trees, and you can become rich overnight. It takes time to create wealth; otherwise, all of us would have become billionaires. So, be a long-term investor. Don’t be a greedy investor.

Thirdly, investors need to understand that just like tiny drops of water make an ocean, investing a smaller amount regularly can accumulate over time to create wealth.

And finally, be a disciplined investor. We have seen many investors invest in certain funds because of past returns. They see the returns of small and midcap funds and invest in these funds. Before this, it was the tech funds. Don’t chase return; be a disciplined investor and invest across debt, equity, gold, and real estate based on your financial goals and risk appetite.

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