Sebi's one-scheme-per-category rule is harsh: Morningstar's Anthony Serhan

Market regulator Securities and Exchange Board of India (Sebi) has said a mutual fund house can have only one scheme per category. The move will impact many fund houses, particularly the larger ones operating as many as a dozen schemes in some categories. Anthony Serhan, managing director (research strategy), Morningstar Asia-Pacific, calls the new rule harsh. In an interview with Samie Modak, Australia-based Serhan, an expert on investment themes and trends, says the Indian mutual fund industry has a lot of potential to grow.

Edited excerpts:
Indian equity mutual funds are getting over $3 billion every month. Do you think that is sustainable?

The record inflows that are coming into equity mutual funds (MFs) are on an incredibly small base. I still think there is more potential to grow. This is a secular change of moving away from gold and property to financial assets. That’s just part of any developing economy: As the rates of urbanisation and modernisation increase, you will see more money going into financial assets. Most Indian investors have not been anywhere near the equities market before. The first thing that you have to do is getting them to recognise equities as an investment. You can grow the number of people by educating them about returns, downturns and upturns. In Australia, the adult participation rate in equities is about 40 per cent; for India it is not even 10 per cent. In the next five years, the inflow number will be many time more. The industry is going to keep growing. If you look at the size of the Indian markets compared to other markets, it still doesn’t have the same economies of scale. Partly, this is because of the absolute size. Distribution-wise, the geographic spread of India is very wide.