The US fund house, founded by John C Bogle and credited as a proponent and major enabler of low-cost investing, is one of the world’s topmost wealth managers with about $6.2 trillion in global assets under management.
Kamath said retirement investing would be his key focus, and he plans to take on established fund houses in this pursuit.
Starting his broking venture on a bootstrap budget, Kamath has changed how India trades in stocks in last 10 years. His disruptive business model uprooted many traditional brokers and has been copied by those who managed to swing with the change.
Now, he sets sights on disrupting the mutual fund industry.
“Almost 90 per cent of the people who decide to buy a mutual fund are doing so because they want savings for retirement. So why even bother having all these different kinds of funds? The plan is to build something like Vanguard Retirement Funds,” Kamath told ETMarkets in an exclusive interview.
Vanguard advocates exchange traded funds (ETFs) and runs a number of ‘target’ retirement funds, which invest in different sets of ETFs according to the investor’s current age.
For example, if one is born during 1993-1997, and assuming there are 40 years for that person to retire, it has Vanguard Target Retirement 2060 Fund, which allocates 89 per cent to stocks and just about 10 per cent to bonds.
Similarly, Vanguard Target Retirement 2040 Fund has 81 per cent allocation to equities and 18 per cent to bonds; while Vanguard Target Retirement 2030 Fund has 33 per cent exposure to bonds and 66 per cent to equities.
It currently has nine such active funds with different ‘target dates’, with varying allocations to bond and equities. Nearer the target date, more it tilts towards bonds to protect money from volatility in equities and vice versa.
“So if you are 30 years of age, the fund is allocating money between equity and debt, and then keeps on rebalancing every year as you grow older. We are not going to build another active largecap fund. I do not think India needs that. There are enough of those funds,” Kamath said, explaining his plans.
In doing so, Kamath might also end up striking a raw nerve, which is the high fund management fees that Indian asset managers charge.
For, the Vanguard concept he plans to bring to India charges from 0.1 per cent to 0.2 per cent, just a fraction of what actively managed mutual fund schemes in India charge for fund management. Those funds also get traded on exchanges.
While Indians score poorly when it comes to retirement savings, those who do save show an inclination towards safe and assured return products. A recent survey by Nielsen for PGIM Mutual Fund listed life insurance, bank fixed deposits and postal savings as top three choices for retirement planning for the average Indian. This underlines a rather conservative approach to retirement planning.
The 41-year-old Kamath, fondly called the world’s most handsome stock broker by his employees (trust us, there is a
website!), wants to tap this very conservatism.
Even on the Zerodha broking platfom, Kamath plans to add more fixed income products so that investors can take exposure to them alongside stocks. Zerodha already allows investors to bid for and trade in government securities.
“The focus is going to be on helping people save and invest better. While we offer stocks, we are looking to offer more and more fixed income products, as we believe India is better suited for fixed income compared with equity in terms of risk appetite,” said Kamath.
He believes Indian investors want and need yields that are higher than bank fixed deposits with associated risks much lower than stocks.
In February last year, Zerodha applied to markets regulator Sebi for a mutual fund licence. Indian mutual fund industry is already a crowded space with 43 asset management companies. They altogether run a confusing maze of 1,729 open and close ended schemes, Amfi data released in February showed.
Apart from Zerodha, many others have also shown interest in entering the mutual fund space. Prominent among them are Paytm and firms owned by value investors Rakesh Jhunjhunwala and Samir Arora. It remains to be seen it they can provide something novel or just add to already available options.
Kamath has had a fabled journey in the financial markets. Starting Zerodha as a small breaking firm in Bengaluru without much ado, he went on to beat established names in their own game and created the largest broking house in India.
If he manages to do an encore in mutual fund space, he might just make many of the established fund houses run for money.
