‘One cannot expect equity returns by investing money in fixed deposits’

SBI will be floating a new company; in fact they have registered a company for managing the pension funds.

• What kind of investment structure will be followed?

The investment structure is being negotiated with the Government. After we get a benchmark rate from the Government, we will discuss and decide the investment pattern with them for a reasonable rate similar to the benchmark rate. The modalities will be worked out with the Government, as one cannot expect equity returns from us by investing the money in fixed deposits.

• SBI is talking of a 3 basis points charge. If you invest in equity funds that charge an entry load of 2.5 per cent, how will you manage?

We might not pay this 2.5 per cent charge upfront. Firstly, this three basis point is the net charge and does not include expenses. Any expense incurred, will be passed on. Secondly, the fund will not invest in any other equity scheme. The company itself will be an asset management company and will directly invest in equity. Even if it invests in fund of funds schemes, it will select funds where it may not have to pay this 2.5 per cent upfront charge.

• But still, do you think you can manage?

Initially, for the first two to three years, we might incur some losses. But if we see the schemes per say — today it covers government services, tomorrow it will cover private citizens and the size could be tremendous later. The whole investment pattern will be a unique investment pattern and it will not be on lines of mutual funds. The corpus will be large along with large monthly inflows. That will help. Also, there will be a cost of your infrastructure and your input to it.

• A lot has been talked about the schemes with no entry load. What is your view on the same?

We have a neutral stand. It is good for investors but the distributors play an important role in the expansion of mutual fund industry and customer education. For them, if the revenue stream goes away, they will sell insurance or other products where revenue exists. It will not be good for the industry, especially at a time when the industry is eyeing smaller towns for expansion.

• You were planning to launch your overseas fund but it has not come out yet.

We are not very clear with the tax treatment till now. Other players have gone out without waiting for the tax treatment. We are not sure whether the foreign equity will be treated at par with the Indian equity for tax purposes and so we are trying to get a clarification. We are also working on new schemes with our JV partner SGAM. These are the reasons why it is caught up and is delayed.

• Do you mean to say that tax exemption might become possible for foreign equity exposure too? If yes, then by when?

Yes, it could well happen. The request for the same has been submitted with the market regulator Sebi. If Sebi agrees, it will talk to the revenue ministry, which will then take it ahead. As these are regulatory issues, it might take time. So assigning a time frame won’t be possible.

• This is a new development that you are on. Is there any plan on micro systematic investment plan (SIP)?

We are in talks with some NGOs and are working on micro SIP scheme. It will provide some protection to the person who has no regular cash flow as he can invest Rs 15 one day and then Rs 15 again when he has it. This way, he can even invest Rs 500-600 sporadically in a year.

• What is the latest development regarding the real estate fund?

I am waiting for the Sebi Guidelines on real estate investment trusts. I expect the first set of Guidelines to be out by March and then within two months, we will launch our real estate fund.