Bazaar & Beyond: Mutual Funds, Trust, Distribution and the Future of Investing Interview with Aditya Mulki, CEO, Navi Mutual Fund

Introduction

Vivek Ananth:
Hello everyone and welcome to another episode of Bazaar & Beyond. Today, we have with us Aditya Mulki, CEO of Navi Mutual Fund.

In this episode, we explore the evolving dynamics of India’s mutual fund landscape, including the rise of passive investing, digital-first platforms, the expansion into tier 2 and tier 3 cities, changing retail participation, and what long-term investing could look like in the years ahead.

Thank you, Aditya, for joining us.

I wanted to start with your journey specifically, because you have been a fund manager before and are now in an executive leadership role. How has that transition been for you? And from this vantage point, how do you see the business today, both in terms of where the industry is and where Navi is?

From Fund Manager to Business Leader

Aditya Mulki:
Thank you first of all for having me, Vivek.

When I was a fund manager, I had a very myopic sort of view of the industry in general. I thought my job was to deliver good performance and that was it. Investors would come on the basis of performance, and they would select funds on merit.

But when I moved into a leadership role, I realised that you have to drive the business and look at all aspects, not just fund management itself.

I understood that this business is essentially a business of trust. It is not only returns. It is your brand. It is the trust that comes with your name. If you take banking today, for example, and say names like HDFC or ICICI, there is a lot of trust there. Customers would blindly trust products from those banks, and rightly so.

Then there is distribution. That was another thing we found out is very important. You can have all the right products, but if your name is not out there, investors do not really know you. And with so many options in the market, they honestly may not care unless you stand out.

So, the big shift for me was moving from a narrow fund management lens to a much more holistic view of the business, thinking about branding, trust, distribution, PR, social media presence, and even last-mile delivery.

Why Last-Mile Distribution Still Matters

Aditya Mulki:
People under-index on last-mile distribution quite a lot.

I will give you an example. I went to a tier 2 city for an investor awareness-type programme. I was talking to investors, running them through a presentation, and I sensed a little bit of distrust. Obviously, I am dressed like this, and they look at me and think this is some corporate person who has come here to sell us something.

I got questions like: if your TER is 0.8%, how do I know you are not cutting 2% somewhere? How do we as customers know? They wanted transparency. They wanted to know how they could verify that the NAV movement is correct if the expense ratio is inbuilt.

And they were right to ask that.

That was when I figured out that local distributors become very critical for last-mile distribution. They are from the same community, they have lived there for decades, and they will probably continue to live there. So, there is a lot of trust when they sell the same products.

People often talk about distributors negatively, and there is that connotation because there may have been mis-selling in products like insurance and, to an extent, even mutual funds, perhaps a decade back. I think most of us have family members who have been sold some product they did not need. That gives distributors a bad name.

But actually, they add tremendous value.

Awareness Has Grown, But Understanding Is Still Uneven

Vivek Ananth:
I also feel the industry has done a lot of educational work. A lot of campaigns have helped bring mutual funds to the forefront. Maybe the mis-selling was also happening at a time when awareness was lower.

Aditya Mulki:
That could definitely be possible.

A lot of educational work has happened. Successful campaigns have brought mutual funds into the mainstream. If you want to start investing, this is now one of the first vehicles people think about.

But if you step outside metro India, most of India is not you and me. We are a smaller percentage of what India is today.

When you go really retail, many investors still do not understand the product. They ask very basic questions like: why do I have to wait eight or ten years to get returns? And that is actually a logical question because they are comparing mutual funds with something like an FD, where they see something happening every year. There is some visible interest accrual, even though returns are low. In most cases, there is no loss of principal unless something very exceptional happens.

So, they equate mutual funds to that and ask why they should wait. That is a very reasonable question, and it is also hard for us to answer in a short way.

So, while education has improved, today there is also so much information that it becomes confusing. Investors search something online and see hundreds of videos. Then they do not know whom to follow.

That is why I think our job is to filter information, work with the right channel partners like distributors and advisers in those communities, and drive knowledge-sharing there.

The SIP Campaign Has Won, But Also Changed the Language

Vivek Ananth:
The success has also been such that some people almost know SIP more than mutual funds.

Aditya Mulki:
Exactly. In a way, the success has also diminished awareness of the end product. SIP has become the word people remember, even though it is really just a way of investing.

And this has created some very nuanced investor questions too.

One very retail investor in a tier 3 city asked me something interesting. He said that his distributor tells him to invest in a regular plan. He understands that direct plan expense ratios are lower, so he knows that difference is the distributor’s commission. He said he is absolutely okay with that. But how exactly does the maths work? Is it very exact or is there some hidden buffer there?

I was very surprised by that question. I had to explain to him that there is no hidden charge. The difference goes to the distributor.

So, investors are definitely becoming more nuanced. But it also means we need to work with the right distributors, those who are working in the interest of the customer and not only in the interest of earning commissions.

To be fair, most distributors I have met do think customer-first. They have accepted that commissions will keep coming down over time, especially after direct plans. They know that the long-term answer is to grow AUM, not optimise for the highest commission product.

That is a good mindset to have.

Navi’s Positioning: Digital First, Passive First, But Not Passive Only

Vivek Ananth:
Let me switch gears to your positioning as a digital-first AMC. Initially, after taking over the AMC, Navi focused heavily on index funds and passive investing. But now you are also putting more emphasis on active products.

How do you position yourself versus a broker-led or bank-led AMC that already has a larger catchment and a natural channel to push products?

Aditya Mulki:
Firstly, yes, we started off by launching a lot of index funds, and they have done quite well for us. Our AUM today is over ₹9,000 crore in a span of about four and a half years. That is a good outcome for an AMC like ours, especially without a star fund management name to back it.

At the same time, we had inherited a bunch of active schemes as well. We have put tremendous effort over the last couple of years into improving them. The data is public, and investors can see that some of our active funds, like flexi-cap and aggressive hybrid, are now trending in the right direction.

So, it is more than a pivot. The reality is that passive will take time in India.

If you look at how passive has grown in the West, it was a very gradual glide path. In India, passive is around 17% of total mutual fund AUM. In the US, to move from 17 to 18% to over 50% took decades. It did not happen overnight.

Also, in passive it is very difficult to stand out because returns are clustered.

And in India, markets are still relatively more inefficient. Alpha-generating opportunities are still higher than in developed markets.

So, passive will grow, yes, but it will take time. That is why over the past two years we have also put constant effort into active schemes.

For our active funds, what we try to do is maintain a high active share. That means our active portfolio should be meaningfully different from the index. We do not want a very high overlap with passive. We want very active calls, high-conviction calls, and a different kind of exposure.

Performance Is Still the Real Differentiator

Aditya Mulki:
In many ways, the industry is commoditised because product categories are fixed. All of us can launch products under the same categories.

So what can you do differently? You can manage them differently.

In active, for us, that means high active share and meaningful differentiation from the index. In passive, it means doing well on tracking error and tracking difference.

How do we stand out against large competitors with strong brands and wide distribution? It is not easy, obviously. But we look at our business over the long run.

If we keep delivering good performance in active funds, and in passive if we keep ranking well on tracking metrics, there will come an inflection point where investors will start noticing. And today, the tools to compare these things are already available at investors’ fingertips. That will only increase.

So yes, it is an uphill task, but that is also what makes it fun.

What Should Retail Investors Do with Messy Portfolios?

Vivek Ananth:
You have always had an investment philosophy, and from what I know, mid-caps were one of your strengths.

Right now, we are in a very volatile world. Geopolitics is influencing markets in a big way. Benchmark indices have fallen, but the broader market, especially mid- and small caps, has taken a real beating. Most portfolios are in the red.

From where you stand today, how should investors think about the broader market?

Aditya Mulki:
I will answer that from the perspective of the majority of Indian investors.

A very small section of investors will have proper asset allocation written down and tracked. Most people do not.

Even in my own personal investing journey, in the first five to seven years of my career, my asset allocation was not very well written down or tracked. I also owned 15 to 20 mutual fund schemes at one point. It was very random.

So, I assume the majority of investors in India are like that. Random schemes, overlaps, maybe invested based on one-year returns or some random filter.

So, the first thing I would say is: look for consistency in performance within your schemes. Look for overlaps and try to eliminate them.

This may actually be a good time to do that because, if anything, bad markets give you a chance to revisit and optimise your portfolio. You needed to do that anyway, so you might as well do it now.

Eliminate overlap. Eliminate poor-performing schemes. Use this as an opportunity to relook at your portfolio.

For people who do have a thoughtful asset allocation, the answer is simpler. They will likely just stick to that allocation, or perhaps move a little more towards debt, gold, REITs, or even international exposure.

I have always felt that investors should have some international diversification. I have never fully agreed with the idea that you should keep 100% of your money in one country just because it is a fast-growing economy. There should be some diversification.

And now, with things like GIFT City and the few international fund routes still available, investors do have some access.

So, if you do not have international diversification now, this may be a good time to rework your portfolio a bit.

International Diversification and the GIFT City Question

Vivek Ananth:
Do you think there is a need to reassess the current access framework for international investing, given RBI limits and the practical issues in GIFT City for retail investors?

Aditya Mulki:
Yes, absolutely. We would love for those limits to open up more.

With GIFT City, our view is that while the entry threshold is high right now, that should gradually come down as more players enter and transaction costs improve. A lot of the costs there are in the banking layer and those need to get optimised.

There are already a few platforms that offer NRIs a mostly digital journey, with only one final attestation step. So, it is an evolving ecosystem.

My sense is that it will become more democratised over time, and hopefully sooner rather than later.

Tier 2 and Tier 3 Cities: The Next Big Growth Avenue

Vivek Ananth:
You have also spoken a lot about tier 2 and tier 3 cities. Metros are saturated, so smaller cities are clearly the next growth avenue. Are you doing something different there?

Aditya Mulki:
Yes, and interestingly, a lot of investing from B30 cities is already coming through direct platforms.

This is usually a younger audience, 25 to 30 years old, earning reasonably well. If you look across the consumer side of the economy, many consumer discretionary companies are opening more stores in tier 2 and tier 3 cities. That tells you incomes there are rising.

So, these investors are coming in digitally and directly. But what we also see is that once they face a bear market, they get nervous. They are young, they do not have handholding, and many of them then move towards an adviser.

So digitally, there is not much extra to do. We already have a strong journey through the Navi app and other platforms. But on the distribution side, we have started working much more actively with distributors.

Earlier, most of our customers came through digital channels. But now, on the ground, what matters is direct access and trust.

One advantage of being a smaller AMC is that we are nimbler. If we are going to a smaller city, it is often me going there directly, not someone three levels down the chain. That matters.

We want to double down on that. If someone else is doing one programme a day in a city, we want to do three or four. That intensity helps build trust.

Of course, you cannot spread yourself too thin. So, our approach is more cluster-based. Pick a few markets, own them well, and then expand.

Does Tech Still Matter in a Human-Centred Business?

Vivek Ananth:
You are describing a very human, trust-based approach. So, does that reduce the value of being known as a fintech-first or tech-first AMC?

Aditya Mulki:
No, tech still has a very big place.

An investor is concerned about basic things like when units are allotted and what happens after redemption. Sometimes you invest and for one or two days you do not know where your money is. Redemption can be an even bigger pain. You need visibility through that journey.

Those journeys can be optimised very well through technology. In my view, our platform journeys are already among the best in the industry, at least when you invest through our own channels.

But tech also matters internally. This is an industry built on data. Fund management teams work on data, sales teams work on data, and now you need technology to synthesise all of that.

That is something we have always done. Use tech to reduce the surface area of effort for the fund management and sales teams so they can focus more on strategic work.

And that will only increase with AI and related tools.

AI, Advice and the Future of Wealth Management

Vivek Ananth:
So where do you see the shift happening with AI, robo-advice and wealth management?

Aditya Mulki:
In the wealth management space specifically, there is already a precedent for robo-advisory in the West. There is a certain category of customers, people like you and me, who understand the market to some extent, who may be comfortable with that.

But in terms of scale, the majority still prefers a bit of a human touch. So, what I believe will work is a kind of hybrid model. Human touch in front, and AI or robo-advisory at the back end doing the heavy lifting.

AI can analyse your data, your current portfolio, your goals, your income, the corpus you need for retirement, your spending patterns. All of that can be analysed quite well and very objectively.

A human adviser can sometimes bring subjectivity, but AI will be more data driven.

So, I think the heavy lifting in terms of numbers and portfolio analysis will increasingly be done by AI.

But in times like these, when markets are volatile and people just want to talk to someone, the human element will still be required. Investors want reassurance.

So, any player that can combine both well will do very well in wealth management.

Will AI Lower Costs and TERs?

Vivek Ananth:
Do you think this could structurally reduce costs and eventually show up in TERs?

Aditya Mulki:
The structural drivers of TER are not only employee-related costs. The scheme book also has costs like KYC, payment gateway charges and transaction costs. These are very significant.

If those costs come down, that is where TER can come down.

On the employee side, the question is not just whether teams get smaller, but also how AI evolves and, importantly, how the regulator allows its usage. This industry deals with highly sensitive investor data, and the regulator may be cautious about how that is used.

So, there is uncertainty not just about the technology itself, but about regulation and privacy too.

Trust, First-Time Investors and Why Product Still Matters Most

Vivek Ananth:
How do you attract first-time investors as a digital-led AMC?

Aditya Mulki:
One part of it is engagement. If investors are coming in through digital channels, are you doing enough to engage them? That could be through emails, WhatsApp, webinars, programmes, or other communication.

That definitely helps.

But in the long run, what will really stand out is the product itself. You can do all the engagement in the world, but if you have a bad product, it is never going to work.

So, our focus remains on product and performance. In an industry this competitive, you cannot afford to drop the ball there.

And for a lot of customers who do not want to come in digitally, trust gets built through the MFD relationship. That is also a reality of the business.

Why Performance Still Sustains Everything

Vivek Ananth:
Trust is not commoditised. So how does a digital-first AMC build trust over time?

Aditya Mulki:
We are doing more physical events and offline activity, yes. But honestly, it is very difficult for one AMC alone to create awareness at scale across the country.

That has to come much more from a larger body than from one AMC.

For us, we can still do targeted work in specific clusters and stay consistent there.

In the long run, trust comes with time. It can come faster if you have a very well-known senior person in the team, someone with 20 or 30 years in the industry. But otherwise, it takes time.

For us, we believe trust will come from the right products and the right customer experience. The investing journey has to be smooth from the time someone invests to the time someone redeems. Messaging has to be clear and concise. Investors need to know exactly when their money will come if they redeem.

These small things go a long way in building trust.

And on platforms, because discovery happens through filtering and comparison, performance becomes even more important. A first-time investor may sort by a few parameters and only look at the first page. If your fund is not showing up there, you may not even enter their consideration set.

So yes, in the end, everything boils down to performance. We can talk about branding, distribution and marketing, but what sustains over five or ten years is performance.

What Should Investors Do in Times Like This?

Vivek Ananth:
Markets are in turmoil. Volatility is high. Portfolios are in the red. What would you say to retail investors who are jittery and unsure what to do?

Aditya Mulki:
If I were wearing my fund manager hat and managing a portfolio today, I would do what we have always done. Take a bottom-up approach.

We do not do a lot of top-down because top-down requires you to predict macro events consistently, and in my view that is almost impossible to do with accuracy over long periods.

You may get one or two calls right, but it does not add value consistently.

So, the investment process has to be robust. For us, that means filters like governance, liquidity and business quality. That automatically removes a lot of companies that could become highly volatile.

Then, in a cycle like today’s, I would rather be diversified than take random concentrated bets. You do not know what news may come tomorrow and affect one sector or industry where you are heavily overweight.

So, I would be cautious. I would diversify. I would hedge my bets. I would even keep some cash.

For retail investors, I would say go back to Covid. Nobody predicted it properly. And when it first came, many of us thought it would pass in two weeks or a month. But then we realised it was not going anywhere soon. Markets reacted sharply, but in hindsight that was a very good opportunity.

So, phases like this will come and go. The kind of geopolitical tension we are seeing today is unusual, yes, but Covid was also unprecedented in our lifetimes.

My advice would be: learn from that. These events can become very good buying opportunities. And in general, do not tinker too much with your asset allocation. That destroys more wealth than most other things.

The Next 5 to 10 Years of Mutual Funds in India

Vivek Ananth:
If you had to crystal-ball gaze a little, how do you see the retail investment landscape changing over the next five to ten years?

Aditya Mulki:
Investor awareness will rise meaningfully over the next ten years.

The kind of data and information investors will have at their fingertips is only going to increase. If today it looks a little confusing, they will gradually understand what to look at.

That will become the norm. Product understanding will improve. Asset allocation awareness will improve. And as that happens, it will again come back to performance.

From an industry standpoint, one of the big shifts we can draw from the West is the gradual rise of passive investing. In those markets, alpha is increasingly sought in areas like alternatives and private assets, while mutual fund allocations shift more towards passive.

In India, there is still enough market inefficiency, especially in mid- and small-caps, for active opportunities to remain. But over time, as access to data becomes more democratised, some of that alpha opportunity will reduce.

So, we may also gradually move towards more passive exposure. But that does not mean active goes away. Even in the US, where passive is more than 50%, the active side is still very large in absolute terms.

Nothing is ever black and white.

We will also see much more tech-driven wealth delivery. Smaller distributors and advisers will need better tech tools to compete with platforms. There is still a lot of work to be done on that wealth-tech plumbing.

So yes, we have come a long way, but there is still a lot more to build.

Recommendations: Books and Podcasts

Vivek Ananth:
Before we end, are there any books, podcasts, shows or films you would recommend to viewers and listeners?

Aditya Mulki:
On the books front, I have always believed that if you want to be in this industry, first understand the history of the industry.

So, I would recommend Adil Rasamjee’s Running Behind Lakshmi. It is long, but it is a very comprehensive read on the history of Indian stock markets.

Then there is Michael Mauboussin’s More Than You Know. That is a brilliant book for investors starting out.

Another very good one is The Four Pillars of Investing.

And if you are a budding analyst or a fund manager and only have time to read one thing, then read Warren Buffett’s letters to shareholders. Those letters give you continuity, and a great understanding of how a world-class investor thinks about running businesses and compounding capital.

On podcasts, I like listening to things beyond just finance. It could be health-related, biology-related, or anything that gives diverse perspectives.

One podcast I listen to is The Diary of a CEO.

Closing Thoughts

Vivek Ananth:
Thank you so much, Aditya, for giving us your time. It was a pleasure speaking with you.

Aditya Mulki:
Thank you. It was a pleasure.

Vivek Ananth:
And thank you to our viewers and listeners for joining us.

Clearly, the mutual fund ecosystem is evolving, shaped by trust, distribution, digital journeys, performance, investor awareness and the discipline of long-term investing.

Until next time, stay safe and invest wisely.

Disclaimer: Investments in securities markets are subject to market risks. Please read all related documents carefully before investing.