Mutual fund Industry is about 25 years old – and it is a good time to review what they have done. On one side they have done a great deed by getting the smallest of investors into their investment fold. I can’t even imagine how a police man in Dindigul or an investor 50 km away from Rajkot can participate in the country’s growth. With tools like SIP (sure it was copied from US) the small investor is getting to average his portfolio – and not worry about the day to day fluctuations.

However, the industry has concentrated on “growing” at any cost instead of the ‘core’ – reasonable fund management and low costs.

The industry prides itself on size. The Union of Mutual fund Manufacturers (you know it by  a different name I guess?) prides on a monthly ranking of “biggest” fund houses. The industry events celebrate the big Amc, big distributor, …rarely has performance been discussed. Leave alone rewarding the good performer, good performance is not even measured at industry events.

Small fund houses say “we are more nimble because we are small” but will send you an email, wass app, ….etc. showing how their rank moved up from 43 to 42 or even 38. They will keep celebrating size increase, NFO, empanelling more advisers, distributors, banks…They will keep collecting money till they do not have the capabilities of managing. The other parts of the industry are to be blamed because they too in their associations keep rewarding size and not performance.

For many of the players size was achieved by “being the right person in the right place” – tons of luck for sure. The growth was funded by an “upfront load” which was used to pay the adviser. Well, technically NO FUND HOUSE has a LARGE CAP fund which has beaten the TRI even from say 1993 till date. I mean for the investor.

When a plane crashes, the pilot dies. When a fund does badly, the scheme is merged into another fund – and the evidence is buried. Another problem for the investor is that the adviser does not register with all fund houses. Clearly the Union of Manufacturers of Mutual funds will not allow their union to register a distributor to register only with the union. So it becomes difficult for the new Amc to get older, registered agents to even register with the new ones. Luckily now platforms are in place – which allows an agent to use NSE / BSE / MFU registration and sell all amc. Their union had made it very difficult for the new amc….but platforms (luckily) bypassed this nonsense.

The Investors and Advisers are also to blame – they throw so much money at a fund manager that he has to fail. It is designed that way. As long as AMC chase aum they shamelessly amass. Look at Hdfc amc. They amassed aum in a fund called Hdfc Prudence. There was blatant mis-selling by agents, brokers and banks. Of course the IFA justified saying “If I do not do the client will buy the same shit from the bank”. This is so damn tax inefficient that I doubt whether any investor could have earned any money being in the dividend option.

Will your banker or your adviser change you from dividend to growth option? well if he is a banker, NO. If he is sensible he will redeem and make you invest this elsewhere.

When a fund has 50k crore of aum is it possible to rebalance on a regular basis? There is enough evidence that they are not doing it properly. Proof that chasing aum is fine, but then do not bother too much about performance. A few amc have brought in group funds and made their schemes look much bigger. Some have brought in almost free money and make the fund look like a best performer. Hello, Sebi, – there are a few people in Sebi now who know how to use excel. Thank her and God for some semblance of good behavior. Semblance, and i stick to that word again.