Quiz question: what percentage of household savings is in mutual funds? Answer: 2 per cent. That's a pittance. Which is why mutual fund houses are trying new ways to not only entice investors, but also new ways to add value and woo you, the customer.
There are old schemes, new schemes, old schemes masquerading as new ones, innovative schemes, value-added schemes -- there's no telling when this flood will end. And that's not a bad thing at all. This is one case where more is definitely merrier, because it simply enforces the fact that the customer is king.
But enough of such cliches, and on to look at those fund houses that lead the rest in sheer innovativeness. These MFs have done a lot to add value to your investing experience, whether in the form of unique schemes or innovative management or sheer professionalism.
Leading our list of five is a fund that most people thought was a loser. Looks are not always what they seem.The MF was actually just sticking to its high ethical ground. This fund house's belief that its way would triumph put it on the top of the heap. Now, on to the list.
1. Quantum Mutual Fund
Rule 1: Keep launching new schemes. Size matters and bigger is better. Rule 2: Woo distributors to increase collections and to overtake competition. Rule 3: Bargain about commission with the distributor but don't wory about it too much; at the end of the day, it is the customer who pays.
Shocked? You may well be, but these are the rules almost every mutual fund follows religiously. And that's where Quantum MF parts company with the crowd.
"Mutual funds should be bought, not sold," says Ajit Dayal, director, Quantum MF. And that's the foundation of the all-new Quantum. Launched in February 2006, the fund house has deliberately chosen to avoid distributing its schemes through distributors, a first in this industry. The only way you can buy Quantum schemes is to download the forms from the company site or by asking them to courier the forms to you.
Avoiding distributors in peak markets could prove costly, because they can sell schemes aggressively and help the fund mop up huge collections. Which is possibly why Quantum Long-Term Equity Fund collected just Rs 11 crore. Not that they are complaining. "We'll be very happy after five years when we'll be able to demonstrate the cost savings more obviously," says Dayal.
Incidentally, the fund is also among the very few open-ended equity schemes to levy high exit loads on early withdrawals. Yes, Quantum seeks to set an example of how mutual funds should be approached, but this means that it will take it several years before it can accomplish its mission. We'll keep you posted.
2. Benchmark Mutual Fund
Not many funds have launched index funds in India, and those that did generally made a low-key entrance into that space. And then comes Benchmark MF in 2001, which made no bones about the fact that it was going to launch only index funds.
To be precise, it planned to launch only ETFs (exchange-traded funds) - close cousins of index funds. The difference is that ETFs are listed on the stock exchanges and you can buy and sell units throughout the day and not just at the end of the day's price like an index fund or any other open-ended mutual fund. Highlights of Benchmark's portfolio include innovative schemes like its Arbitrage Fund, Split Capital Fund and Liquid BeES.
Benchmark is also the country's first and only fund with solely passively managed schemes. The MF does not believe in active management; rather, it believes that indexing and quantitative fund management is the way to go.
Set up by Rajan Mehta and Sanjiv Shah, the fund's philosophy is to remain invested in the index and let it do its own thing. Says Mehta: "Over the last three years, the gap of out-performance by actively managed funds over the indices is reducing. It does not mean that fund managers have run out of ideas, but there are some structural changes like better corporate disclosures and the increasing number of informed and professional investors in the market.
"Due to this, the ability to add value becomes less, which is why indexing is a much more sustainable strategy over the longer term."
As we've seen elsewhere in the world, the more the markets mature and become efficient, the more difficult it becomes to outperform the index.
3. Fidelity Mutual Fund
It's the big daddy of mutual funds, and when Fidelity entered the Indian market last year, investors and analysts sat up and took notice. The first launch, Fidelity Equity Fund, collected Rs 1,460 crore (Rs 14.6 billion), among the largest inflows till then. The fund is now one year old, and has passed its first test with flying colours, with returns of 78.9 per cent.
So, what's the difference between Fidelity and other MFs, save size? What caught our attention one year ago, and still does, is the fact that Fidelity does not encourage investors to wander in and out of its schemes. It claims to monitor all entries and exits, and if it feels that an investor is making frequent entries and exits into its fund, it will disallow those flows. "Frequent churning has a negative impact for existing, long-term investors," says Ashu Suyash, head - Fidelity MF.
Fidelity claims that since inception, it hasn't yet come across any instances of investors who churn excessively, but the policy still stands, perhaps as a deterrent. But what about investors who exit soon after the fund was listed? Or maybe even in the first year itself?
Suyash says: "We had - and still have - an exit load of 1 per cent for investors exiting within six months." That may not be enough. If the market goes up phenomenally in a year and so does the fund, eager investors might still pay the load and get away. With Sebi allowing a maximum of 7 per cent load, there's room left for Fidelity to enforce its belief a bit more.
4. Franklin Templeton Mutual Fund
In the 1990s, most equity funds launched were either closed-end or plain vanilla diversified equity schemes. Enter Franklin Templeton. They launched India's first equity scheme, Templeton India Growth Fund, based on the concept of 'value investing'.
India's liberalisation process, which started in the early 1990s, had picked up momentum towards the middle of that decade and Indian companies that had grown till then in a controlled environment were now waking up to the realities of competition not just within the country, but also from abroad.
En masse, companies began restructuring. Says Chetan Sehgal, director-research, Franklin Templeton: "In that sense, a 'value' fund with a focus on long-term potential was seen as an ideal platform for capturing the advantages of this metamorphosis through investments in large companies."
However, in its early days, TIGF did not do well due to the impact of the South Asian crisis on companies in 1997 and the increased interest in technology stocks. The fund stuck to large-cap stocks and stayed away from mid-caps.
Though it lost out to its more aggressive peers during the technology boom of 1998-99, it came into its own during 2000-01, when markets crashed. In 2000, when markets lost 20 per cent and the diversified equity funds category lost 30 per cent, TIGF lost just 2 per cent. In 2001, the fund was in the top 10; it lost 10 per cent, while Sensex lost 18 per cent.
Of late, TIGF's performance has slipped and other value funds, notably Prudential ICICI Discovery Fund, have taken the lead. Heavy exposure to the oil sector was also responsible for pulling down its performance. Is this a temporary effect or will TIGF manage an encore? Only time will tell.
5. Reliance Mutual Fund
The new leader Reliance Mutual Fund has come into its own after years of trailing the likes of Franklin Templeton, HDFC and Prudential ICICI. According to AMFI's March-end figures, Reliance MF is the leading private MF player in terms of corpus, and second only to UTI MF overall.
Its latest NFO, Reliance Equity, had a lot to do with this, as the fund mopped up Rs 5,750 crore (Rs 57.5 billion) - the highest inflows ever in a diversified equity fund. But it would be unfair to attribute all the gains to this one scheme. Reliance's other funds had a lot to do with this significant growth.
Launched in 1995, Reliance MF had a tough time in the early years. Its two flagship equity funds, Reliance Growth and Reliance Vision, showed uninspired performance till 2001. It was only in 2002 when, after a change in fund management, the schemes started to turn around. And so did the fund house's fortunes.
In 2002, both Growth and Vision topped the charts and still continue with their sterling performances. Reliance MF has developed the art of picking up unheard-of companies that turn out to be multi-baggers. In recent years, the fund house has launched unconventional sector funds and has done well.
While Reliance Diversified Power Fund returned 106 per cent, Reliance Media & Entertainment Fund returned 81 per cent in the past one year. Reliance Banking Fund returned 48 per cent since inception.
Over the years, Reliance MF has built up its fixed income side as well. Two of its debt funds, Reliance Income Fund and Reliance FRF, are five-star rated. From a corpus size of Rs 589 crore (Rs 5.89 billion) at the end of 2000, the fund's size has grown to Rs 24,670 crore (Rs 246.7 billion). There's no looking back now.Want to invest in Mutual Funds? Get good advice, join the Mutual Funds Discussion Group
