Mutual funds investment tips: Don't get caught in the churn at the top; this is what you must do
There have so far been over two dozen ownership changes in India’s mutual fund companies. Recently, DSP Group has announced its plan to buy BlackRock’s stake in their JV, DSP BlackRock MF. After KBC Asset Management left Union AMC, Dai-ichi Life has bought 40% stake in Union AMC.
There have so far been over two dozen ownership changes in India’s mutual fund companies. Recently, DSP Group has announced its plan to buy BlackRock’s stake in their JV, DSP BlackRock MF. After KBC Asset Management left Union AMC, Dai-ichi Life has bought 40% stake in Union AMC. If the shareholders of a mutual fund house change, can this bring serious changes to how your money is managed, DNA Money asked experts.
Should the exit of a foreign player worry investors? “When foreign partners exit India, they are, most likely, losing money in the AMC and since they cannot bear it anymore they are throwing in the towel. Sometimes it is pressure in their home country to focus on their core business and exit smaller business segments like India,” said Vikas Gupta, CEO and chief investment strategist, OmniScience Capital.
Investors must focus on the performance of their particular scheme. “If the performance has been good then they need to watch if the fund manager is going to be moved out ,” said Gupta.
However, some experts are of the opinion that there is always some loss when a renowned foreign MF partner leaves. “The research capabilities and managerial talent of the foreign partner are no longer available to the fund house. This can particularly impact areas like international funds which might feed into the foreign partner’s own funds and rely on its expertise,” said Neil Borate, personal finance analyst, RupeeIQ.
According to Himanshu Srivastava, senior research analyst, Morningstar investors need to understand what kind of a structure the foreign investment managers have. “For instance, exit of a foreign player may not be negative if it is in a joint venture with a strong and well established domestic player. On the other hand, investors have to be watchful if a foreign investment manager having an independent setup decides to wind up its business,” he explained.
Value to the table
The bigger question is whether MF firm owners bring any value to the table. In theory, the idea is that the foreign MF partners would bring “fund management expertise”, said Gupta. The operations expertise of managing a large AMC in their home country and the compliance, back office, etc. is definitely some value that they bring. Once that is institutionalised it remains in the Indian AMC. But this could get lost unless the new Indian owners are focused on maintaining the operational/compliance diligence.
“What really matters to investors is the investment management expertise. If the foreign MF is really strong in terms of a particular investment philosophy and process then that could be seen being institutionalised in the Indian MF. But there is a limit to that process. It will definitely lose the drift when the foreign MF exits,” said Gupta.
Few partners may also bring in their strength and experience in risk management and compliance, thereby, adding to the robustness of the investment process. “If that has worked well for the joint venture, it is up to the domestic entity to maintain the same after the partnership comes to an end,” pointed out Srivastava.
Losing a foreign partner does hurt, but all MF advisors do not tell this to clients. “Foreign partners can bring global best practices and understanding of the broader global markets. Advisors do not draw attention to them because they are reluctant to alarm clients,” said Borate.
By Kumar Shankar Roy, DNA Money