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D. Murali
Alagappan Arunachalam

In absolute terms, FII managers have achieved about 150 per cent of what their counterparts in MFs could do.

Chennai , May 26

Who is more efficient: MF manager or FII manager? The answer, contrary to common thinking, is that MF (mutual fund) manager is about seven times more efficient than his FII (foreign institutional investor) counterpart, when it comes to investing in the Sensex constituents.

This is how. Let's begin with the position on June 30, 2005 and find out the FIIs' holding in each of the Sensex constituents. After that, we eliminate the impact of the human managers of FIIs and put the portfolio management task on autopilot.

Sticking thus to the June 2005 percentages of holdings, we move forward to March 31, 2006, and check the kitty. The total (simulated) value in the auto-mode comes to Rs 2,71,469 crore for the FIIs. The actual value, however, of FIIs' holdings stood at Rs 2,81,333 crore at the end of last fiscal.

Which means, the human element that intervened to re-jig the portfolios of FIIs resulted in a value-addition of Rs 9,864 crore, compared to what would have been achieved by merely automating of the investment process.

MF holdings' value

Okay, how did the MFs fare? To answer this question, we put them also on autopilot, and compute the simulated value of MFs' holdings in the Sensex constituents at the end of March 2006. The number comes to Rs 27,310 crore. The actual value was higher, that is, Rs 34,099 crore. Implying that Rs 6,790 crore got achieved because of the active involvement of MF managers in portfolio management.

In absolute terms, FII managers have achieved about 150 per cent of what their counterparts in MFs could do. The surprise, though, lies in the relative values.

Value-addition by FII managers works out to 3.63 per cent. For the MFs, it is 24.86 per cent, or 6.84 times of what the FII managers could achieve. QED.

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