The Hindu Business Line : Search for assets may be unhealthy

Caveats have rarely won plaudits. In this world of feel-good pronouncements, Quantum Mutual Fund’s attempt to denounce the absurd chase for more assets by the mutual funds industry will probably not win it anything more than a brief applause. The attempt, nevertheless, is surely worth the while, and we will, perhaps at the cost of revisiting the idea, talk about it here.

Forming the backdrop for all this are views expressed lately by the SEBI chief, Mr M. Damodaran. In a recent meet, he underlined an issue that has been discussed at length elsewhere – the fund industry’s excessive dependence on inflows into liquid and other very short-term products. Such dependence, it is felt, is good only for certain sections. For large swathes on the country’s investment map, it has little relevance.

Now, before you think Quantum is a big fish swimming against the tide, let us tell you that it is somewhat of a David among Goliaths. Considering its asset size, that is. For the record, its equity fund has about Rs 35 crore under management.

Like Quantum, a few others too argue that the industry’s search for assets sometimes turns unhealthy. Fund houses, which have been betting big on NFOs, push the distributor community hard. Distributors, in order to ensure that inflows stay uninterrupted, have the habit of encouraging investors to consider one NFO after another. As a result, absolutely fresh money is not always generated in good quantities for the new offers.

NFOs throng

Talking of new offers, the market is quite alive with fund houses rolling out one product after another. A clutch of NFOs are waiting to take off, some of them promising to invest in international markets, subject to regulator-prescribed limits. Among the players that have lately worked out offer documents (for global funds) are Birla Sun Life, Tata and Franklin Templeton.

From what we gather from information posted by SEBI, the list of new offers may well include products mooted by the likes of Kotak, JM and Lotus. The last-named outfit has, in fact, crafted quite a few offer documents – Large Cap, Mid and Small Cap, Flexi Cap and Infrastructure. Besides, it has also proposed what has been stylishly named ‘Lotus India AGILE Fund’. The abbreviation stands for ‘Alpha Generated from Index Leaders’. The NFOs lined up for the future will include two short-term products (Liquid and Liquid Plus) from newcomer JP Morgan.

A few new offers that are open at the moment will soon close for initial subscription. These will include UTI MF’s Life Style Fund, which is essentially a three-year close-end product that will invest in companies that are expected to benefit from consumer spending.

Feeder funds

DSP Merrill Lynch MF’s World Gold Fund will close next month. This is an open-end feeder fund in nature, not an exchange-traded fund, as DSP ML has carefully pointed out.

Feeder funds, sources in the funds industry feel, may become a larger segment in the days ahead. There are not too many of these around. To the best of our knowledge, there are about two at the moment. Principal’s emerging market product is one of them. The other is the much older fund in the Franklin Templeton stable. It feeds into a fund that invests in US government securities. In recent times, Kotak Mahindra MF has mooted a feeder product in association with T Rowe Price. It has to be seen how the market reacts to it once it is formally launched.

Feedback may be sent to nilanjan@thehindu.co.in

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