Stocks

Why MF managers need a free hand on investment calls

K. S. Badri Narayanan | | | Updated on: Dec 03, 2021
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Many have raised questions about the decision to invest in Paytm’s IPO

The pulls and pressures faced by mutual fund managers have been increasing enormously. On the one hand, they have to meet regulatory compliances, which, of late, have multiplied, both in procedural and professional aspects. On the other hand, they have to satisfy the asset management companies and investors, who are now raising questions about investment decisions too. Though genuine criticism is welcome, some of them are going overboard, making the most of freedom of expression on social media.

Largest-ever IPO

A recent example is mutual fund managers’ investment decision regarding the initial public offering, of One97 Communications (or Paytm). Many investors took to social media, questioning the rationale behind MF managers’ investment decision. Some, through social media platforms such as Twitter, Facebook and Telegram, even advised investors to avoid investing in schemes that were anchor investors in Paytm.

The Paytm IPO, which raised ₹18,300 crore, saw an investment of ₹1,050 crore from mutual funds through anchor investor window. Among the schemes were Mirae Asset Large Cap, Aditya Birla Sun Life Frontline Equity, Aditya BIrla Sun Life Flexi Cap, Mirae Asset Focussed, Mirae Asset Emerging Bluechip, HDFC MidCap and Aditya Birla Sun Life Equity Hybrid.

Should investors castigate MF managers for every single investment decision? Investors should be aware of the risk element involved while investing in any equity scheme. Without taking a risk, it is very difficult for fund managers to provide market and inflation-beating returns. If investors fear risk, then they can altogether ignore equity products and play it safe by going in for PSU banks’ fixed deposits.

Miniscule

Besides, for most schemes, Paytm does not even account for 1 per cent of their overall portfolio. So, the impact of the investments will be limited on the NAV for those schemes. Given the strong performance of fintech stocks with similar background (loss-making), some fund managers took a calculated risk. Not only fintech stocks, even most IPOs of 2021 have generated stellar returns on listing day itself. On the other hand, had the paytm IPO performed well, it would have definitely enhanced the overall return of the scheme.

Also, investment in mutual funds should be from a long-term perspective. How to manage or micro-manage a scheme’s portfolio in the longer run is the fund managers’ prerogative and they should be given a free hand on that score. Of late, most fund managers use sophisticated investment tools based on various parameters that help them identify stocks for picking and selling.

All said, it would be interesting to see what anchor investors do, post the lock-in period.

Anchor investors cannot sell their holding of Paytm shares till December 14.

Published on December 04, 2021

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