The ant and the elephants: a true story

19 JUNE 2009

This is a true story.
We don't know the ending as yet.
But we know who we are and why we exist - and we know who we want to win.

Quantum Mutual Funds work for the millions of investors in this country who wish to place a portion of their savings in sensible - but simple - products.
With the money of the investors being put to work in the stock markets - and not being used to finance the holidays of distirbutors and wealth managers.

Yes, we want the investors to win.

A dream turns into a nightmare
I had a dream in 1984: to launch mutual funds investing in India.
There was no SEBI then.
There were no mutual funds.

(Well, we had the Unit Trust of India which was a mutual fund, but, like many entities set up by the government, it lost its way. I know the rot that had crept into UTI - I worked there for a few months and resigned when I smelt it.
UTI - the old UTI - blew up and now there is a more vibrant UTI in its place. And I wish them well.)

-------------Vote Here-----------------------------
SEBI has mandated that all investors in mutual funds must pay a separate fee to their distributors or financial advisors. Will you be able to judge how much to pay for the advice you have received?
Click here, to let us know.

In 2005, Quantum Asset Management Company Private Limited was born as the 29th mutual fund house in India.
Happily, I trotted along with my license in hand to meet various distributors of mutual funds to see how they could help us raise money from investors.

"Hello, Mr. Distributor", I said, "you know the reputation that Quantum Advisors enjoys as a research and investment advisory group. Now we have a mutual fund license and we would like retail investors be made aware of our track record and experience. We would like to launch a diversified equity mutual fund."

The distributors I went to meet were some of the largest groups in the financial services business. I knew most of them over the decades. In 1990, Quantum was the only equity research group that was set up to target foreign investors. This was before foreign investors were even allowed to invest in India. The term "FII" had not even been born.

Once the FII avenue was opened up in 1991, we had a joint venture and partnership with Jardine Fleming, one of the first FIIs in the country. And, as one of the largest FII fund houses and foreign groups, I had the opportunity to meet with many of the brokers, bankers, and distributors in the country.

So getting the doors opened to meet them was not the problem.
And opening my mouth to say, "Hello" was not a problem.

The distributors listened to what I had to say about our long term investment process; how we assess risk; the mistakes we made in the past; why we follow a team-based investment approach and not a 'star' fund manager approach.

And then they asked me the plain baniya ka hisab kitab question: what is in it for me, the distributor?

"Uh", I stuttered, "but you already charge your client a fee" I told one person who managed a private client business on which he was getting a fee from his client.

"Uh," I told the mutual fund placement factory, "isn't there some rule on entry loads and isn't that what you get?"

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Welcome to Plunderland
I was so busy trying to improve the way we manage money, I had not seen the world around me change - for the worse.

The distributors laughed at me.
Their business model was very clear.
They would dump the clients into whatever NFO was out there as long as they got paid a high fee; a nice, fat commission.

They had a rate card: the way you buy samosas or channa.
If you pay us a 2% fee, we cannot promise you anything.
If you pay us 6%, we can give you Rs 500 crores for six months.

Trips to Malaysia, Mauritius, Singapore, and Switzerland were their other rewards.
All paid by the mis-led and ignorant investor.

But what about track records?
What about the fact that the fund may be a great fit for their investor base?
What about what is good for their clients?

They laughed.
I was living in Wonderland.
They were living in Plunderland.

"But", I pleaded, "mutual funds should be selected based on performance; based on risk taken; based on what is good for the investor. The way mutual funds are distributed needs to change."

And then one of the defining moments of my life.

A dialogue etched in memory like the "bach gaya saala" of Gabbar Singh in Sholay.

"In our industry", said the very prosperous head of a well known private client group, "the elephants dance to our tune. You are an ant. What will you do?"

Doing what ants do
Being an ant is not a glamorous job.
You need to buzz around busily collecting scraps of food on the ground.
The elephants can trample you. The elephants are the large mutual fund houses with armies of agents and distributors and the fire power to pulverise you in any ad campaign and brand building exercise.

So we were busy being ants.
Doing what we believed in and writing to create awareness of what we were doing - and why we were doing it.
On a small scale, as ants are used to.

We had to build an ant hill.

Quantum Long Term Equity Fund had its first NAV declared in March 2006. It was a fund that was sold with no distributor commissions.
Sold on the internet, or you could email us and we would call you.
We collected less than Rs 8 crores from less than 800 investors.
Other mutual funds launched at the same time collected hundreds and thousands of crores. From tens of thousands of investors.

Still, we liked being the ant.
We were the 29th mutual fund house but the first to reject practices that were detrimental to the interests of the investors.
Unequivocally - with no hesitation.

All the elephant mutual fund houses around us were indeed the giants but - pardon the expression - were hiding their manhood.
They, like the distributors said, were happy to dance.
They did not care how the distributor got them their money.
The elephants wanted to play the "I have large assets under management" game.
The elephants knew that the investors in their funds were there because they had been mis-sold.
But they did not care.
The distributors were playing the music and the elephants were dancing.

Every AMC was the dancing elephant.
All, except Quantum AMC - the ant.
Buzzing around managing money; staying on the side of the investors.
Trying to avoid the thumping feet of the drunken elephants.

The regulator strikes
SEBI has stepped in now and stopped the music.
Trying to stop the leaks in the system.
To ensure that investor get sold the funds that they deserve to own.
And ensuring that investors are fully aware of the fees and incentives that distributors get.
In fact, SEBI has said that investors will pay a fee directly to the distributor for their advice.
A very transparent mechanism.
You get advice: pay what you think it is worth.

There will be a change in the landscape of the mutual fund industry.
Just as the dinosaurs went into extinction when meteors hit the earth's surface millions of years ago, the elephants and their music-loving DJ distributors are at risk.

We ants will find a way to survive - we were not in the ball room dancing with the elephants.

Still to unfold...
Don't go away - the story is not over.
The distributors are not yet out of business - or their Living in Plunderland mentality.
They may stop selling mutual funds, and start selling you a lot more of Unit Linked Insurance Products (ULIPs).
Do you want to guess why?
Yes, that is correct; the distributors make a lot more money selling you that junk than they did selling you the elephant droppings which were disguised as musk oil - an aphrodisiac.

The distributors and wealth managers will play the regulatory arbitrage: go where the regulator is less vigilant.

AIG did that.
Lehman Brothers and Bear Stearns did that.
Most who worked for AIG, Bear Stearns or Lehman did pretty well in life.
Their customers and investors - well, who cares about them anyways?

So, don't be surprised if your distributor and private client wealth manager calls you and explains to you why mutual funds are terrible places to invest and why ULIPs is the best thing since aaloo tikki.

And, yes, not all distributors are bad - or were bad.
There were many who were honest.
And gave honest advice.
For them we have good words and a lot of praise.
Like us, they are the ants, working away to build an honest business, an honest practice.

We did not have to wait for the regulator to tell us what is right.
We learnt that in school and at our home.

"Do good" my father's teacher told him seventy years ago, "and be good".

And those were his words of advice to me when I went to college:
"Do good and be good".

The elephants - mature adults with good college degrees and infinitely more intelligence than us ants - had to have the regulator instruct them that "good" is now the law.

Goodness is what you learn in your childhood.
For them, it is what the regulator tells them to do.

With your help, our ant hill can turn into your mountain.
Come and see what we have done so far, visit
India's first direct-to-investor mutual fund house.

From the SEBI press release of June 18, 2009.
(vi) Transparency in payment of commission to Mutual Fund distributors
There shall be no entry load for the schemes, existing or new, of a Mutual Fund. The upfront commission to distributors shall be paid by the investor to the distributor directly. The distributors shall disclose the commission, trail or otherwise, received by them for different schemes/ mutual funds which they are distributing or advising the investors.

Note: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt Ltd and Quantum Asset Management Company Pvt Ltd.. Views expressed in this article are entirely those of the author and may not be regarded as views of the Quantum Mutual Fund or Quantum Asset Management Company Private Limited. To write to Ajit, please click here.

Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)

Quantum Long Term Equity Fund, Quantum Equity Fund of Funds, Quantum ESG India Fund Quantum Gold Fund
Quantum Liquid Fund
Why you
should own
An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% in total in both; Maybe 15% in QLTEF and 75% in QEFOF and 10% in Q ESG 20% Keep aside money to meet your expenses for 12 months to 3 years
Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"

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31 Responses to "The ant and the elephants: a true story"

Chirag Gandhi

Oct 25, 2012

Thanks for sharing such a gr8! Article.
Glad to read the policy & style of Quantum AMC and then too it is doing very well.
Means investors are with them and they should continue.

Now regarding commission / fee to distributor OR financial adviser:
I am studying everything in my own way using various tools / reports and on basis of same I choose the MF Scheme; means I am not getting any advice from them then in this scenario why should I pay any fee to distributor / financial adviser???
I am my own financer Adviser... :)



Dec 19, 2011

dear sir
I like your story very much I read story i got pleaasure
very much



Aug 1, 2009

when will IRDA take same kind of action taken like sebi.
you can write another story for insurance industry.
in india there is no level playing. At one point of time the entry load system will back in track in another form.Please wait and watch.



Jul 13, 2009

Hi Mr.Ajit
As an investor am happy that am paying to the distributor directly or indirectly, But u as an ant have invested all the money directly, BUT WHY IS THIS DISMAL,POOR, PERFORMANCE OF YOUR FUND. ANY ANSWERS TO THAT, even after you have invested the entire money that had to be paid to the distributors...... think about that also



Jun 24, 2009

After reading the truth(as what it is called) I think the way distributors work is way they have learnt it. The elephants may be fools or, may be not until they get what they want. The elephants will keep dancing until they find something else more interesting(safer/worth in your terms). I get a feel you are writing this as an ANT, how about writing the same as an ELEPHANT.


Sunil Mangalvedhekar

Jun 23, 2009

Dear Mr. Ajit,
The series of "honest truth" is always informative, thought provoling and speaks nothing but the truth.

The article "The ant and the elephants" acts as torch bearer on "practices" prevalent in financial industry. Ethics, corporate governance practices and high respect to investor interest being followed by you shall definitely go noticed in a long way and provide direction for others to follow.

Your stock advisory service is also well researched and informed. Keep it up. It will be pleasure to offer best support at all times.

Sunil Mangalvedhekar.


khalid chataiwala

Jun 22, 2009


The ant and the elephants: a true story has been explained in a very lucid manner. It was a very beautiful piece of honest and truth writing, these things are happening in the market and the innocent investors are taken for a ride. GREAT WRITING AND OFCOURSE GREAT READING FOR US. THANKS...



Jun 21, 2009

Congratulation on a wonderful article, hindsight every one says I told you so. Catching the ants when the elephant is still dancing is what exactly SEBI has done. What about all the loses incurred by the investors, was it only the distributors at fault or also to some extent the investors too, When an investor makes money it is his acumen, when he loses it is the distributors fault. There are black sheep in every profession,as you may well be aware, but you cannot generalise them and cut the income and ask the distributors to go on a begging bowl. It is like waiting for the poor farmers to commit suicide then the Government wakes up, as it has seen only rich farmers around it all these years


rajnikant gajjar

Jun 21, 2009

Resp.Ajit Dayal Sir,
You need no congratulations.
What you need is right support, kindly ask someone from your fund house to be in my touch.
I like to invest in your gold fund.
MY CONTACT NO IS +919824133073.
Continue to spread investor awareness as it is being done today.
Wish you all, all the best

Like (3)

Yogini Datwani

Jun 20, 2009

Very nice article. After reading your articles it seems that there is someone to speak loud and straightforward.Keep up your good work.

Like (1)
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