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An 'Ant' and 'Elephant' got the most Likes - Outside View by PersonalFN
 
 
An 'Ant' and 'Elephant' got the most Likes

You got it wrong if you thought we are talking about some photograph posted on a social networking website. Here, we are in fact referring to results of a survey which we conducted recently. We had asked our readers whom would they rate as India's most trusted mutual fund house. Survey was conducted on a sample set of 1,450 people, of which nearly 32% respondents rated HDFC Mutual Fund as India's most trusted mutual fund. HDFC Mutual Fund is an elephant considering the Assets Under Management (AUM) of the fund house. Interestingly, Quantum Mutual Fund, which is perceived to be an 'ant' by the other players in the industry due to petite size of its AUM, too made it as the 2nd most trusted fund house with 16% of the sample size voting in favour of Quantum Mutual Fund.

As on February 28, 2013, HDFC Mutual Fund has been managing assets worth Rs 39,431 crore under its open-ended equity oriented funds, while Quantum Mutual Fund has assets only worth Rs 173 Crore under its under its equity oriented funds.

Today while many companies are entering the asset management business, our survey revealed that it was quite tough for even some of the other established fund houses, to conquer the position of India's most trusted fund house.

Survey Result at glance
Scheme Name 3 Year Returns (%)* 5 Year Returns (%)* AUM in Cr.(Nov 2010) AUM in Cr. (Feb 2013)
Franklin India Bluechip Fund (G) 11.4 7.2 3326.76 4943.01
HDFC Top 200 Fund (G) 11.0 9.2 9424.80 11455.36
ICICI Pru Focused BlueChip Eq Fund (G) 13.6 - 1658.17 4194.24
Quantum LT Equity Fund (G) 15.7 10.8 61.77 160.67
UTI Opportunities Fund (G) 13.6 10.8 1590.11 3413.99
S&P BSE 200 6.4 2.1 - -
Sample Size: 1,452; (Source: Poll Conducted by Personalfn.com)


The fund house which tops the list has received as many as 4 times the votes received by the fund house that stands 3rd. This is a stark difference and shows many players in the industry have lagged far behind the others, in winning investors' trust. There's only one fund house in the list of top-10, which has a record of less than 10 years in the Indian Mutual Fund Industry.

What may have influenced the opinion of respondents?

If one believes that trust is a function of longevity then even some older fund houses should have scored better; but that's not the case with all. Moreover, those who think that trust can be developed only by generating high returns for investors may not be completely right. Some fund houses, despite having generated excellent returns under few of their schemes, have been rated low as per our survey. We believe, there may be a combination factors that have affected the vote count and possibly highlights the fact that could be something more than just returns to gauging a good mutual fund house. And what could that be?

Well, the first among them may be the Popularity of funds under management. These days, it is not uncommon to come across recommendation reports on mutual fund schemes. A whole host of personal finance websites, daily circulations and independent research houses put forward their views - which could be buy / hold / redeem. These are primarily based on the returns of these funds across various time periods. As a result, at most times the same funds get highlighted from all around, only sources change. And yes to add to the factor of popularity, funds as well as people running them win awards which also earn more reputation to fund houses.

Performance of some Popular Funds
Mutual Fund Name Votes (in %)
HDFC Mutual Fund 32
Quantum Mutual Fund 16
Franklin Templeton Mutual Fund 8
UTI Mutual Fund 7
ICICI Prudential Mutual Fund 5
Reliance Mutual Fund 3
SBI Mutual Fund 3
Birla Sun Life Mutual Fund 3
DSP BlackRock Mutual Fund 2
IDFC Mutual Fund 2
(* Rolling CAGR Returns)
(Source: ACE MF, PersonalFN research)


It is said that the on-going corrective phase of the market has started in November 2010. Table above tells you how AUM of some funds enjoying star ratings has gone up during the corrective phase. AUM may go up without any significant additional contribution by investors if markets are constantly rising. But in this case markets have gone nowhere and still AUM has gone up sharply. Awareness creates familiarity which may result in positivity and eventually leads to development of trust. But, it can be illusionary.

The other major reason that may influence the voters is their personal experience. Those who have benefited by investing in various schemes offered by the same fund house may naturally develop trust in that fund house. On the other hand, those who have lost money, not necessarily because of any fault on account of poor fund management, but due to bad market conditions, may still mistrust the fund house.

To conclude

What you have read just now is merely a result of a poll conducted by us. The pole result may not be depicting the true picture. Therefore we urge you not to form any opinion about fund houses based on our findings.

However we believe, in fund management, accountability helps build trust. Not launching too many schemes when it would be easily possible given the popularity of the brand, may demonstrate accountability of the fund house towards its existing investors. Treating all funds at par (caring about the performance of all) and not just focusing on funds which are "scalable" because they are easily saleable due to their past performance is also a sign of being accountable to all investors.

Retail participation in equity markets is falling. Equity oriented funds are facing redemption pressures. People have perceived any rise in market indices as an opportunity to exit (even by booking losses). As per data released by Association of Mutual Funds in India (AMFI) in September 2012, there are only 3.75 crore folios in equity oriented funds (including balanced funds). Should this number improve, along with markets, accountability of fund houses must go up and rather go up significantly.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:
The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

 

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