[DigitalOne]

Originally Posted by eagles_ts

Please read what I wrote carefully before responding:

1) Various investment styles are not the same as different mutual fund categories. For instance, in the mid cap space, you will have funds that follow the value approach or growth approach or momentum approach....

.... Ratings take returns as a key input, and returns depend on investment style followed by the fund and whether that investment style is working in that phase of market cycle.

I have been a DIY investor for over 20 years now and I have a MF portfolio which enabled me to take a FIRE decision recently. So, I think I qualified to talk about this .

IMO, "Investment Style" in the Indian context is a marketing term. SEBI has a rule saying that an AMC cannot have more than 1 fund in one category. But SEBI allows funds based on 'themes'/'investment styles'. SEBI does not have any quantitative criteria for funds for 'investment style'. For e.g. SEBI does not have specifications for 'value funds' (e.g. 75% of the stocks should have a P/E less than industry P/E).

So, AMCs in a bid to attract AUM launch 'value' funds but the investment strategy is the same as any other funds. For e.g. check all the funds which are under the EQ-VAL category. Hover over each fund's Fund style (the 3x3 matrix). If you notice all the funds, barring the index funds and Tata Equity PE fund, follow the growth fund style. But as per their own marketing, they are all 'value' funds .

Second, check the portfolio overlap between two funds which are supposed to follow different investment styles. By definition, a value fund and a momentum fund should have very little portfolio overlap, right? But a Quant value fund and Quant Momentum fund has a portfolio overlap of ~40%.

Simply put, if you are interested in 'value' or 'momentum' style investing then go for the respective indexes, which are constructed by purely quantitative measures. Don't believe the AMC marketing that their thematic funds have distinct investment styles.

I have considerable investments in two active 'value' funds (HDFC Capital Builder and ICICI Value Discovery). Long time back, I was also taken in by this marketing gimmickry. I still have an active SIP in ICICI Value Discovery fund but now I do it fully conscious that the fund is not doing anything extra 'value' addition than any other flexicap fund.

[eagles_ts]

@ DigitalOne: Congratulations on your journey. It’s commendable that you were able to retire early. It’s gives great confidence to other DIY investors too. As an individual investor I don’t have the bandwidth to counter you, for your sake I hope you’re right.

All I was saying is that my advisor has added a lot of value towards my investments and I am happy to bear the additional cost of opting for regular code (vs direct). The value add is far more than the incremental cost, hence my decision to go with him.

Others may have different opinions and that’s totally fine. It is eventually personal finance, one size doesn’t fit all.

[vaibhav_a_a]

Originally Posted by DigitalOne

Second, check the portfolio overlap between two funds which are supposed to follow different investment styles. By definition, a value fund and a momentum fund should have very little portfolio overlap, right? But a Quant value fund and Quant Momentum fund has a portfolio overlap of ~40%.

This is a problem I am grappling with - avoiding overlap. Quant is particularly bad as a fund house when it comes to sticking to what's on the label.

Even their Large cap and small cap funds have an overlap of ~20%! Like, how is this even possible - and a quick analysis shows they have loaded reliance in both of the funds (also jiofn, LIC, HFCL etc). By what stretch of imagination is Reliance a small cap? However the fine print says that as per mandate , 65% should be in small caps - so they are free to load the remaining however they want. Hence, reliance, jio financial etc etc. all go into the small cap fund.

[yosbert]

Originally Posted by vaibhav_a_a

This is a problem I am grappling with - avoiding overlap. Quant is particularly bad as a fund house when it comes to sticking to what's on the label.

Even their Large cap and small cap funds have an overlap of ~20%! Like, how is this even possible - and a quick analysis shows they have loaded reliance in both of the funds (also jiofn, LIC, HFCL etc). By what stretch of imagination is Reliance a small cap? However the fine print says that as per mandate , 65% should be in small caps - so they are free to load the remaining however they want. Hence, reliance, jio financial etc etc. all go into the small cap fund.

Quant is more or less a one man show. All the investment decisions are routed though Sandeep Tandon with very little independence for the individual fund managers. There is only so much an individual fund manager can handle and the number of unique investment ideas he can have. So do expect enormous overlap between various Quant funds, irrespective of their labels.

[ruskinash]

Originally Posted by vaibhav_a_a

However the fine print says that as per mandate , 65% should be in small caps - so they are free to load the remaining however they want. Hence, reliance, jio financial etc etc. all go into the small cap fund.

Actively managed funds must also safeguard against downside risks, protecting investors' capital during downturns. It's common for AMCs to have overlapping portfolios within their schemes. If you're seeking portfolios composed entirely of small-cap stocks, then small-cap index funds may be your sole options.

[vinit.merchant]

I have a question on Mutual funds for the experts here.

MF schemes have expense ratios - which I have always assumed are in place to cover the operational costs of the AMC to manage the fund (including salaries & bonuses).

One of my friend recently pointed out to me that AMC can withheld/deduct more from the profits they generate for a particular fund, over and above the expense ratio and there is no way this can be tracked.

I looked online but could not find anything conclusive that states AMCs do or do not do this.
Moreover, there is no way we can track the monies that a particular fund received, what PF they churned and what profits they generated + whether this generated profits (after deducting TER) were

Can someone here shed light on the possibility of AMC withholding amounts from profits of a fund which are over and above the TER?

[SmartCat]

Originally Posted by vinit.merchant

One of my friend recently pointed out to me that AMC can withheld/deduct more from the profits they generate for a particular fund, over and above the expense ratio and there is no way this can be tracked. Can someone here shed light on the possibility of AMC withholding amounts from profits of a fund which are over and above the TER?

When you invest money into HDFC Equity Mutual fund (for example), the money does not actually go into HDFC Mutual Fund's bank or brokerage account. Instead, all cash plus stocks are held with third party banks called the custodian bank. In the above case, the custodian bank of HDFC Mutual Fund is:



The fund manager has only the right to buy and sell stocks. They do not have the ability to withdraw money. Simply because there is a third-party trusted custodian bank in between investor and the fund house.

Custodian bank also ensures that the fund house is paid fixed percentage of AUM as expense ratio. If the declared charges are 1% pa, they cannot pull out 2% or 3%. From the above screenshot, you can also see that there are auditors, who ensure that there is no golmaal between custodian bank employees & mutual fund house.

[saket77]

Originally Posted by vinit.merchant

I have a question on Mutual funds for the experts here.

--------
Can someone here shed light on the possibility of AMC withholding amounts from profits of a fund which are over and above the TER?

Well, what you say is possible technically and probably only SEBI can keep a check on it through its audit if at all a large misconduct is on.

Given the fact that we live in a world where almost everyone is taking benefits of whatever position they are at- pocketing office stationery by office admins to the siphoning of funds by the VP, I wouldn't be actually shocked if something what you say comes up in papers tomorrow. But surely that will be a big dent in investor confidence.

Although there is an internal mechanism to keep this in check at the mutual fund company level by setting up the entire system in the form of a trust, which has sponsor, trustees, asset management company (AMC) and custodian. The trust is established by sponsors who are like the promoters. The trustees of the mutual fund hold its property for the benefit of the unitholders and are entrusted with the responsibility of investor's financial protection. They are responsible for all SEBI & AMFI compliances. The AMC pools and manages/ invests the funds as per the mandate. The custodian is the in-charge of holding & safeguarding the units allotted. Then there are the RTAs like CAMS and KFINTECH who record day to day transactions and act like the record keepers.

So, systems are in place in which we can only trust that they are working in investor's interest- we can never be 100% certain at all times is what I would say.

[vinit.merchant]

Originally Posted by SmartCat

When you invest money into HDFC Equity Mutual fund (for example), the money does not actually go into HDFC Mutual Fund's bank or brokerage account. Instead, all cash plus stocks are held with third party banks called the custodian bank.


They do not have the ability to withdraw money. Simply because there is a third-party trusted custodian bank in between investor and the fund house.

Custodian bank also ensures that the fund house is paid fixed percentage of AUM as expense ratio. If the declared charges are 1% pa, they cannot pull out 2% or 3%.

Originally Posted by saket77

So, systems are in place in which we can only trust that they are working in investor's interest- we can never be 100% certain at all times is what I would say.

Thank you so much for providing me this clarification. Since a few days, I had been trying to find something online to this effect, but wasn't able to find anything convincing.

Appreciate your knowledge and help on this.

[DigitalOne]

Two decisions, taken yesterday in a SEBI board meeting, that is of significance to investors.

• A 'New Asset Class' that bridges the gap between mutual funds and Portfolio management services (PMS).

This asset class will be offered by AMCs and will have a minimum investment size of 10 lakhs per investor per AMC. The minimum ticket size of a PMS is 50 Lakh.

"Offerings under the new product will be referred to as ‘Investment Strategies’, to maintain clear distinction from the schemes offered under the traditional Mutual Funds....The new product is intended to add depth and variety to the investment landscape of the country through a new asset class," stated a release issued by SEBI on Monday.

The asset class would offer higher returns with greater risk. Investment strategies would include Long-Short Equity Funds, which involve taking both long and short positions, and Inverse ETFs/Funds.

Source: Moneycontrol

Since the time SEBI had restricted that AMCs can offer only 1 fund per category, AMCs have been somewhat constrained to launch NFOs. See my yesterday's post about the funds following the so-called 'value' investment style. Now AMCs have a huge opportunity to shore up their AUMs by offering these new-fangled 'investment strategies', that too with a minimum ticket size of 10L per investor . (@SmartCat, perhaps time to buy AMC stocks?)

• The second announcement is a new MF-Lite framework for offering passive-only (i.e. index) funds.

Capital markets regulator Sebi has approved introduction of liberalised Mutual Funds Lite (MF Lite) framework for passively managed schemes.

Under the MF Lite framework, Sebi has relaxed requirements relating to eligibility criteria for sponsors - including net worth, track record and profitability, responsibility of trustees, approval process and disclosures.

Existing AMCs having both active and passive schemes, will have the option to hive off respective passive schemes, if they so desire, to a different group entity, thereby resulting in management of active and passive schemes by separate AMCs under a common sponsor.

Source: The Economic Times

A welcome announcement in my opinion.

[Vijin]

Originally Posted by SmartCat

Instead, all cash plus stocks are held with third party banks called the custodian bank. .

Thank you for sharing the details, quite insightful.
However, if all the money in the mutual funds are essentially held by banks, then why is there such a concern regarding the lag in deposit growth? This should help the banks' ability to secure adequate funding for loans, no?

[SmartCat]

Originally Posted by Vijin

However, if all the money in the mutual funds are essentially held by banks,

Read that as cash + stocks + bonds in the "custody" of banks. Actual cash will only be 5% in an equity or debt mutual fund. This is needed to take care of redemptions.

then why is there such a concern regarding the lag in deposit growth? This should help the banks' ability to secure adequate funding for loans, no?

Don't read too much into bank's deposit growth problem news. Last year:

SBI profit was Rs. 70,000 Cr.
HDFC Bank profit was Rs. 65,000 Cr
ICICI Bank profit was Rs. 46,000 Cr

The net profit margin works out to be unbelievable 20% to 30%, which is not normal for a bank.

If deposit growth is really a problem, they know what to do -> which is to hike the FD rates. Investors will come rushing in to make bank deposits. Their profit margins will shrink to more normal levels, but absolute profits will still go up.

[sharmanova]

Hello everyone!
My dad had invested some lump sum amount in HDFC Large and Mid Cap fund many years ago without providing his PAN Number (yes, I don't know how! )

Now he's looking to update the KYC and the bank details, given the rumors there's a big financial crisis coming in, to avoid potential losses.

Anyway, I successfully updated his KYC on HDFC's website a week ago, and it was validated. However, when I try to login, it shows Incorrect PAN/Mobile number.

We faced a similar situation with Franklin India. But their website had this 'UPDATE PAN' feature, after which we could login easily, whereas HDFC doesn't have this feature.

My dad plans to visit the nearby HDFC office to fix the issue, but he hasn't had the time, yet due to his busy schedule.

Can anyone suggest how to resolve this through HDFC's website?

[deathwalkr]

Originally Posted by sharmanova

Hello everyone!

Can anyone suggest how to resolve this through HDFC's website?

Sorry for asking something obvious, but have you tried mailing them? I had a similar issue with Axis MF and a mail was all it took to solve my problem.

[DaptChatterjee]

Originally Posted by sharmanova

Now he's looking to update the KYC and the bank details, given the rumors there's a big financial crisis coming in, to avoid potential losses.

There’s always some rumours of market crashing. At 19000 nify, experts on live tv were predicting a crash to 142000 level. I guess they are still sitting on cash. Kotak was advising people not to invest in mid/small cap a year back. Those indices have rose more than 50% since then. To avoid losses, just don’t sell when market crashes. It will come up again.

Anyway, I successfully updated his KYC on HDFC's website a week ago, and it was validated. However, when I try to login, it shows Incorrect PAN/Mobile number.

We faced a similar situation with Franklin India. But their website had this 'UPDATE PAN' feature, after which we could login easily, whereas HDFC doesn't have this feature

You don’t need to separately update kyc across all fund houses (AMC). Please download “Cams+Kfintech consolidated account statement” to check if all the investments are shown or not. Alternatively, you can view the statement at mfcentral app. Also check kyc status at cvlkra website.

In case problem persists, visit nearest cams office for kyc.

When you say HDFC website, hope you mean AMC website (HDFCfund). The bank and the AMC are separate entities.