Why is Mr.A.P.Kurien

IIPM BEST B-SCHOOL

Cheesed off?

He’s AMFI’s head; and we guess he’s right...

The Chairman of Association of Mutual Funds in India, A.P. Kurien is an irritated man today. Just about a fortnight ago, the Finance Ministry came up with another one of their ‘gems’ – this time, a diktat allowing (rather, ordering) Navaratnas & Mini-ratnas to invest 30% of their surplus in Mutual Funds (MFs)! So why is Kurien getting cheesed off ? The Finance Ministry, showing off its world-class intellect, has ‘allowed’ such investment only in public sector MFs and not in corresponding private sector ones.

Could this possibly be because of the high returns guaranteed by public sector MFs? Frankly, that would be as pathetic an excuse as one could imagine. Public sector MFs have set benchmarks in teaching how not to earn great returns. You tell me a public sector MF name and I’ll show how it has been beaten black and blue by private sector MFs. Consider this – one of the most hyped NFOs whose success was trumpeted all across, was the SBI Blue Chip offer, which mobilized a solid Rs.28.55 billion & claimed it would beat the BSE100 (an easy target)! Forget beating, over the last year, the fund failed to even attain half the growth of BSE100 (while the fund grew 28%, BSE100 grew by a classy 58%).

The situation is the same across public sector MFs for the last year. For example, while LIC MF Equity grew by 34% and UTI MNC Growth Fund by 31%, their own set minimum target – the Sensex – grew by 37%. Who needs portfolio managers?! One could have blindly invested in the Sensex or BSE100 and earned more. True, the best performing public sector fund (SBI Midcap Growth) got 60% growth, but does it stand anywhere even close to the 85% growth of the private JM Basic Growth Fund?

Sadly, when markets crash, public sector MFs almost always end up losing more! With $18 billion free cash (30% of 60 central PSUs’ surplus in FY06), forcing public sector MFs on PSUs seems quite ludicrous. But seriously, weren’t MFs in reality meant for retail investors instead of corporate ones? Or am I also simply sounding too cheesed off now? Never mind Mr. Finance Minister, let’s just focus on making the FIIs richer, shall we?

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative