Nilesh Shah, CIO, PruICICI Mutual Fund: High-profile mover

Mutual funds have been all the rage for retail investors. They put top-notch investment professionals on your job, no matter how small your kitty, and give you returns you couldn't dream of on your own. Some of these high performers, especially those known in industry parlance as 'fund managers', have even achieved quasi-heroic status-with their individual talent the subject of many Dalal Street conversations.

So what happens if your own heroic fund manager moves from your fund to another-should you move your money too?

Movements

Professionals. That's what most fund managers are. And like others of their ilk, they shift jobs. With over 30 well-known fund houses in the country, all in a state of bitter mutual rivalry, this is only to be expected. High-profile movements make news, too. Nilesh Shah, well known as CIO (Fixed Income), Franklin Templeton, has just moved to PruICICI Mutual Fund as its CIO, in place of Dileep Madgavkar, and people are talking about it. Some other movements over the past few months have been Shyam Bhat (from Tata Mutual Fund to Principal Mutual Fund), Deepesh Pandey (from Templeton to PruICICI) and Anil Sarin (from Kotak group to PruICICI).

There have been other shifts too, and if you aren't in the habit of tracking who the managers on your funds are, perhaps it's time you did. The newsletters and investment updates that funds send out contain this sort of information. The pink papers do their own bit, too.

But that's not to say you should panic if there's a shift. Nor should you consider yourself invested with individuals rather than mutual funds. The funds, after all, are brands in their own right-expected to deliver consistent value regardless of the names behind it. Or so, at least in theory.

Teamwork Stability

"It is always better to invest in a process driven institution than go by a single person's investment style. Over-reliance on one person is a weakness of an organisation," says Rohit Sarin, Partner, Client Associates, making it quite plain that management systems differ.

The biggest names amongst fund houses make it a point to sell themselves as institutions. These are champions of the team-driven fund, which features a chief investment officer heading the team as a lead manager, while investment decisions are made as a group, with all fund managers pooling ideas and working in tandem to craft a common strategy. If implemented properly, this approach works well. Even when a top professional resigns from your fund, the results stay relatively stable. "Though fund management is about subjectivity, a good research base and a solid fund management team can take care of an exit from the team. This way at least the investors are not at the peril of one person," says Paras Edenwala, Fund Manager (Equities), Birla Mutual Fund.

If that's the sort of fund you have, stick with it. Also, remember that a high-performer of one fund may not work the same miracles elsewhere-since funds differ. The skill sets required of, say, a blue chips-only fund may be different from that needed of a MIDCAP scheme. "In this case, one, as an investor you may not be as comfortable investing in mid-cap, and two, the fund manager may not necessarily deliver the kind of returns he did in his previous fund," warns Devang Shah, Certified Financial Planner and Director, Right Returns Financial Planners. "Hence, it's best to stick to a reputed fund house and look at factors like the track record of the promoter group, past performance of the fund and the service standards, rather than focussing on the fund manager."

Nischal Maheshwari, Head (Private Client Group), Edelweiss Capital, echoes those views: "Even if an exit impact happens, it gets done with over one or two quarters, at most. This is because the features of a fund and investment parameters are pre-defined and known to investors through the prospectus." This, again, is the brand theory of MFs. And retail investors in India seem quite comfortable with it.

"In any case," adds Maheshwari, "India has not yet reached that stage where investors move with the fund manager."

But Individuals Matter

Yet, it's hard to deny that individual talent counts for a lot of success in this industry. While institutionalised investment strategies are what every house claims to follow, the actual performance of some funds has indeed been affected by shifts in management. Even if the broad strategic parameters are common to all managers-such as whether to play an aggressive rapid-portfolio-churn game or take a conservative approach aligned with stock fundamentals-what goes on inside the individual's head can make a reasonably big difference.

Once a fund manager gains a reputation for getting his business right consistently, it is churlish to deny him the fame and stardom that follows. In the developed capital markets of the West, some of these stars enjoy near rock-star recognition, but India is still to witness such a phenomenon (typically, a Samir Arora would attain widespread name recall only after a run-in with regulatory authorities). "The stardom bit is actually a global phenomenon," says Edenwala, "and not really prevalent in our country as yet. The stardom of fund managers is a cyclical phenomenon. You see a fund manager do well for a while and then not hear of him for a long time."

Of course, the mutual funds market-in a competitive sense-has barely gone beyond infancy in India, and it's too early to mark out the few managers who have actually ridden the crests and troughs (not to mention storms) with the élan of seasoned surfers. Oddly enough, the Samir Arora episode may have something to do with it as well. Ever since SEBI's clampdown on this famous one-time fund manager at Alliance, both SEBI and the Association of Mutual Funds of India (AMFI) have been discouraging funds from pushing their managers into the limelight. This suits funds too, since it is easier to retain talent shielded from the outside world's glare.

Given all that, it is best, then, to treat your fund as a brand. But even here, it pays well to be extremely discerning about its performance. So long as you keep a close watch, it really does not matter who exactly is running the show. As for risk mitigation, diversifying your basket of funds would do the trick well enough.

Monthly Returns

Are monthly income plans (MIPs) still worth your money?

By Shilpa Nayak

The point of the monthly Income Plan (MIP), a specific kind of mutual fund, is clear: to deliver a salary-like flow of funds to the investor. It is a 15-year-old idea pioneered by the Unit Trust of India (UTI). And it has, since inception, been an option for the safety-seeking investor. To be able to send regular cheques, debt and other fixed-income instruments were the preferred target of investment, with equity used only to add some profit bounce. Over the last two years, several private fund houses have hit the market with similar MIPs, aimed at retired people and others in need of recurrent returns, though with a 'secondary objective' of "long-term capital appreciation by investing a small portion in equity/equity related instruments". Under regulation, 20 per cent of the monies collected for MIPs can be invested in equity.

As expected, MIPs were sold on the plank of prudence, though with the added promise of better returns than pure debt funds. The houses knew that their equity plays would distinguish the performance of one fund over another. And so it was. It worked well so long as the equity markets were buoyant. But the market turmoil since April has caught most MIPs in a severe bind-with some of them failing to meet their monthly commitments.

Things are so bad that the very category has undergone a shift in its 'risk' image. An MIP is no longer seen as a bankable option. "One can recommend investing in MIPs only after doing a detailed analysis of age and risk profile of an investor," says Sharad Shukla, Head, Investment advisory services, ILFS Investsmart. "If a person has a stable job, and/or some inherited wealth and is middle-aged, he could look at MIP," he adds, "But if retirees with no other source of income depend on MIPs for their day-to-day needs, they could take a hit when dividends are skipped in bad months."

Yet, there's no escaping equity, since the debt outlook has worsened. "Considering the anticipated rise in interest rates, debt funds would not offer the kind of returns they used to," explains Hemant Rustagi, a Mumbai-based mutual fund expert. Besides, equity is an ideal inflation hedge.

The trouble, however, is that MIPs are no longer viewed as assured-return products (as the fine print sheepishly admits), and this has put people off the category, some perhaps for good.

In the final analysis, it would perhaps have been so much better if investors were clear from the onset about the risk involved. Even now, those who expect total safety should stay away. Says Shukla, "If a person is looking for a monthly income without any risk of capital erosion its best to stick to small savings products from the Government of India like the postal saving schemes or RBI relief bonds, because there is a sovereign guarantee on them." Adds Rustagi, "To that extent MIP is probably a misnomer, though the product itself is not a bad option as a restrictive exposure for capital build-up for a conservative investor." The category still has hope-but only if aimed accurately.