Another round of applause, another round of awards. Nothing wrong with that, except for the fact that the applause and the awards are not so much for competence as for incompetence.

A few days ago newspaper reports announced the IRIS-R.S.Bhatt Mutual Funds Awards 2000. The Award panel was chaired by some important personalities like R.H. Patil, (MD, National Stock Exchange), Anand Rathi (President, BSE), Prof V. Raghunathan, (IIM  Ahmedabad), Dr Haseeb Drabu, (Editor  New Media), and T.N.V. Ayyar, (chartered accountant).

The panelists voted Birla Advantage Fund as the Best Performing Growth Scheme for 2000, Birla Income Plus as the Best Performing Income Scheme and Alliance `95 Fund as the Best Performing Balanced Scheme for the year.

While awards for Birla Income Plus and Alliance 95 Fund did not raise eyebrows, an award for Birla Advantage Fund took the industry by surprise. There are several reasons for this. The panelists considered a range of factors before homing in on the winner. As per reports circulated widely, the panelists took a unanimous decision after considering all quantitative and qualitative issues about fund performance, but especially considering the durability of their performance in the future.

Moreover the Awards, are intended to recognise long-term sustainable fund performance while eliminating chance results emanating from short-term and risky portfolio choices.

"More than providing a performance assessment of the mutual funds, the event is a significant step towards the cause of furthering investor education."

If the durability of performance and risky portfolio choices were key indicators then Birla Advantage Fund fared pretty poorly on both counts. It is common knowledge now the payment crisis Birla Mutual Fund had to face because of its large-scale exposure to illiquid stocks. Net asset values (NAVs) for the fund were not declared for several days. The fund house had a serious problem paying investors who had queued up outside its offices for redemptions.

The Awards panel perhaps overlooked these factors as the period under review was April 1999 to March 2000 and the problems with Birla Advantage Fund came to the fore after March 2000 when TMT stocks were tanked big time and the NAV took a thrashing. But it is unlikely that Birla Advantage Fund will point this out to its investors  current and potential.

The Fund was heavily invested in software before the TMT meltdown. However one would have thought that the fund would reduce exposure to software stocks in view of the uncertainty about software valuations, but software allocations continue to meander at around 65-70% even currently, which is not very far from the 80%+ software exposure in the Birla IT Fund. One fails to understand how the panel felt with a 60%+ software allocation (that too in illiquid stocks), Birla Advantage Fund eliminates chance results emanating from short-term and risky portfolio choices, and would give a durable performance in the future!

In any case, as one industry source pointed out, not a single member on the panel is directly from the mutual fund industry, which blots the credibility of the Award.

But we can be sure of one thing. We will soon have Birla Advantage Fund plastering billboards and newspapers (like it did last year) with how it was voted the Best Growth Fund for the second year in a row. And just as surely there will be no mention of the high risk profile of the fund, its payment crisis, and the illiquid stocks in its portfolio. Can we then blame the investor for falling prey to such advertisements, while he is unaware of the truth?

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