Impact 
Another wicket goes down...and this time, it's Deutsche Mutual Fund. After carrying out business for about 12 years in India, the fund house has decided to wind up its India operations and sell the business to Pramerica Mutual Fund for an undisclosed amount.
Assets Under Management (AUM) of Pramerica Mutual Fund in India are merely 1/10th of that of Deutsche Mutual Fund going by June 2015 data. After being in India for 5 years or so, Pramerica Mutual Fund has managed to garner less than Rs 2,500 crore. But this deal will help Pramerica Mutual Fund take a leap when it comes to AUM.
It's strange that Indian investors are bullish on Indian equities but a few foreign fund houses seem bearish about doing businesses in India. While retail participation in mutual funds has scaled a high, a consolidation phase has been witnessed in the mutual fund industry as well. Exit of Deutsche Mutual Fund brings forth another surprising fact that foreign fund houses are finding it difficult to operate here in India. Previously Fidelity Mutual Fund, ING Mutual Fund, Morgan Stanley Mutual Fund and PineBridge Mutual Fund have exited India for similar reasons.
So, what went wrong with these fund houses?
Fund houses including Deutsche Mutual Fund have lagged behind their Indian counterparts largely because they failed to understand the Indian market well. The Indian market for mutual funds has been distributor driven for long. Lack of strong distribution network and high cost structure, collectively posed a threat to profitability of foreign fund houses. Besides, turbulent market phases exerted redemption pressure making things even more difficult for them.
What should investors in Deutsche Mutual Fund do?
Early this year, Deutsche Mutual Fund launched a series of 3 close ended equity oriented funds. Investors of such funds may find it hard to measure the performance and should considering exiting. As far as performance of other funds is concerned, it remains rather mixed.
How have mutual fund schemes fared?
Performance of Equity Funds
Debt Funds
Performance Debt Funds –Long Term
Short Term – Debt Funds
Liquid and Ultra Short Term Funds
Data as on August 07, 2015
Note1: Returns below 1-Yr are expressed in absolute terms, while those over a year are calculated on CAGR
Note 2: SD which refers to Standard Deviation and Sharpe Ratio are calculated over a 3-yr period for equity funds and long term debt funds assuming a risk-free rate of 7.38% p.a. For a short term debt funds they are calculated over a 2-yr period assuming a risk-free rate of 8.10% p.a., while for liquids funds they are calculated over 1-Yr period assuming a risk-free rate of 8.07% p.a.
(Source: ACE MF, PersonalFN Research)
Diversified equity oriented funds from Deutsche Mutual Fund although they have outperformed vis-à-vis their respective benchmarks, there's an apparent lag when compared to peers. Likewise, offshore funds haven't compensated investors well for the risk taken and should be redeemed.
As far as debt funds are concerned, the Fixed Maturity Plan (FMPs) can be held only until maturity. Among the other debt mutual fund schemes, DWS Short Maturity Fund, DWS Cash Opportunities Fund and DWS Treasury Fund are worth holding as they have done relatively well, but fresh investment in them should be avoided at this juncture.
PersonalFN has always believed that, investment processes and systems along with the philosophy of the fund house play a pivotal role. Pramerica Mutual Fund as a fund house follows strong investment processes and systems, and thus as per our last research process a few funds from the fund house are worthy a hold. But one needs to closely monitor the performance of the schemes taken over from Deutsche Mutual Fund for about a year.
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About the Company including business activity
Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.
QIS was promoted by Mr. Ajit Dayal with an objective of providing value-based information / views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.
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- Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company, except QIS receives fees for providing research to Quantum Equity Fund of Fund (QEFoF) which is Fund of Fund scheme managed by QMF and our associates has financial interest in the subject company.
- Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report.
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