‘DSP Mutual Fund Six Employees Exit Amid Probe’: Should This Headline Worry You?
May 15, 2019

Author: Divya Grover

(Image source: Image by Mediamodifier from Pixabay)

Recently, the story of six mid-level officers quitting DSP Investment Managers was in news. Many investors panicked and everyone wondered what had gone down.

The details revealed that a complaint by a whistle-blower for alleged violation of the internal code of conduct led to certain mid-level officers---all from the sales division of the Asset Management Company--to quit consequent to the AMC having taken strict action.

The case facts...

The officials had given funds from their personal account (as personal loans) to their ex-colleague who is now a stock broker.

The six employees under the probe had not disclosed the transactions to the AMC, which is mandatory as per regulatory guidelines.

Employees of AMCs are required to get approval for their investment transactions and disclose them on a monthly and/or quarterly basis.

This was noted as a serious breach of the internal code of conduct and the AMC pulled up their mid-level executives.

"In line with our internal code of conduct, provision of such repeated loan constitutes an activity which needs to be reported to the company and approved on a case-to-case basis. Non-reporting of such activity constitutes a breach of internal code of conduct. Being a fiduciary, we follow a zero tolerance policy for non-compliance with any regulations and/ or code of conduct", DSP stated.

However, a DSP spokesperson while speaking to media said that the internal inquiry committee, till date, has not found any evidence of insider-trading, front-running, or any other illegal activities.

The spokesperson further clarified that the said breaches related to transactions done in their personal capacity and have absolutely no effect on investors, distributors, or the business as the sales team has no access to the investment team's decisions.

Should you be worried?

Many times when we come across such news, we panic; a rush to redeem investment is often seen, particularly with investors who aren't taking research-backed investment action.

But let me tell you that such an approach of impulse buying and selling is imprudent and detrimental to your overall objective of wealth creation.

DSP Mutual Fund has reported the matter to the capital market regulator and the AMC will submit its final investigation report to the regulator, as reported by LiveMint.

"Since Mutual Funds deal with public money, revelations or suspicions of impropriety are looked from the angle of conflict of interest and enforcing a code of ethics. Even without real damage prompting, or encouraging the conflicting interest is dealt severely by SEBI", said Mr Sumit Agrawal, the ex-SEBI official and founder of Regstreet Law Advisors, speaking to LiveMint.

So, as an investor, it will be wrong for you to point finger at the investment process and systems followed at the fund house. DSP Mutual Fund, in fact, is one of the pioneers in the asset management business and a fund house that follows robust investment processes and systems.

[Read: Key Points To Be A Responsible Investor In Mutual Funds]

The action for you to take...

In the event of such instances, you should not get carried away by just reading the headline or fall prey to rumours.

Read the news carefully to know the actual facts of the matter and then analyse if it will have any long-term bearing on your mutual fund portfolio.

When reading a headline, if you feel that it could have a negative effect on you, the investor, evaluate the performance track record of the schemes in your portfolio -- across various quantitative as well as qualitative parameters.

Over time frames and based on performance across the market cycles, assess if the schemes have performed well or not, and then take an investment action. If you have selected the right mutual fund backed by research, don't be bothered by such events.

You can evaluate the performance of the scheme by checking the following points-

  1. Consistent performance across bull and bear phases

  2. Rolling returns for 1-year, 3-year and 5-year time frame

  3. Risk-reward ratios like Sortino, Sharpe, and Standard Deviation

  4. The concentration of holdings in the scheme

Additionally assess the quality of the fund manager and the fund house.

[Read: Why To Evaluate Mutual Fund Performance Across Bull And Bear Market Conditions]

If you buy or sell mutual funds without proper research and analysis, in all likelihood your portfolio could be unhealthy.

And as an investor, make sure you select winning mutual fund schemes and invest in a disciplined manner, as it determines your financial success in the long run. This also means that you must not let short-term volatility worry you. In fact, when you are SIP-ping into mutual funds, the rupee-cost averaging feature of SIP can actually help you mitigate the volatility better, make timing the market irrelevant, and stay disciplined in the journey of wealth creation and accomplishing financial goals.

Following a proper asset allocation towards equity, debt, and gold is important while you aim to diversify your portfolio.

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