Reliance Mutual Fund Presses The Exit Button: What Should Investors Do?
May 27, 2019

Author: PersonalFN Content & Research Team

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(Image source: Image by PublicDomainImages via Pixabay)

Reliance Nippon Mutual Fund recently witnessed a corporate event. Nippon Life Insurance, a JV partner of Reliance Capital in the mutual fund, decided to buy out Reliance Capital's 42.88% stake for the approximate value of Rs 6,000 crore.

Reliance Nippon Mutual Fund is the fifth largest mutual fund house in India when ranked on Assets Under Management (AUM). According to data published on April 30th 2019, Reliance Nippon Mutual Fund had the AUM of Rs 2,25,388 crore. Thus, it's important to know if the change in management of this AMC affects the performance of its schemes.

Nippon Life Insurance's comments on the deal are encouraging:

Nippon Life views its India employees and the management team of the asset management business led by Sundeep Sikka as its joint partner in India. They have contributed significantly for the successful track record of business over the years. As existing shareholders, we are very confident that current management team will continue to take this journey forward which started many years back.

Mr Sundeep Sikka, CEO and Executive Director, Reliance Nippon Asset Management Limited (RNAM) also sounded optimistic about the deal.

"I am delighted that Nippon Life Insurance has chosen to increase its holding in the company. They have been very supportive shareholders and this transaction will ensure continuity in strategy. I am confident that we will continue to benefit from Nippon Life's leading practices in risk management and leverage its global network to significantly enhance capital inflows into India."

Since Nippon Life is not keen on making any significant changes in the management team, the deal is unlikely to have any adverse effects on the mutual fund investors.

Is the performance of Reliance Mutual Fund encouraging?

Reliance Mutual Fund's performance has been inconsistent. Reliance Growth Fund and Reliance Vision Fund were the star performing schemes about 10-12 years ago. But lately both of these schemes don't find a place in the top performing schemes in their respective categories.

Speaking about other equity mutual funds, only Reliance Large Cap Fund and Reliance Banking Fund have managed to beat Sensex TRI (Total Return Index) on 3-year and 5-year returns. This isn't an encouraging sight.

Table 1: Lacklustre performance of equity schemes

Scheme Name Apr-19 Returns (Absolute%) Returns (CAGR%)
Corpus (Cr.) 1 Year 3 Years 5 Years
Reliance Large Cap Fund(G) 12771.6 15.8 18.7 14.3
Reliance Small Cap Fund(G) 8050.1 -7.1 16.8 19.4
Reliance Multi Cap Fund(G) 10334.3 12.3 15.4 12.3
Reliance Growth Fund(G) 6661.8 4.0 14.2 12.7
Reliance Equity Hybrid Fund(G) 11872.2 0.5 10.6 11.2
Reliance Tax Saver (ELSS) Fund(G) 10719.7 0.8 10.4 10.2
Reliance Vision Fund(G) 3001.4 4.5 10.3 9.3
S&P BSE Sensex-TRI - 15.3 17.5 11.4
Past performance is not an indicator for future returns. The percentage returns shown are only for an indicative purpose. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Speak to your investment advisor for further assistance before investing.
Data as on May 24, 2019
(Source: ACE MF)

As goes the performance of debt oriented schemes offered by Reliance Mutual Funds , they have been in the news for their exposure to troubled companies more than for their performance. Reliance Mutual Fund had the highest exposure (among mutual funds) to troubled companies of Reliance Anil Dhirubhai Ambani (ADAG) companies.

Analysing the performance and portfolio strategies of Reliance Mutual Fund, it seems, it's been an aggressive fund house. And at times, it has relied excessively on its star fund managers. This has been the primary reason for the inconsistent performance of the fund house.

Will change of ownership make any difference?

Nippon Life manages assets worth approximately USD 700 billion across the globe. It will be interesting to see if the exit of Reliance Capital from the Reliance Nippon Mutual Fund leads to any change in the existing investment processes and systems the fund house follows. If Nippon Life decides to bring its international experience in risk management to its asset management business in India, the performance of Reliance Nippon Mutual Fund may even improve.

But that still remains a wait and watch game.

What should investors of Reliance Nippon Mutual Fund do?

There's no need to panic. You need not reshuffle your portfolio based on Reliance Capital's exit from Reliance Nippon Mutual Fund. However, you must take this opportunity to analyse how your investments in any of the schemes offered by Reliance Nippon Mutual Fund have performed. If you find the performance unsatisfactory for a longer duration, you might want to find out suitable alternatives to Reliance Nippon's mutual fund schemes.

To select a mutual fund wisely, you must analyse all available options on various quantitative and qualitative parameters. Fund houses promoted by business houses that don't have an encouraging record of corporate governance often struggle, so as the ones relying excessively on select individuals.

To know more about scheme selection, watch this video

 

Thus, it's important to understand the investment philosophy of the fund house and investment processes they follow.

Only process-driven fund houses can give you consistent performers over the long term.

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