Shakeup in the MF industry
Oct 30, 2002

Author: PersonalFN Content & Research Team

Mutual fund investors who have been tracking newspaper reports are a confused lot. Quite a few asset management companies (AMCs) as well as individual schemes have seen a change of guard at the helm. What does this mean to investors?

As if bad news in equity markets isn't enough, mutual fund investors have had to contend with some disturbing news from within fund houses. Some asset management companies and individual mutual fund schemes have seen their number one person quit.

For instance, over the last few months some important fund houses/schemes that have been in the news where a fund manager/a member of the top brass has quit include Pioneer ITI (post its merger with Franklin Templeton), IDBI-PRINCIPAL, Templeton India Income Builder, SBI Mutual Fund, Birla Mutual Fund.

The moot point is - with such news streaming in with increasing frequency, how should the investor interpret these developments and how should he sift the significant news from mere reporting?

First of all, investors must see if the change of guard is at the scheme level i.e. if the fund manager or the chief investment officer (CIO) has quit. If that is the case, then the impact could be more significant than say a VP Marketing/Sales quitting the organisation.

A fund manager of a successful fund/scheme quitting the fund can be cause for concern to investors in that scheme. This is more so if the fund manager has become bigger than the fund itself, which is yet to happen in India, but is common in some countries like the US for instance. So a fund manager quitting the scheme in the context of the Indian mutual fund industry may not be very significant. However, what could be significant is his replacement and the experience and performance he brings to the table. Investors need to keep an eye for that.

However, in some mutual fund schemes that run in auto pilot mode, a fund manager's departure and even his replacement may not leave any impact on the fund. By auto pilot, we mean funds that are run based on pre-determined investment rules that do not change no matter who is managing the fund. For instance, take Chola Triple Ace, which by its very investment objective must invest only in AAA-rated securities. So a new fund manager isn't going to impact the fund too significantly as he is bound by the investment objective of sticking to AAA-rated paper. Schemes that have such investment regulations in place, are not too dependent on the existing fund manager and less sensitive to newer faces at the helm.

So as an investor you must understand the fund and its investment style before you draw any conclusions on whether a fund manager's quitting is bad news or no news. In all likelihood it will have little bearing in the Indian context, but nevertheless, it does pay to be aware of what is happening with your investments.

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