Should DHFL’s Exit from Mutual Fund Business Worry You?
Dec 27, 2018

Author: PersonalFN Content & Research Team

One more player is exiting the mutual fund industry in India.

And this time, it’s none other than Dewan Housing Finance Corporation (DHFL).

DHFL has been in the limelight since it lost more than 50% of its market cap recently, when a mutual fund house sold its debt securities at a steep discount in the secondary market.

As you might be aware, DHFL Pramerica Mutual Fund was a joint venture (50:50) between DHFL and Prudential Financial Inc. (PFI).

PFI uses the trade name Pramerica. DHFL’s exit from the mutual fund houses’ race has given rise to speculations about the company’s possible financial distress. Moreover, investors of the fund house are wondering if there investments will be affected in any way.

DHFL’s reaction on the deal:

‘This is a strategic call by DHFL to focus more on our core business. We firmly believe this move is in the best interest of all parties and will have a positive outcome for all stakeholders.’

And here’s what Pramerica had to say about it…

‘Our expanded investment demonstrates our deep commitment to this market and confidence in both our talented leadership team and robust investment process. We strongly believe that when combined with the deep expertise and broad capabilities of PGIM, we are well positioned to serve our clients and to strengthen our competitive position in India.’

What investors should know about the breakup?

After forming an equal joint venture in 2014, DHFL Pramerica had acquired the business of Deutsche Mutual Fund in 2015. Now that DHFL is exiting the business, Pramerica Mutual Fund will become a foreign-origin fund house.

According to data published by the Association of Mutual Funds in India (AMFI) for the July-September (2018) quarter, DHFL Pramerica had Rs 22,700 crore of Average Assets Under Management (AAUM). It’s the 16th largest fund house (AAUM-wise) in the 44-player industry.

Will this corporate action at DHFL Pramerica mutual fund affect investors?

The deal amount is undisclosed and the deal is yet to pass through various phases such as signing of definitive documentation, customary closing conditions and regulatory, and other approvals.

In other words, the Securities and Exchange Board of India (SEBI) will scrutinise the deal to check if it has any clause that will affect investors’ interest. As an investor in DHFL Pramerica schemes, don’t worry about your interest being compromised owing to change in the ownership pattern at DHFL Pramerica Mutual Fund.

The remarks of the surviving player in the deal (Pramerica Mutual Fund) spells optimism and hope.

How have various schemes from DHFL Pramerica Mutual Fund fared?

Broadly, the performance of schemes offered by DHFL Pramerica has been ordinary so far.

Table: Report card

Absolute Returns (%) CAGR (%)
Scheme Name 1 Month 3 Months 6 Months 1 Year 2 Years 3 Years 5 Years
Equity-oriented schemes
DHFL Pramerica Tax Plan(G)
-Direct Plan
1.03 -2.60 -4.06 -5.90 16.87 12.66 16.20
DHFL Pramerica LT Equity Fund(G)
-Direct Plan
1.02 -2.66 -3.88 -5.39 16.51 11.10
DHFL Pramerica Large Cap Fund(G)
-Direct Plan
1.22 -4.03 -3.24 -3.53 13.42 9.82 14.46
DHFL Pramerica Diversified Equity Fund(G)
-Direct Plan
0.78 -2.26 -4.57 -7.30 14.29 8.70
DHFL Pramerica Equity Savings Fund(G)
-Direct Plan
0.22 -0.52 0.36 2.48 8.01 7.21 10.09
DHFL Pramerica Hybrid Equity Fund(G)
-Direct Plan
0.99 -2.64 -2.84 -3.25 8.48 6.95 11.70
DHFL Pramerica Arbitrage Fund(G)
-Direct Plan
0.32 1.51 3.32 6.33 6.45 6.55
DHFL Pramerica Midcap Opp Fund(G)
-Direct Plan
-0.05 -4.41 -10.35 -14.88 9.17 5.14 12.52
Debt-oriented schemes
DHFL Pramerica Ultra ST(G)
-Direct Plan
0.96 2.38 4.21 7.97 7.51 7.93 8.53
DHFL Pramerica Low Duration Fund(G)
-Direct Plan
0.91 2.37 4.11 7.82 7.71 8.41 9.02
DHFL Pramerica Dynamic Bond Fund(G)
-Direct Plan
2.69 4.73 6.01 7.66 7.16 9.55 10.15
DHFL Pramerica Insta Cash Fund(G)
-Direct Plan
0.62 1.90 3.77 7.52 7.11 7.33 7.91
DHFL Pramerica Floating Rate Fund(G)
-Direct Plan
0.94 1.98 3.61 6.95 7.01 7.53 8.09
DHFL Pramerica Gilt Fund(G)
-Direct Plan
2.83 5.01 5.99 6.64 5.64 8.00 9.27
DHFL Pramerica Short Maturity Fund(G)
-Direct Plan
0.97 2.27 3.78 6.37 7.12 8.37 9.14
DHFL Pramerica Banking & PSU Debt Fund(G)
-Direct Plan
1.23 2.67 3.89 6.23 6.18 7.47 8.53
DHFL Pramerica Credit Risk Fund(G)
-Direct Plan
0.96 2.25 3.56 6.07 7.31 8.63
DHFL Pramerica Hybrid Debt Fund(G)
-Direct Plan
0.87 1.64 3.10 5.82 9.22 9.22 8.75
DHFL Pramerica Medium Term Fund(G)
-Direct Plan
1.65 2.95 3.89 5.51 6.02 8.32
DHFL Pramerica Premier Bond Fund(G)
-Direct Plan
0.69 1.89 3.46 5.43 5.68 7.11 8.02
Fund-of-Funds
DHFL Pramerica Euro Equity Fund(G)
-Direct Plan
-5.02 -18.07 -9.68 -7.51 4.12 0.60 -0.14
DHFL Pramerica Global Equity Opp Fund(G)
-Direct Plan
-3.38 -14.67 -4.40 1.24 7.24 4.99 0.42
Crisil Composite Bond Fund Index 2.23 5.11 5.38 5.73 5.44 7.82 9.29
CRISIL Hybrid 35+65 - Aggressive Index 1.77 0.47 1.07 1.91 13.01 11.04 12.71
CRISIL Hybrid 85+15 - Conservative Index 2.13 4.05 4.42 4.93 7.21 8.63 10.15
Crisil Liquid Fund Index 0.63 1.92 3.80 7.57 7.11 7.25 7.82
Crisil Short Term Bond Fund Index 1.08 3.06 4.18 6.43 6.34 7.48 8.31
NIFTY 50 - TRI 1.33 -2.61 -0.84 3.06 17.07 12.17 12.60
Nifty 50 Arbitrage Index 0.43 1.54 2.70 4.64      
Nifty Midcap 100 - TRI 1.39 -1.35 -4.85 -14.77 13.06 10.91 18.51
S&P BSE 200 - TRI 1.50 -2.05 -1.41 -0.48 16.95 12.45 14.22
Data as on December 24, 2018
(Source: ACE MF)

Now it remains to be seen if Pramerica takes any major step to improve the quality of its fund management after running the business single-handedly.

In case it adopts more globally implemented prudential investment management practices to its India operations, then the performance of its offerings might improve as well.

Hence, you shouldn’t conclude that post DHFL’s exit the performance of the fund house will deteriorate. Instead, pay close attention to changes Pramerica might introduce to its investment management practices in the future.

As remains the question of your money being managed by a fund house of foreign origin, it shouldn’t be a qualifying test for your investments at all.

Mirae Assets India Mutual Fund and Franklin Templeton Mutual Fund, Invesco Mutual Fund among others are entirely foreign-owned fund houses. But they have been managing investors’ money prudently so far.

Selecting a mutual fund wisely is crucial

If you are concerned about investing in a mutual fund scheme that fulfils your financial goals, you should choose it wisely.

While selecting a mutual fund scheme for your portfolio, be mindful to your risk appetite, investment objectives of the scheme, your financial goals, and your time horizon.

You should pay attention to various quantitative and qualitative factors that will affect the quality of your portfolio.

[Read: Why Qualitative Aspects Are So Important To Pick Mutual Funds]

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