In May, the mutual fund industry went through a name change for mutual fund schemes based on the recommendation of the Securities and Exchange Board of India (Sebi). To get a sense of what it means for the consumer, we spoke to Prateek Pant, co-founder and head products and solutions, Sanctum Wealth Management.
Edited excerpts:
Has the name change in mutual funds schemes made investors’ life easy?
In debt, we still have to see things come out. Debt is not yet fully implemented. In equity, the changes have happened. It will take time, but I think it is in the right direction. For instance, people are familiar with say IDFC Premier Equity Fund. Now if it is called IDFC Multicap, it will take time for people to remember that. We are taking some time to understand it. I think it is in the right direction because you are comparing apples to apples. It is definitely something that will help in the next few months and years to come. Right now, we are going through a transition and it will take time.
How do you analyse it?
We went through a whole exercise of scheme selection for large and midcap, mid-cap and multi-cap. However, 90% of the schemes are aligned. The biggest drawback of what has happened is the impact on historical performance. A lot of mutual funds were sold on past performance. Now what happens to past performance has gone out of the window. How do you then still get some sort of performance data and show that from a future perspective? This was the biggest challenge we faced for fund recommendation based on historical performance. First, we looked at funds as to how close they were to the mandate. Say, there was a large cap fund which invested 70% in large cap and 30% in midcap, we went down looking at performance which originated from large cap universe versus the alpha from midcap universe and strip that away. Now, he [fund manager] has to be 90% invested in large cap. We then looked at the pedigree of the fund manager and the fund house. We look at 1-year, 3-year and 5-year returns. We also look at up capture and down capture ratios.
Does it mean it will be difficult for a retail investor to choose direct fund?
In India, people still continue to try saving 40 paise or 50 paise. I have gone to some of my largest clients and family office and told them what I do. If you believe, as a wealth manager, I am adding value to your life, you may go for direct, but you will have to pay an advisory fee on it. Sophisticated investors would want to understand it better. It is not about past returns, but predictive returns. That is what we try to bring. We are not here to deliver a portfolio as per past returns.
