Lies, Lies and Honest Lies
We all know who writes columns of lies, lies and honest lies, so here is a dig…
Look at the Quantum Mutual fund advertisements which appeared in the national press. The advertisement says “we have eliminated distribution commission…” so your money works for you.
There are 2 types of charges that a customer pays in a mutual fund scheme. One is the sales cost and one is the management of funds (amc cost).
Whether right or wrong, it was SEBI that abolished the ‘sales costs’ also known as ‘entry load’. Only person who can take credit for this (rightly or wrongly) is the ex-chief of SEBI, Mr. Bhave.
The asset management charges of most mutual funds is in the region of 2.5%p.a. – however as there is a sliding scale the bigger funds charge less. So while a quantum mutual fund would charge you 2.5% p.a. some funds like Hdfc Top 200 would charge you 1.86% p.a. This means there is a saving of 0.64% – and this gap would keep increasing.
If you go to www.myiris.com, www.moneycontrol.com, www.valueresearchonline.com – you will be able to find out whether Quantum was the best fund to invest or whether it was Top 200, I pru Discovery, I pru Dynamic, Reliance Growth…YOU need to take the call.
The ad then says ‘We did not launch numerous schemes to please the distributors’ – well Tata Mutual fund got the name of a ‘New scheme factory’ – valueresearchonline.com gave them that name. Sure many fund houses launched many schemes, but the client SHOULD have exercised the OPTION of not investing, is it not? In a crowded market it is the MARKET’S job to separate the men from the boys…
hmmm…
am expecting distributors of national level at Chennai to react to this news item!
Muthu
Quantum has many admirers. They should be happy about it.
They are a fund house with around Rs.70 crore equity corpus.
Buffett has mentioned that when he had a smaller corpus, even generating 50% returns per annum was possible.
The test for Quantum would be if they manage the funds the size of what Prashant Jain manages.
Having 0.3% to 0.4% less expense ratio looks good. This they are able to achieve because there is no trail commission to be paid for advisors.
Even after few years of existence, the number of investors in Quantum equity funds may not be more than two thousand+. If someone knows the exact number, they may correct me.
A concept should not only be good but scalable too.
Why an advisor should take the effort of making a product reach the customer if there is no incentive for him?
Either the product would be restricted to informed investors like the ones who read this blog or would penetrate if investors start paying fee for assets under management.
Houdini Me 2
1) IIRC, they had zero distributor commission as part of their main strategy much before the SEBI rule came in.
2)Sure many fund houses launched many schemes, but the client SHOULD have exercised the OPTION of not investing, is it not? In a crowded market it is the MARKET’S job to separate the men from the boys…
Sure, when distributors go to them and say honest truths like “Naya fund hai.. 10 Rs NAV pe lelo” you can trust the smart Indian investor to make the right choice.
If you thought of arguing that Indian investors have matured, I would point you to the how “market decided” in US housing crises.
Milind
Good to see Srikanth’s (FundsIndia.com) comments and response to fees etc. Also liked overall discussion.
Subra, Quantam don’t pay any upfront or trail commission. ( as per fundsindia’s website). Am also surprised why fundsindia supports Quantam AMC ( as they don’t get anything out of that.).
P.S. I am user of Fundsindia.com and planning to buy Quantum LTEF in next few months/days. Only thing is they chage hefty exit load unless you hold their funds for 5 years.
subra
sorry but what is IIRC? and a matured, well informed rational investor is part of folk lore. He is as much a reality as Santa Claus or Ravan.
Not charging load is not a great virtue. I have been ONLY in Hdfc, Templeton, and a few schemes of I Pru.
Frankly I have made much more money in direct equities. ..I have been on the sell side and have dealt with mutual funds on the buy side. Have enough horror stories on the investing side too…
However the returns that i have got from Hdfc Top 200, Prudence, Hdfc equity, I Pru Discovery, Dynamic, Franklin India Bluechip…has ensured that i do not look beyond these 3 fund managers..and am happy. Very happy.
Frankly I do not seek the cheapest fund manager ….
Muthu
I remember to have read in ‘Honest Truth’ and 5 minute wrap up as to why Mr.Bhave should continue and be re-elected as SEBI chairman than a new softer chairman (implying Mr.Sinha?).
I do not know whether someone who is a Director of an AMC (Asset Management Company) can publicly lobby for who should be its regulator.
Also how they can pass a value judgement on the (then proposed) new regulator. What is so honest about the truth?
May be the advertisement splashed all over on Monday (see the timing!) is a message from Quantum to Mr.Sinha. We are probably breaking our head for what an AMC has wanted to tell the new regulator.
Also in Personalfn, they are rebating any trail commission received in excess of 0.5% by offering equivalent research products.
Isn’t rebating in cash or kind is still illegal in India?
Muthu
Mr.Subra – There is a discussion going on in IFA Galaxy about Quantum’s Advt.
I’ve informed Mr.Ramesh Bhat about this posting of yours.
Ramesh Bhat
Ha Ha Ha. Quantum has gained free Advertisement though us. Let us go back to our job now.
John Thomas
Dear All,
I am an NRI. I have Quantum LTEF portfolio since 2006. When other MF’s were busy sending their distributors abroad with investors money Quantum came in with this path braking concept fund and I have made a small investment just to encourage their bold initiative. Since the performance was good, I have increased contribution to this fund. Though I have greater exposure in Prashant Jain managed funds and Fidelity Equity Fund, my heart is now with Quantum and I am keenly watching their evolution. Some time ago this fund was a mid cap biased one but by now it is a large cap fund. No doubt the sharks in the MF industry will try to kick Quantum out. We -the investors- need another Bhave in SEBI and not MF Industry’s rubber stamp who will manage SEBI the way IRDA was functioning until last year.
Borrowing Anshuk’s statement –“ Srikanth’s (FundsIndia.com) straightforward and simple response should be applauded.” We need “honest” persons like you in Personal Finance business.
Regards,
John Thomas, Dubai
Deepak Shenoy
Strangely, I got that IFAGalaxy mail also, and I found it funny. At least Quantum had the guts to stand up to the distributors and demonstrate performance. But Quantum has not by any means arrived. They have less 70 cr. under management in the LTEF.
Profits have been high because of two factors – they stayed mostly in cash throughout the crisis, and then loaded up on financials on teh way up which was a great strategy. More power to them. And they have obscene exit loads which could have contributed (that is, people who exit early leave the loads in the fund)
Muthu: Rebating is illegal, but everybody does it. I suggest we all request the regulator to please make it legal and stop the farce. What Personalfn is doing is probably legal, though.
In the end performance matters, and I hope Quantum continues to perform. They went from 40 cr. to 21 cr. AUM and now are up to nearly 70, I hope they get past the 100 or 200 mark. I do recommend their fund (at a personal level)
Jagadees
I think so-called IFAs should convey the message to customers that expense ratio of all other fund houses includes fund management charges, registrar fees, custodian fees, auditor fees and trail commission of distributors. But the quantum fund does not pays trail commission and hence customer needs to pay the trail commission for the service in the range of 0.3-0.5%. The best way forward should be creating awareness and educating investors rather than cribbing about the lack of upfront commission and trail commission. I would be happy to pay fundsindia for their honest and transparent way in dealing customers if all amc rolls back the trail commission. I am pretty confident that 10-15 years down the line i would say that am very happy about my investment in quantum mf.
John Thomas
Dear Deepak,
Appreciate your honest “personal level” recommendation. I hereby dedicate my next six months small MF allocations “exclusively” to QLTEF.
Believe “Quantum” will change the mindsets of investors, slowly but steadily with more investor awareness and cross 100 – 200 crore hurdle with ease.
Long live reforms. Let us -advisors and investors- see the writing on the wall in advance in a positive way and act accordingly.
Sincerely,
John Thomas
Deven Shah
Subra,
Sorry to say this but I did not expect such a biased post from you!
You haven’t even checked the fact that the expense ratio of their equity schemes have been reduced to 1.5% long back. I’ve been privileged to know Ajit Dayal personally and see his work ethics in action. I respect him a lot for his integrity.
As Srikanth from FundsIndia wrote above, they do have an “in-your-face” style of communication and I am not a big fan of the way this particular ad was written. But it would be utterly foolish to take their words literally and miss the essence of what is being communicated. Quantum MF had the guts to go no-load much before SEBI abolished entry loads. And they were the only AMC to do it before the regulator mandated the change.
Does that mean all distributors were mis-selling? My answer is No. I personally know financial advisors and distributors doing ethical business. But was the scenario heavily and unfairly dominated by distributors with a large no. of AMCs going overboard in pleasing the distributors by doling out gifts, foreign trips and many meaningless NFOs that facilitated easy mis-selling by distributors at the expense of investors’ interest? My Answer is Yes. And in such a scenario, Quantum MF had the guts to go the ethical way and act in investor’s interest without any regulatory restrictions. ANYONE WHO HASN’T READ THESE TWO ARTICLES, PLEASE READ before you form a judgement about Quantum MF: http://ow.ly/427qf | http://ow.ly/427vr
It i also true that a large no. of AMCs were launching me-too new schemes and party to the mis-selling under the garb of “Rs 10 per unit only”. They stopped only after being nudged by the regulator. http://ow.ly/428FK But Quantum never came out with any me-too NFO in the first place.
As Deepak Shenoy mentioned, I hope that Quantum MF continues to perform because over a long-term investors look at returns. Regardless of that, I think Quantum MF is an admirable story of grit, determination and integrity. So while we can agree to disagree and you are obviously free to air your views, it’s your blog after all 🙂 As a well-wisher, all I’d like to tell you is that I love your candid and insightful posts, so please do not spoil the show with lop-sided posts like this one.
Regards,
Deven
Note: These are my personal views and do not represent those of any organization to which I am affiliated.
Maaran
I believe all regulators distort markets. They all do way more harm than any good.
SEBI shouldn’t have banned entry loads. Rather it would have been better if they had run a public campaign on the pitfalls of entry load. May be that would have influenced enough investors to look for “No entry” options. Perhaps AMCs themselves may have responded to lower the entry loads & extravagant commisions.
John Thomas
Dear Maaran,
In India products –be it MF or Insurance- are being “sold” and not “bought.” We are two decades behind developed world and in order to close the gap in a short span of time regulators should protect investors and simultaneously pay attention to investor education.
I have a new gen bank account (I am a shareholder as well) who are active in offering 3 in one trading account for hefty fee to NRI’s and are also hyperactive in MF area. Long time back I have tried to convey the message to them that pro investor initiatives should come from them. But you know nothing will happen when Banks are all concerned of fat bottom line and management is concerned only about their own fat incentive scheme. They will never improve in the absence of regulation.
We need more honest advisors / corporate citizens like Deepak Shenoy and Srikanth of FundsIndia.com to spread investor awareness and honest truth.
John Thomas, Dubai
Muthu
There has been appreciation for FundsIndia (FI) for offering Quantum products. To my knowledge, FI does not charge a fee. Quantum does not pay them any money for offering its products.
If some of you, as mentioned, are going to buy ONLY Quantum products through FI, how FI would make their money? Are they a charitable institution? Any transaction or relationship is sustainable if something is there for both. In this case, it is a Win-Loose situation for the investors Vs. FI.
I do not know the commercial viability for such a proposition. May be income from other AMCs is cross subsidising FI. Then the irony is that only the other AMCs support FI (by paying trail income) for offering Quantum products.
Since this is a personal finance blog, I hope you all do not consider money as evil.
All of you in your respective employment, profession or business are earning money. I hope none of you or your organization works for free for the welfare of your clients.
What is wrong about an advisor of a financial products earning money through it?
How many of you would pay an advisor 0.5% or 1% of ‘your Assets under Advice’, as a separate cheque every year, if he simply asks you to stay invested year on year without making any changes to your portfolio,assuming he sees no reason for reconstituting your portfolio.
Many would not. Honesty is the ultimate luxury. And it may take a long while for the general investment community to realise this and start paying fees as a small percentage of assets as mentioned above.
Unethical practices are condemnable in any industry including financial services industry. Any regulatory changes to curb those practices are most welcome.
Deepak Shenoy has opined nothing wrong about the rebating done by the Personalfn and says everyone does it.
I can only talk from our experience. Though we are a very small player, we’ve always refused to rebate investors and have even lost clients because of the same.
Your love for Quantum makes you to over look the fact that the Personalfn is running the very same business Quantum is condemning.
I do not know Ajit Dayal personally. People who vouch for his integrity and ethics may explain this moral contradiction.
Also Quantum earns money, year on year, as investment management fee, for investors staying invested in their funds. They are also not in for charity.
If you are a customer of equitymaster, you would know about their aggressive sales mailers. Obviously they are also in the profession for making money.
Why they should put themselves in a pedestal then? They tend to sound that they are only saviours of investors. This is snobbishness. They forget that there are many other institutions and thousands of advisors who work ethically and legally.
John Thomas
Maaran,
In India products –be it MF or Insurance- are being “sold” and not “bought.” We are two decades behind developed world and in order to close the gap in a short span of time regulators should protect investors and simultaneously pay attention to investor education.
I have a new gen bank account (I am a shareholder as well) who are active in offering 3 in one trading account for hefty fee to NRI’s and are also hyperactive in MF area. Long time back I have tried to convey the message to them that pro investor initiatives should come from them. But you know nothing will happen when Banks are all concerned of fat bottom line and management is concerned only about their own fat incentive scheme. They will never improve in the absence of regulation.
We need more honest advisors / corporate citizens like Deepak Shenoy and Srikanth of FundsIndia.com to spread investor awareness and honest truth.
John Thomas, Dubai
Muthuswamy
Loving this comments section! In a country where 1.5% of the population has a capital market product, and less than 10% has a bank ‘borrowing’ relationship, banks have to do nothing. They just have to open bank branches and they will make money. People invest to get returns – nobody buys ITC because it is a great company which is doing good. They buy because tobacco is selling. A bank is here to make profits, and face it, all banks charge well. I am a shareholder of Hdfc bank – bought it sub 90..and still holding. So if I am not happy as an account holder, I should be happy as a shareholder. The ‘poor’ investor is still waiting for Deepak, fundsindia, subramoney to teach them for free. The smart investor is paying money and learning. Look at Big Bazaar 1 day sale – we all want everything at a discount 🙂 . Well it may happen once in a year!!
Muthuswamy
Frankly there is nothing legal or illegal about rebating. It is a policy decision. If you see far behind enough, because the big banks COULD NOT REBATE without there being some leakage (by their own employees!!) they lobbied against rebating.
If you had built a corpus of Rs. 40 crores by rebating …you still got the trail did you not?
So a small firm rebates, a big bank gives them a ‘free ticket for a movie by Aamir Khan’ or in some cases ‘free’ gym membership worth Rs. 20k…..hmmmm rebating nahi to kya hai?