Investor Issues
Portfolio Management Schemes leave investors with a big hole in their pocket

A realty scheme delivers 3% over three years and a consumer-focused PMS loses capital. Investors never learn and eagerly put money in the next PMS pushed by their ‘relationship manager’

A big fund house recently announced the redemption of a three year real estate portfolio management scheme (PMS). Investors were happy as they got back a total of 103% of the money they invested. Yes, a pathetic return, but the investors were happy to see their principal back. Of course, it is more psychological than logical. In real terms, probably each investor lost around 30%, if purchasing power is factored in! Not a very prudent investment. Several interesting takeaways from this are:

  • Though the scheme collected money in 2007 (property prices even today are around 50%  higher than that period), the investment must have been so bad that the net return to the investor is pathetic. Or it is likely that the fund manager/s has done sweetheart deals with investee companies and made money on the side
  • There would have been some investment costs (brokerage, due diligence etc)
     
  •   The distributor made a total of around 5% upfront, when he sold the scheme to the investor
     
  • The asset management company (AMC) or the investment manager charged a 3% entry load and an annual management fee of 2%. Totally, the AMC made around 9% of which 5% was given to the distributor. In effect, the AMC made 4%, the distributor 5% and the investor 3%! All the investment was of the investor. So, for the distributor and the investment manager, the return is infinite and for the investor, it is less than 1% per annum on a simple average basis!

The ending of this PMS story was still positive. Many others have lost large chunks of the principal. Still, even today, PMS continue to lure investors.
I happened to see a PMS account statement of a gentleman who had invested money in a scheme focused on the 'consumption' theme. In one year since investment, the person was down 11%, in spite of the scheme keeping cash balance of close to 45%! In the same period, the sensex has yielded a return of 20%! My guess is that there has been active churning and trading in the PMS which would have eaten away most of the money. Investors never seem to learn!

The latest among the PMS are the 'debt' PMS, which promises returns of around 20% per annum for 3-5 years. The collected money is lent to investment companies belonging to industrialists who in turn pledge their holdings in listed companies. The money is used by the investment companies to either buy more shares or to manipulate share prices. Not all the investment companies are actually disclosed to be promoter entities as per the official records. And since there are no investment limits etc on PMS, often, the entire pool of money is lent to one entity! This is nothing but pure money lending through the backdoor with huge risks! For selling these funds, the distributor can get 2-5% commission, upfront.

It is rare that PMS give returns higher than mutual funds. In spite of that, people with too much money, seem to easily get conned by the sales folk who push PMS at them because the selling commission is much higher than a mutual fund.  It is time the market regulator raised the minimum ticket size for PMS to at least a few crores of rupees. Then, it is a case of the rich putting their money knowingly. Today, people with less than even a crore of investment portfolio, are being lured into PMS. Of course, they too do not deserve any sympathy, but greed is a normal human tendency and if the regulator can curb it somewhat, some investors would be protected.

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COMMENTS

Rahul

6 years ago

A invester Called Up His Portfolio manager..

His Wife Picked Up D Phone Nd Said "He Died Last Week"..

Next Day invester Called Again..
...
She Again Pickd Up Nd Said"I T0ld U He Died Last Week

He Called The Third Time.

The Wife Said"He Died.Y D0 U Keep 0n Calling Again Nd Again?

invester:"Sun K Acha Lagta Hai" :

Suresh

6 years ago

better late than never I was conned into taking one from HDFC after 1.5yrs and 35 lacs i am left with a loss of 3 lacs and also a lot of fees charged for their services I would advise people not to go in for these schemes

Ashok

6 years ago

Any relationship manager (except SBI which thankfully has no animal named like Relationship Manager or Wealth Manager (meant for the big fish) - they are poor man's babu's) worth his or her grain, starts talking, as soon as he or she either gets your account to handle (read swindle) and not manage, to sell you the fraudulent ULIPS and MFs. I have this experience with three of the leading banks where at least 10 relationship managers have appeared on the scene from time to time to handle my accounts. They will wake you up from your sleep, get you out of your meetings (not to forget the toilets) and call you more times a day than they call their spouses to tell them that they love them!!! Even as recent as during last few weeks, the two existing RMs in these swanky banks disappeared and got replaced without any communication to me (must have been no different for other customers too since I do not think they hated my accounts too much for not buying MFs and ULIP Insurances they kept pestering me for and finally gave up in frustration to gainfully use their time in milking other cows) and what is the first call I get from each of those worthy new RMs - to buy a ULIP insurance and certain MFs.
RMs are the smartest tricksters moving and breeding on Indian banking soil (rather granite floors). They get their salaries from the banks and kick backs (respectably named incentives or target bonuses etc. in various forms and hues) from the fund houses and ULIP companies. And when it came to problem (even of their own making) solving, it took me about three months of frantic persuasion thru emails (I reside overseas) to get it resolved by one of these banks with at least four different persons from their so called customer services cell appearing on the scene and driving me mad. Does one need further proof of the doings of this new breed than the current fraud and swindling done by one of such smart asses in Citi Bank, Gurgaon? Imagine swindling corporate bigwigs? That is the stuff that this new breed called RMs is generally made up of. Bless the good old poor man's SBI, which sleeps well and also lets you sleep well too (and do not have granite floors which can make you slip and fall - pun intended)
Better check out your RMs, he or she may be least interested in his or her job of handling your account!! Having to manage an account of a customer, who knows a trick or two of the investment business and does not allow to be sucked, is a very a very boring, unproductive waste of time for him/her.

REPLY

Rajan Manchanda

In Reply to Ashok 6 years ago

Hi Ashok,
I do not think you have sufficiently experienced the services of Wealth managers.
Try Kotak Mahindra Bank Ltd Wealth Management services. They will be at your beck and call...specially if you are an HNI . Call them and they are at your door step much faster than the most effecient courier in the country. After you have contracted business ( In my case DUPED) they will not take your calls. If you send emails they will delete "With out Reading" If you send letters by speed post AD you get no reply....possibly they have a very effecient shredding system.

And GOD SAVE , one could turn from HNI to LNI

All this in the name of "CORPORATE GOVERNANCE" ...."SHARE HOLDER VALUE".... "INVESTOR PROTECTION"...."HUMILITY"...."SIMPLICITY"


Ashok S

In Reply to Rajan Manchanda 6 years ago

Hi Rajan,
Majority of the RMs and WMs can be painted with the same brush - carbon black! The reason? Same lot is hopping from bank to bank and the social net working amongst them is a potent weapon that they use to identify their prey. With the entire system in the country infected with the deadly viruses like rajas, kalmadis, etc. what can hardly expect things and public life and services at large to get any better. The way the banks and other institutions, working in concert with each other, are defrauding people,, it has become impossible to take anyone or anything on its face value!

Rajesh Singla

6 years ago

I absolutely agree. People should be a lot more cautious while trusting these PMS schemes.

Govindan

6 years ago

The author of this article is either Biased or cynic. My equity PMS has given 32% YoY for last 3 yrs

REPLY

sagar

In Reply to Govindan 6 years ago

Both Mr Govindan and the author must give us the names of their schemes. I know a lot of people who have lost badly in PMS. Especially those who invested with Kotak and JM. So do tell us who gives a 32% return, especially since SEBI does not provide this data on a comparable basis on its website, to help investors choose correctly.

Ravindra Shetye

In Reply to Govindan 6 years ago

Due to some Blacksheep Funds the author has painted all PMS funds black. This type of generalisation is naive, to use very mild words and should not happen in Moneylife. The author instead should have presented the comparative data which would have been more concrete and convincing. Nobody will get convinced that all Debt PMS are bad by someone just making such a statement. Or is there a motive behind??

Prakash Mehta

In Reply to Ravindra Shetye 6 years ago

PMS funds are black.No doubt about that.I know many persons whose money totally wiped out in Sebi registered PMS Scheme.n many PMS Scheme fund managers were not able to give money back as they were not able to sell their stock due to continous lower circuit. I never found any Investor who invested money in PMS and happy with return.

Because main aim of PMS to earn money for brokerage house and not FOR clients.

Joginder Singh

6 years ago

Very recently, even ICICI Bank has started on the track of HDFC Bank. They sold their data to ICICI Direct and they are Hunting for PMS clients, same old MF's disguised as PMS with fresh out of school PM's and they authorize themselves to sell part of your holdings transferred to the new PMS on the first day to pay for themselves for the First Year on the First Day. New LOOTERS out in the market, are GIANT Corporations that can digest Crore of Crores in one night, with all ethics thrown out, if they ever had.
All giant TELECOMs are asking their cousins to form new companies to sell Bahjans and Tunes send subscription message disguised as something which half of the users will be forced to respond and thats it. They will empty out the prepaid accounts to zero with no recourse whatsoever.

Deepak K Rao

6 years ago

"Wall Street never changes. The pockets change, the suckers change, the stocks change, but Wall Street never changes because human nature never changes".
Jesse Livermore

Rajan Manchanda

6 years ago

MY Comments on this article (Big Hole In The Pocket) on December 30, 2010 had a great effect.

I sent a mail to to Mr.Vikas Chimakurthy Director - Investments KOTAK REALTY FUND not to lure investors to invest in KOTAK REALTY FUND as I had lost a fortune trusting KOTAK.

The mail was deleted by him with out Reading. You can understand the fate of investors once they have been duped.

GREAT CORPORATE GOVERNANCE !

They cannot face criticism for the misdeeds.

===========================


Your message

To: Vikas Chimakurthy //Kotak /Realty Fund
Cc: [email protected]
Subject: Your statements luring investors to invest in Kotak Realty
Funds.
Sent: Thu, 30 Dec 2010 15:40:41 +0530

was deleted without being read on Fri, 31 Dec 2010 09:29:09 +0530

REPLY

Dinesh Chanchalani

In Reply to Rajan Manchanda 6 years ago

But if the email wasn't even read how do u know that it contained criticism of their offering?

Rajan Manchanda

In Reply to Dinesh Chanchalani 6 years ago

My Comments posted on this page,
Was enough for Kotak to delete the mail. The mail was sent by me. The comments were posted 19 hours ago. Please read this page.

Joginder Singh

6 years ago

I have experience rather nightmare with HDFC the biggest of two faced, entity of our INDIA. They used the name of Deepak Parekh and without disclosing paid 5% to distributor for Real Estare portfolio, instead of first hyped, exclusive Direct selling to Preferred accounts of HDFC Bank (They have direct access to all the data as to who has how much idle money, so only knock targeted doors.
On top of that, they deliberately or otherwise left undefined terms in the contract and during the tenure they and their Client Service REP, interpret at their will, changing stance as their mood dictates.
No transparency at any level, no stating of facts at any level. But they will have all the muscles to fight any investor, if the need arises, in court or otherwise. GOD, will you ever bless my INDIA - Please, do so once in a while.

REPLY

Deepak K Rao

In Reply to Joginder Singh 6 years ago

The one and only reply to all those who blame others for losing money is "INVEST YOUR TIME, BEFORE INVESTING YOUR MONEY"

Joginder Singh

In Reply to Deepak K Rao 6 years ago

I have all the slides presented to me for selling me the PMS. And the team that visited me included the now famous RM designation of HDFC Bank (Its now being realized that RMs are disguised Sales Force to promote and push the high kick back paying schemes of the Bank or Third Party.
The TEAM that came for presentation was mainly highlighting D P. And the actual agreement with all the T & C was presented after they have 15% of the money. A ethical company while drafting agreement shall try to be fair to both the parties and when ever a special case situation arises where the contract is silent, they should be taking a logical and fair approach and in most cases not assigning the benefit of doubt to themselves. But its not the case. HDFC Bank RM, sounded like a fresher to me and came with another manager to me selling ULIP and was presenting totally distorted terms and appropriation of funds and huge huge returns. Since it was a huge huge packet of lies so I became suspicious and asked for BM's written statement to that affact before I impart with my money. Then next day, only half of the original team arrives with another complicated product and stated that ULIP that they were selling yesterday, is no comparison to the new product. But that was only since they were caught red handed while mis- selling.
Miis-selling on their part is a very very common theme and for all those CRIMES, they have one standard remedy and that is a new face will come up and feel sorry and after few minutes will pass on another product to you, with no resolution for the previous except 'I am so sorry that iy happened' and present that the new face is the most honest of them all, just like all their previous team members were. They are all trained to gout in the field and perform just ONE task. Dupe the HNI;s to strip them of H and later N as they become only I's by when HDFC Bank then starts picking on the left over flesh (money in the accounts) just like Vultures on the pretext that you are no more a preferred customer as per the distorted norms and new definition of preferred customers and they have unrestricted access to your money lying in your accounts.
WHY SEBI is restricting such access to Brokers while no such restriction to the Banks. They change the definitions to their benefits and do not need to rasie any invoice .. just dip into the account and write some alphabets with no explanation and DA ... DEBIT.
HDFC and HDFC Bank ...they are both forming a Gang in the market and taking everyone for a ride. Also the press, for presenting a clean face to the public (new public who have not yet imparted with their money to them)

rajesh

6 years ago

why dont you mention the specific fund house / scheme's name. What is the point in beating around - large fund house etc.

Prakash

6 years ago

I congratulate Moneylife team for such articles and hope it reaches maximum number of investors so they do not commit such mistakes. PMS is a one-way street for making money and investor is on the wrong side of that street. Investing in MF is better than PMS in more ways than one. In PMS, investor has to pay tax for the short term gains (if any), has to maintain records of long/short term gain/loss figures at the time of advance tax and filing returns, even when you exit (in cash or scrip transfer). When there is a death of a holder then it is cumbersome as one is required to open a new demat a/c (non pool) for PMS. It is a thumbs down from all angles

Pradeep Bhageria

6 years ago

PMS schemes needs more transperancy and control by Regulatory body.

Its really sorry to see such positions in a world wide recognised growing economy..

REPLY

pravin

In Reply to Pradeep Bhageria 6 years ago

my biggest fear has come true.some PMS managers have cheated their clients.cue for infantile brains to shout "regulator,save us".the regulator is not a magic pill.it doesnt serve investors.it cannot have omniscient knowledge.nor is there any recourse if the regulator himself is fraudulent.
ofcourse those cheated by PMS should approach courts.i'd like the court process to be fast tracked.that is the right solution -improving the courts system.some mythical regulator is not going to save our butts

Dinesh

6 years ago

ACTIVE STATMENT FROM CAMS.
I would like to inform readers that cams online provides active statment for investors in the MFschemes for which they are registrars. the statment is so well defined and encompasses all aspects for the investor to know about the value and returns on the scheme. so much so that I feel that it is difficult to keep track of our returns on equity(long term investors) as the brokers provide accounts not more than 2 years old.

Roopsingh

6 years ago

indian investor has been made FOOL several times in past by newer methods by so called EXPERTS-these experts make dirty games in nexus with promoters or operators to play with hard earned money of retail investors-our watch dog SEBI is just hungry of DOGS bite and everythings gets RAFA DAFA-so no one to hear about the investor-
so real mantra is BE YOUR OWN BOSS and USE YOUR OWN VISION-
i have been working as IFA since last 7 yrs-but my investors who are mostly small industry owners taught me to make more money then this INVESTING IN CASINO-i am working now after ban on entry load with a product which gives 25% in week to the FMCG shopkeeper-just it needs hard work to sell initially-then which fool will INVEST in this GOVT SPONSORED CASINO-I know they are much wiser then investors who are lured by TV channnels ad CNBC which show 8-12% return as a big big achivement.
retail investor has become very wiser now after burning its fingers-now no one trusts this stock market which has converted to a CASINO with introduction of F&O and PUT/CALL etc-commodity trading has made everything so much volatile that even small shopkeeprs dont understand the ups/downs of commodity prices-
the most SAD part is that all essential commodities are being used to LOOT common citizen because food ,vegetable,milk are all LIFE essentials-they are not luxuries-thanks to our capitalist model which we learnt from USA-
GOD SAVE this country from corrupt nexus of industrial houses politicians and top beurocrats.

Dinesh

6 years ago

Investing via STP in diversified equity MF fund will fetch more returns without any headaches. I show my investments to whoever pitches me PMS schemes. one scheme which came across I would like to share with readers.
10 lacs to be invested. 5 lacs worth of NSC certificates will be give to you. agrement for 2% returns will be given to you. Registration of agrement will be borne by the client. advance cheques will given to the client of the bank he opts for.regular monthly statments will be provided. if NSC not opted by client then cheques wil be given at the arte of 4%. Sounds too good to be true? find the loop holes. PS I have not heard of any complaints on this scheme

India desolate

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Core sector growth slows to 2.3% in November

New Delhi: The growth of six infrastructure industries slowed to 2.3% in November, the lowest in the current fiscal, mainly due to contraction in production of cement and petroleum refinery products. The sectors-crude oil, petroleum refinery products, coal, electricity, cement and finished steel-had expanded by 5.9% in November last year, reports PTI.

Petroleum refinery output contracted by 3.7% and that for cement was lower by 11.6% in November, according to data announced by the industry ministry today. In November last year, refinery production expanded by 4.8% and cement by 9%.

Coal production also saw sluggish growth of 0.7% this November compared to 4.7% in the month last year. Growth in the finished steel sector too was slow at 4.4% compared to 11.7% in the month last year. However, crude oil production was better at 17%. The sector had contracted by 1.6% in November 2009.

During April-November, the core sector, which contributes about 27% in the Index of Industrial Production (IIP), grew by 5%, against 4.5% in the corresponding period in 2009-10. The growth figure for October has been revised upwards to 8.6% from the earlier 7%.

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