Ajit Dayal, founder, Quantum Asset Managers, has lashed out against the market practices of HDFC Mutual Fund and other large players
Recently, HDFC Mutual Fund took over the assets of Morgan Stanley Mutual Fund. While the reaction of various mutual fund heads was hardly worth noting, Ajit Dayal, founder of Quantum Asset Management, a small but top-performing mutual fund has hit out at HDFC MF and other large players. In a weekly opinion letter called The Honest Truth, he ranted: “As much as I like HDFC as a company, I continue to be amazed why it tolerates the business practices of its affiliate, HDFC Mutual Fund. While HDFC is reputed for setting higher standards in the home lending business, HDFC Mutual Fund - and most of the other fund houses in this "business" of mutual funds - cannot claim any such distinction.”
Dayal points out that “HDFC Mutual Fund and its representatives have been involved with various committees of AMFI - the association of the people who run mutual funds - and have had ample opportunity to build something of immense value for India's retail investors. Yet, HDFC Mutual Fund, which - in my opinion - sponges off the immense goodwill of the HDFC brand name, has been a party to practices that hurt retail investors and protect the franchise of the business houses that control the mutual fund industry.”
According to Dayal, HDFC Mutual Fund, with the brand of HDFC behind it, “should be aiming to lead the charge of higher standards, better business practices, and more competition. It is, after all, a "leader". But don't hold your breath for this. Reading the chairman of HDFC Group, Mr Deepak Parekh's recent comment about a need for "consolidation" in the industry and the view that India has too many mutual fund houses shows the complete lack of understanding of our profession…But it does show the naked desire to convert a profession into a business: a "business person" wants less competition, a "business person" wants less disclosure, and a "business person" wants growth at any cost. A professional is trained to honour the contract with a client and look after the clients' best interest.”
Dayal argues that “Fund managers are professionals: most have rapidly and willingly been converted into doormats for the CEOs who run the mutual fund business. Doctors are professionals: they are now being made part of the profitability chain of diagnostic centres and hospitals via undisclosed commissions for recommending unnecessary tests. The mutual fund industry had endorsed this methodology. The distributor is king and the Indian retail investor has been the sacrificial offering at the slaughter house. Hail the CEOs and their focus on growing Assets under Management! Hail the Fund Managers who pretend that their only job is to manage the investments and turn a blind eye to how the assets were collected or how many lives have been decimated from suspect practices. Their intellectual superiority would make the MBA schools they graduated from proud of their achievements. "Ethics in Business" was a course they probably skipped.”
This is not the first time the founder of Quantum Mutual Fund has lashed out on HDFC Mutual Fund. Earlier in the year he called HDFC MF as part of a racket in the mutual fund business which has focused on gathering assets and figuring out ways to ensure that the payment of commissions to distributors is never compromised. (Read: Ajit Dayal, founder of Quantum MF, lashes out at HDFC MF)
Dayal’s letter of 30th December says “Rather than fighting for a disclosure of the distribution costs - which comes from the pocket of the retail investor - the fund houses have supported the efforts of AMFI to work for the benefit of distributors and reinstate high, and opaque, commissions. There has been no public voice of persistent dissent by the leadership of HDFC Mutual Fund or any of the "leading" fund houses.”
The mutual fund industry lobby is Association of Mutual Funds of India. According to Dayal, AMFI is known to be biased to a few large players. In the past, the larger mutual funds that effectively controls AMFI have been instrumental in endlessly postponing the decision on trail commission, had made a last-ditch effort to preserve the status quo, presumably because large commercial interests were involved. (Read: Foot-dragging on trail commission raises stink of commercial interests). Even recently, the efforts of small distributors to promote trail commissions and scrap upfront commissions have gone in vain as last year AMFI scrapped the plan to ban upfront commission. High upfront commissions lead to the practice of excessive churning by unscrupulous mutual fund distributors in order to earn themselves a higher commission. This practice of fund houses offering a higher upfront commission and lower trail commission is detrimental to many honest distributors who promote investing in mutual funds for the long-term. Only large fund houses can afford paying high upfront commissions to promote their schemes.
Dayal further lashes out at large fund houses like HDFC MF saying, “Rather than using their position as a leader in the mutual fund industry to force the industry to adopt better disclosure standards on portfolio turnover, payment to brokers as commissions, payment to investment professionals and senior managements, the opaque practices of limited reporting carry on. Similarly, the recent attempt by SEBI to raise the minimum net worth to run a mutual fund "business" from the existing Rs10 crore to Rs25 crore smacks of a bad policy influenced by a desire to have a closed club of limited members.”
Towards the end of the post, Mr Dayal states that, “Sadly, the chapters of the persistent battering of the Indian retail investor will continue to be written. And it is a shame that "leading" mutual fund groups like HDFC Mutual Fund and their well-respected Chairman - who are in prominent positions of leadership or are respected because they carry the HDFC tag on their visiting cards - continue to perpetrate this sorry state of affairs: whether by design or by sheer ignorance.”
Nifty direction may be clearer by the end of the week
The properties seized by ED include some 'benami' immovable assets that Ullas Prabhakar Khaire and his wife Raksha of Stock Guru had allegedly purchased on fake identities
Initiating its first action in the multi-crore Stock Guru scam, the Enforcement Directorate (ED) has issued attachment orders on properties worth Rs83 crore of main accused Ullas Prabhakar Khaire and his wife Raksha under anti-money laundering laws.
The seized properties, spread in various parts of the country like Mumbai, Ratnagiri and Nagpur in Maharashtra, Hyderabad and other cities in Andhra Pradesh and few places in Haryana, include some 'benami' immovable assets that the couple had allegedly purchased on fake identities.
The agency will soon issue prohibitory orders on these assets, including cash, jewellery and bank accounts, under the provisions of the Prevention of Money Laundering Act (PMLA).
ED took the latest action after it recorded the statement of the duo, lodged in Tihar jail here in judicial custody, sometime back and went through the probe reports of other agencies in this regard.
The agency's action to attach these properties under PMLA is aimed at depriving the accused of the benefits of these assets which are alleged to have been created through the "proceeds of crime" and duping investors of their hard earned money.
The sources said apart from the latest attachment orders, some more properties would soon be frozen under the same laws.
The agency had registered a money laundering case against Ullas Prabhakar alias Lokeshwar Dev and his wife Raksha alias Priyanka Saraswat earlier this year after they were caught by Delhi Police.
Acting in the same case, the Central Bureau of Investigation (CBI), had arrested Yogendra Mittal, an officer from the Indian Revenue Service (IRS) for allegedly receiving bribes from Khaire after raids were conducted by the I-T department against him some years back.
The alleged perpetrators of Stock Guru scam—Ulhas Khaire and his wife Raksha—were arrested by Delhi Police's Economic Offences Wing (EOW) in November 2012, nearly 22 months after dubious searches carried out by the Income Tax officer.
Khaire and Raksha were arrested for allegedly duping around two lakh investors from seven states of nearly Rs493 crore by promising them high returns on their investment through their firm Stock Guru dealing in shares.
The couple had floated the firm in 2010 and allegedly lured people to invest in it promising highly lucrative returns of 20% per month followed by a subsequent refund of the principal amount in the seventh month, through source based investments in the share market.
In January 2013, market regulator Securities and Exchange Board of India (SEBI) barred seven persons and and one company from the markets for ten years for their involvement in the Stock Guru fraud.
The order follows a SEBI probe into complaints received by it regarding Khaire alias Lokeshwar Dev and his wife Raksha alias Priyanka Dev, both of whom used several aliases, fraudulently raising more than Rs1,500 crore through sale of preference shares of a company named SGI Research & Analysis.
Names used by them included Ulhas Prabhakar Khaire and Raksha J Urs, Siddharth Jay and Maya Siddharth Marathe, Dr Raj and Priya Zaveri, Dr Rakesh Kumar and Prachi Maheshwari.
A SEBI probe into the case found that the fraudsters had tricked the investors into putting in their money with a promise of 18% dividend, although the real assured dividend was a minuscule 0.12%.
Besides, the money might have mostly been collected in cash to avoid any regulatory glare, as SGI’s bank account had entries for a total amount of just about Rs44 lakh towards subscription of its shares by 162 persons.