Ajit Dayal, founder of Quantum MF, lashes out at HDFC MF
Moneylife Digital Team 19 April 2013

Calls 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 

It is extremely rare to see an Indian CEO publicly lashing out at a competitor. But Ajit Dayal, founder, Quantum AMC, has done just that and that too against HDFC Mutual Fund. “HDFC Mutual Fund is no saint. It has been a part of the 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. The mutual fund industry—indeed, the country—is paying for this mis-adventure. While the distributors, CEOs, and CIOs may have stashed away their little treasures from the boom times, the retail investor has withdrawn from the equity markets and left share prices to be a function solely of FII flows.”
 

Dayal says this in the context of examining his once-held belief that there are four things of immense value in this country: the HDFC brand name, Infosys, Tata, and gold. Now he says, “Gold is the only thing of value left in the country—despite the wild swings in price; most corporate groups have shown that they respect price more than they respect values.”
 

In his blog post titled “Oops, the GHIT has hit the fan”, Ajit Dayal writes “Gold got a beating on 12th and 15th April—and still being punished. Infosys continues to prove that this baby has great potential—but probably needs to be adopted by someone other than its founders.” Dayal argues that “there is something more sinister about what is going on in Infosys—and it's not about their strategy and what they will do with their cash. It is a more fundamental question: how do they select their key leaders, including their CEO? Watching their CEO on TV always brings up a fundamental question: is he there in the post of CEO because he was a founder? Or because he, indeed, deserves to be the CEO? Is that the legacy of Narayan Murthy—the man who is seen to be the king of corporate governance in India? And, for all their talk on corporate governance, why can't a non-founder be a CEO? The Tata group has not released any bad news (as yet!) but it has been in a gradual state of decline in my ‘integrity’ assessment.”
 

He does hold high opinion of the mortgage lender HDFC saying, “The parent HDFC is the saint of the mortgage business and would, in my opinion, never mis-sell its products, and incentivise a distribution channel to be aggressive on the home loan front.” HDFC Mutual Fund, in contrast is portrayed as evil.
 

“At a time when Deepak Parekh, as a ‘captain of industry’, was writing an open letter to the prime minister about a clean and corruption-free India, HDFC Mutual Fund never came out on the open to support the extension of the tenure of then SEBI chairman, CB Bhave—a person who tried hard to break the stranglehold of the legendary distributors on the industry. And SEBI did not spare the large mutual funds—including levying fines on HDFC Mutual Fund. Ostensibly, one only writes letters to cleanse the system when the cleansing does not affect one's own business!” Dayal’s fondness for Bhave is touching given that killing distributors was a mindless and Tughlaq-like reaction to excesses of the bull market when mutual funds were palming off excessive commissions to distributors who sell their schemes. Bhave “succeeded” in his surgery; except that he turned the patient comatose. Dayal also seems to be ignore (deliberately) that SEBI under Bhave reached its nadir in enforcement of rules regarding stock manipulation and then let off habitual offenders of capital market without so much as a fine through an opaque system of “consent orders”. (Con by Consent)
 

HDFC Mutual is not the only one to get Dayal’s stick. He points a finger at the recent CobraPost sting operation saying that “HDFC Bank and HDFC Insurance may also be less than saintly.” With a sufficient number of videos on its website, CobraPost, says Dayal, has raised a lot of questions such as did pressure of these monthly targets force the bank and insurance employees to suggest creative solutions for converting black to white? Also, in addition to these taped suggestions, were any actual transactions actually done and whether any senior person knew about this?
 

“While the answers will be known over time, the saintliness of the HDFC group has been dented”, adds Dayal. “HDFC may still be a saint, but lending its name to the bank, the insurance business, and the mutual fund business has diluted its integrity factor though, in a world of market cap, there has been tremendous value addition to the stock price of HDFC. But does the end justify the means? Maybe the "captains of industry" can write an open letter to us on that?”
 

Dayal’s attack against HDFC Bank and HDFC Life is more than justified as Moneylife articles show. But while malpractices against banking and insurance customers can go on for years, it will show instantly in the performance of a mutual fund. HDFC MF has managed to deliver consistently good long-term performance. It may have used distributors to its benefit, and that is one of the reason it has the largest Assets Under Management (AUM) of over Rs1 lakh crore. But a fund company’s performance depends on two key variables: expenses and capital gains. If HDFC MF is evil, how has its performance not been bad at all?

 

Dayal of course does not get into any of that, because he cannot see beyond his narrow self-interest. That self-interest is a business model that does not rely on distributors. It has meant anemic asset under management for him, since nobody is keen to sell Quantum schemes. But since Bhave's move gladdened Dayal (by hindering the growth of the other fund houses), Dayal expects the whole world to join him in supporting Bhave even though mutual funds is just one of many divisions of Sebi, and Bhave's record in every other area has been pathetic. Meanwhile, whether before Bhave's Tughlaqi reign or after, HDFC Mutual Fund has grown from strength to strenth.

 

The irony is that despite Dayal's rant, there is something common between Quantum and HDFC MF. Strangely, it is gold, which Dayal is so crazy about. Both have launched gold ETFs, a wrong product for the masses given the behaviourial flaws we all suffer from. Launching gold ETF was a pure asset-gathering move. Surprise, Quantum suddenly looks like HDFC MF after all!

Comments
Rajeev Kapur
8 years ago
HDFC BANK AND HDFC SECURITIES ARE DYED IN THE WOOL CROOKS. The author seems to be on their pay roll as he has attacked Ajit Dayal and his Quantum MF. Merely because he advocates 10-20% investment in Gold ETF as a hedge against sudden loss of value in equities, does not make him as bad as HDFC MF. The performance of most of the HDFC MF schemes is mediocre or poor. Quantum MF and Bhave are attacked by those who have vested interest in fooling the people.
Anil Kumar
8 years ago
No doubt, HDFC MF is resorting to questionable practices, even while allocating units.

I made a switch of entire holding from Cash managment fund to Index fund. Contrary to the practice of customary rounding while computing units it just rounded down/truncated the fourth decimal place. This resulted in a loss of Rs. 0.25 even on the day of investment.

More alarming is the fund house's explanation for its action which came after 20 days (obviously it had to invent this explantion). It says, instead of computing the units for the entire consideration of closing balance on the day of switch, it split the transactions into 3 (as the money had come into the source scheme), thus allocating 0.001 units less than it should have fairly computed.

Is the fund authorised for splitting a single switch transaction into multiple when the request is for switching the entire balance? In the statement of accounts, it shows the transaction as a single transaction only.
Suiketu Shah
8 years ago
Ajit Dayal is certainly more credible than the HDFC MF brass.His company equitymaster is very trustworthy and reliable unlike the HDFC group.
Rakesh
8 years ago
Ajit Dayal's piece only reflects his envy over HDFC MF's success
Parmod Sachdeva
8 years ago
What extra has been earned by MFs shunning the distributors.
Parmod Sachdeva
8 years ago
By killing the MF distributors authorities are indirectly pushing ahead the Chit Fund Groups like Sharda. Investors have earned a a "Huge' money in that.
Anil Kumar
8 years ago
HDFC MF Online Direct Plan transactions are just made to fail repeatedly. But, they go through the first time when routed through a distributor code.
Siva
Replied to Anil Kumar comment 8 years ago
What a ridiculous allegation and motive assigning!!! FYI, the MF house doesn't gain/lose whether you invest thru Distributor or do a Direct one. I have been placing Direct investment over HDFC Online and have never faced any issues.
Rajeev Kapur
Replied to Anil Kumar comment 8 years ago
That only shows the true colors of HDFC MF.
sunil
8 years ago
bravo Mr Dayal.At last someone has got guts to be true on record.May your tribe increase.
common man
8 years ago
wow someone at last has said something against the holy cows of Indian Corporate World.....all journoulists/anchors never have spoken a word afriad that the companies will stop advertisements and stop funding their shows
pawan
8 years ago
Quantum Equity FoF has exposure to HDFC Top 200 and HDFC Equity FUnds which have more or less same sector exposure. Both schemes have not performed as per their reputation in past 7 years. Both these schemes have delivered good returns only when banking sector has performed well. ANother scheme in which quantum has invested is DSP Equity which is one of the poorest performers over last 5 years. Investors who boast on various forums of being very smart by investing in quantum because it has least cost may like to review their choice. I dont even understand why does an AMC launches FoF to invest in schemes of other AMCs. If it doesnt have the skills to choose the right scrips, why does it come into this business at all? Ultimately they are relying on the reputation of other schemes to garner AUM.
Nilesh KAMERKAR
8 years ago
About Rs.300 crores of AUM in 8 years of operations speaks enough for itself. And this includes an ETF and a FOF too.

It is not easy to gather assets by just throwing money. - So many have tried and failed. RGESS, despite no holds barred approach was found struggling for want of investments.

There's more to mutual funds mobilisations than mere payout of commissions to distributors / agents.
Ramesh Poapt
8 years ago
performance of HDFC MFs leading schemes of best fund manager is not that 'top'in recent period..surprising..if not unusual...Dayal's angle of attack is though differnt...and a matter of concern...though the game is eqally n more played by other bigs as well..will Dayal pl.comment on 'others'?
Sridhar
8 years ago
There are two schools of thought. ONe says that you do business honestly and grow it consistently. The second school of thought says that you can bend the rules a little to gain more business and growth in profits/market share.
HDFC MF may not have done anything illegal, but they have effectively used a distribution channel. But whether they have done a lot of mis-selling is an ethical question. I'm sure that no AMC can claim that all its distributors are free from mis-selling.
In INdia where people dont buy or invest in funds, hard-selling is inevitable and this is exactly where mis-selling also happens. This is also true in developed markets.
I agree with Quantum MFs philosophy of direct to investor distribution with low-fees and passive investing strategies. However, active investing is not going to vanish completely. We will have different offerings and different business models and customers can choose what they like.
DEEPAK KHEMANI
8 years ago
In this industry nobody is a saint or a sinner, everything is relative,
If you do well everything else is forgiven it does not matter, if you do not perform then the whole world will gun for you.
Up to a point what Ajit may be saying is true, but why should any fund have supported Bhave? just because Quantum does not have a distributor model should everyone be the same?
ekamber
8 years ago
Is it not strange that the Quantum Mutual Fund Schemes do have good exposure to both Infosys and HDFC Group, unlike Reliance Industries of which they do not have any exposure - Should we think that these are DOUBLE STANDARDS.

ekamber
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