Quantum MF head, Ajit Dayal, hits out at HDFC MF

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.”

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    COMMENTS

    tewarisurendra

    7 years ago

    Mr. Dayal's thinking is restricted to T-15 cities and HNIs only. He is a frustrated person managing a meager AUM. The fact remains that Mutual Funds with 4-5% penetration in the country can not afford the views of Mr. Dayal. He has done nothing to spread awareness and financial literacy among the masses/ retail investors beyond T-15 and simply preferred to eye only the elite class of investors IN T-15. He has got no right to preach the other fund houses. If he is really favouring the investors, he should first attempt to work for financial literacy in B-15 and remote areas. After all T-15 only is not INDIA, it is beyond T-15 also.

    REPLY

    Nilesh KAMERKAR

    In Reply to tewarisurendra 7 years ago

    Lack of desired results clearly point towards exaggerated expectations from Financial literacy programmes.

    However, forced spending on financial literacy programmes have ended up creating perverse incentives for rent-seeking agencies under the pretext of financial literacy.

    tewarisurendra

    7 years ago

    Mr. Dayal's thinking is restricted to T-15 cities and HNIs only. He is a frustrated person managing a meager AUM. The fact remains that Mutual Funds with 4-5% penetration in the country can not afford the views of Mr. Dayal. He has done nothing to spread awareness and financial literacy among the masses/ retail investors beyond T-15 and simply preferred to eye only the elite class of investors IN T-15. He has got no right to preach the other fund houses. If he is really favouring the investors, he should first attempt to work for financial literacy in B-15 and remote areas. After all T-15 only is not INDIA, it is beyond T-15 also.

    tewarisurendra

    7 years ago

    Mr. Dayal's thinking is restricted to T-15 cities and HNIs only. He is a frustrated person managing a meager AUM. The fact remains that Mutual Funds with 4-5% penetration in the country can not afford the views of Mr. Dayal. He has done nothing to spread awareness and financial literacy among the masses/ retail investors beyond T-15 and simply preferred to eye only the elite class of investors IN T-15. He has got no right to preach the other fund houses. If he is really favouring the investors, he should first attempt to work for financial literacy in B-15 and remote areas. After all T-15 only is not INDIA, it is beyond T-15 also.

    tewarisurendra

    7 years ago

    Mr. Dayal's thinking is restricted to T-15 cities and HNIs only. He is a frustrated person managing a meager AUM. The fact remains that Mutual Funds with 4-5% penetration in the country can not afford the views of Mr. Dayal. He has done nothing to spread awareness and financial literacy among the masses/ retail investors beyond T-15 and simply preferred to eye only the elite class of investors IN T-15. He has got no right to preach the other fund houses. If he is really favouring the investors, he should first attempt to work for financial literacy in B-15 and remote areas. After all T-15 only is not INDIA, it is beyond T-15 also.

    Anand Doctor

    7 years ago

    There is a very simple solution for the investors and honest financial advisors - Skip the commission game; go for 'Direct' plans of mutual funds.
    Investors: Find an honest advisor who is ready to work for a fee instead of commission and invest in direct plans as advised by him. Yes, pay a fee. It's cheaper than the results of bad/no advice!
    Advisors: Offer the client a fee option and guide them on managing direct plans.

    REPLY

    Nilesh KAMERKAR

    In Reply to Anand Doctor 7 years ago

    Even more simpler solution would be for investors to skip advisors and go for the direct plan.

    And for advisors to skip advising investors and focus on their own investments.

    Why bother about wasting time on a meaningless exercise?

    Anand Doctor

    In Reply to Nilesh KAMERKAR 7 years ago

    Dear Mr. Kamerkar, a lot of investors need guidance for even the most basic aspects of investments and financial planning. Even most HNIs with portfolios in crores of crores have many knowledge and behavioral areas where they need professional help.
    Sometimes, it takes people years to even realise that they could have avoided costly mistakes or done much better with a bit of sound advice.
    I would go so far as to say that even advisors need to take help from other advisors to understand their own blind spots.
    However, to each his own! So feel free to disagree with everything I've written here.
    Wish you a healthy financial life!

    Nilesh KAMERKAR

    In Reply to Anand Doctor 7 years ago

    Where investors do not seem to get enough value and advisers fail to get their fair share of remuneration. . . Why get involved in such a transaction?

    Anand Doctor

    In Reply to Nilesh KAMERKAR 7 years ago

    Yes, this is a very pertinent question and no doubt, many, many investors have been let down by their so called 'advisors'. But it's important to understand the difference between 'distributors' who are paid by product manufacturers and Advisors who are paid by the investors. Naturally, the loyalty of any person is more toward their paymaster. Unfortunately, there are very few genuine, fee-only advisors and therefore, the so called 'advisor community' has failed to display real value to investors. Hopefully, this will change in the years to come...

    Anand Doctor

    In Reply to Anand Doctor 7 years ago

    Investors can also read this article for simple and easy financial planning: http://bit.ly/DilbertsFinPlan

    Sam Koshy

    7 years ago

    Even though Mr Dayal said the truth, there arise a doubt that what prompted him to say this now. Everyone knows that Quantum Mutual Fund do not entertain distributors for their product, so what is his intentions behind this saying now which he seems supporting honest &small distributors. Is there a row inside the AMFI?

    REPLY

    Suiketu Shah

    In Reply to Sam Koshy 7 years ago

    Quantum is clearly very unpopular among distributors as they donot encourage them and rightly so.Most MF distributors are just out to fool customers into MF which give highest commission ot them.Beyond that ,not sure what the reason is but it is true Quantum MF has performed far better than HDFC MF last 2 yrs by quite a margin.

    Suiketu Shah

    7 years ago

    Dayal's MF Quantum has performed far better than HDFC's last 1-2 yrs and he had every right to hit out.However his recommendation on equitymaster are below average.

    Param

    7 years ago

    i don't understand the value added in this 'report' - one could have just given a link to the article published by Ajit instead of the kind of amateurish job done...

    mAYANK

    7 years ago

    Very well written, kudos to Mr Dayal for bringing the truth to the forth. I have been advocating that under performing schemes should not be allowed to charge any Management fees and the same has fallen on deaf ears.Giants like HDFC MF instead of creating a level playing field in the Industry are able to bend the rules to their advantage. 2008 RBI Credit Window when in liquidity crisis, Front running by their staff these are few misdeeds which never got highlighted. AMFI is a cotrie of top few MF players where Committees work to interpret regulations suiting their requirement.

    Prakash

    7 years ago

    Not only HDFC MF but HDFC Life Insurance also not living up to the expectations of investors what HDFC as a brand is expected of.HDFC AMC boasts of most profitable AMC whereas there leading equity schemes like HDFC Equity Fund giving below average returns,reasons must be what Mr.Dayal has disclosed in above article.Practices at HDFC life are welkwown.

    R Balakrishnan

    7 years ago

    AMFI has always been a club for the big funds to shut out the small ones. the nexus between distributors, CEOs and CMOs is too deep and will not fall off easily. There is a lot of personal things at some one else's cost that goes on.
    The important thing is to remove the distinction between PMS and MFs. That can be done by taxing the MFs as is done in the US or UK on all realised gains. Make it a level playing field so that those who cannot have large capital can operate PMS

    Rohit c shah

    7 years ago

    the reality we cannot do anything

    REPLY

    Vinay

    In Reply to Rohit c shah 7 years ago

    You can stop giving them your money!

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