The other side of Mutual Fund- Sahi Nehi Hai
Popularity of Mutual fund in India is at peak. Increasing acceptance of Mutual Funds as a preferred asset class amongst Indian investors because of a strong Indian economy, better regulation, entry of private players and spreading awareness.
As on 30th June, 2018, we have 41 Asset Management Companies (AMC) in country. Assets Under Management (AUM) as on June 30, 2018 stood at Rs 22.86 lakh crore. The MF Industry’s AUM has grown from Rs 7.01 trillion as on 31st March, 2013 to Rs 22.86 trillion as on 30th June, 2018, more than threefold increase in a span of 5 years! The total number of accounts (or folios) as on June 30, 2018 stood at 7.46 crore.
Nearly 5000 crores is invested every month by way of Systematic Investment Plans, another indicator of the trust and popularity of Mutual Funds in India.
Though we are getting more ads and awareness on TV/print media now-a-days on mutual funds but its presence is almost 54 years old in India.
Industry has a roller-coaster journey starting from Govt. bailout to recent I-sec bailout.
Let’s see how fund houses misused investors’ money.
The Unit Trust of India (UTI) is the oldest & largest mutual fund in the country created in 1964 through an act of parliament. As we all know Mutual Funds are financial institutions that invest people’s money in various asset classes.
In 1964, UTI launches United Scheme 1964 (US-64), an open-ended balanced fund scheme (First mutual fund scheme in India). Till 1992, it was debt-based fund but post liberalization it changed from debt-based fund to equity.
In 1993-94 scheme delivered a return of 18% and US-64 scheme became most popular and trusted saving scheme in country with 2 crore investors.
Between 1994 and 1995, UTI invested in 285 companies that no longer exist in today. Till 1998 more than 70% of its fund in equity. The US-64 bet too much on equity shares when it should have largely invested in more stable debt. The share price fall drastically and on 1998 India’s first mutual fund scheme crashed. Government organized Rs. 3,500 crore bail-out to prevent default.
What went wrong with US-64?
In mid-1990s, UTI was big daddy of stock market same like Life Insurance Corporation (LIC) role in today’s market. This Trust (UTI) used as a political bank and small investor’s money were used to promote big business houses, shower favors to politicians.
The US-64 was not come under SEBI regulations, its investment details were kept secret and the scheme didn’t declare its net asset value (NAV). All that investors knew was the repurchase and sale price.
Three month back ICICI Securities bailout by fund houses again alive 1990’s UTI scam. In March 2018, ICICI Securities (I-Sec) issued IPO but due to rich valuation and market volatility IPO got undersubscribed. How its group firm ICICI Pru Mutual Fund along with other fund houses used investors’ money and helped I-Sec to meet required 75% of Qualified Institutional Buyer(QIB) portion.
No doubt from past 20 years regulations became more stringent. Keeping investor’s safety and growing popularity time-to time regulator comes up with new rules (recently SEBI came up with new rule on categorization and rationalization of mutual fund schemes).
Regulatory (SEBI) alone can’t protect retail investor on same time it’s also responsibility of Trust, Trustee & fund managers to protect retail investor’s money. Its fund houses& fund managersgreed of higher return leads them to use unethical practice.
Disclaimer: The views expressed in this article are those of the author
(Author is a certified Equity Research Analyst)