Axis long term equity is more than 20% of my portfolio. The news on Axis Scam has definitely made me worried to some extent. The role of mutual funds in my portfolio is to earn superior risk adjusted returns. To quantify - mid to high teens without worrying too much. “Without worrying” part is more imp than “mid to high teens returns”.
I havent taken any decision yet but closely watching the situation. Continuing with SIPs. I hope investor interest is ring fenced and fund follows same philosophy to generate mid to high teens returns in future
In my opinion you should sell all the holding in the fund asap and change to another fund.
Reason: You might be a long term investor, others investors in your fund are not. When they see a sharp drop in nav, they will give withdrawal request to the amc. The amc will redeem whatever is liquid. The high quality stocks with liquidity will be sold quickly leaving behind low quality illiquid stocks in your portfolio. The sip you do will be used to increase the cash component of the fund and will used to fulfill redemption request. The fund might become nonviable and merged with another fund at a later date. There is a graveyard of funds no one talks about as their history is deleted.
Disclosure: This is my personal opinion. Consult your financial advisor before acting on it.
Thank you for your valuable feedback. I will definitely think over it
To be honest I am seasoned to hold on to funds through underperformance, XIRR catches up when tide turns. I have held on to IDFC tax advantage from 2018-20 with some single digit XIRR for 3 years, but now over 7 years XIRR is 19%+ even in current carnage. Axis itself from 2015 to 2016. ICICI pru value discovery from 2016 – 2020 in my parent’s portfolio
It is just that Scam news is a new dimension and therefore not sure how to react to it. Underperformance, I can take in a stride but this is going to be new learning and that is why I would like to share what is going in my mind openly rather than only final action
Agree with your opinion.
this also raises one important question…who is responsible for the Long term capital gain tax, the investor will incur by shifting to some other funds? who is responsible for this losses? who should be held accountable?Doesnt it the best strategy is to manage your own funds , by investing into quality stocks, instead of giving your hard earned money to such unethical and greedy fund managers?
Integrity is always more important than the skillfullness.
You are better off with your own mediocre (if it is) fund management skills than giving money to these front-running scoundrels…youe views please
I left mutual fund investing due to these reasons only. Mutual fund selection is a tedious task in itself. Integrity is more important than anything else. You don’t know who is good until an event occurs. Franklin Templeton debt was considered best with gold or silver rating by morningstar, an agency whose job is to rank the funds. One liquidity event led to its downfall and then it was found that they invested in low rated papers taking credit risk.
Investors will have to bear the tax on change of funds. Some ULIPs allow change of funds with no tax but they are costly due to high commission and other charges. If you trade in your stock portfolio, you incur charges and taxes. Some people suggest mutual funds to save on these. But on the downside, if you don’t trade and just buy and hold then you also lose 1 to 2% of your portfolio annually to the fund expenses. It is acceptable if the manager does a decent job (or at least does not do an indecent job like a scam) so that you can sleep peacefully. Index funds or liquid etfs are also a viable option.
If the portfolio value is high (at least 10 lacs), you can just buy the top 10 holdings of an index of your choice (nifty, nifty next 50, nifty alfa low vol etc.) in market cap weighting and rebalance according to the index. You can make a smallcase out of it and do sip in it. Manager expenses can be saved this way. Some smallcases like these are also free.
Only invest in equity mutual fund or smallcase if you trust the manager completely. If any day this trust fails one should redeem first and ponder later. Tax and losses are part of the game and should not be bothered about in the long run. Safety and return of capital is more important than return on capital.
I have a contrarian view on Mutual Funds. In my opinion, it is going to be more and more difficult for a retail investors to beat mutual funds as depth of Indian market increases. The recent IPO listings, most of them were 10,000 Cr + and size is going to be less and less challenge to generate higher returns for the funds
Stock selection and portfolio constructions are two different things in my opinion. Mutual funds are have superior portfolio frameworks.
They are easy to execute and deploy incremental capital and that’s why generating superior XIRR on incremental capital over cycles
They are highly regulated and transparent. Offcourse, this statement is ironic on the events like today. But for FT more than 100% money is back
We usually compare bad examples in mutual fund with good examples in direct stock investing. There are well managed funds and then there are not so well managed funds
Usually investor attributes, poor returns to mutual fund being bad but actually in most of the cases it is the investor behaviour having issue. There are many evidences which show fund returns are far superior than investor returns invested in the same fund
Selecting well managed fund is far easier than selecting a multi-bagger. Even if you go wrong in selecting mutual fund, there is very minimal downside
We had so many scams in direct investing still we have faith in overall system and we invest. I believe Mutual Fund is a beautiful product which has more +ves than –ves in my eyes
I think , you are talking about actively managed mutual funds…If so, then even if selecting a good performing mutual fund might be easy but that is under current prevalent conditions…How can we be sure that it doesnot become a dud after 3 or 5 years? So many variable involved. Fund managers can leave the amc or their style of operation may go out of favour…means a fund manager following value investing may do poor in momentum market and vice versa.
Also there is absolutely no data available to compare direct stock investing with actively managed mutual funds. Rather the comparison is not possible. Its all random…A particular portfolio can be constructed altogether differently with different conditions and under different situations and timeframes. Most of the funds, who are older than 20 years and still available , have roughly given 12 to 13% maximum CAGR.
please shed some light also on Passive index mutual funds.
In a attempt diversify portfolio more and more I have decided to invest in Eris Life in my Satellite portfolio
Brief note about my view on business I will post in coming days
Reason for portfolio addition
Earlier my plan was to allocate 8-9% to Abbott india. Abbott and Eris, I believe have a similar growth and returns profile plus they complement each other as Abbott being acute focussed and Eris being chronic focussed. Both have known risks of price control and market share loss in power brands. I believe, Team - abbott + eris, will achieve same returns profile with better risk management. Better risk management will help me to hold on and even add when there is bad news or growth goes off for few quarters
From 8-9% allocation (4% each) I expect low to mid teens returns but extremely high longevity with robust ROEs. This will make my portfolio exposure to Indian pharma market at around 13% ( including 30% of Ajanta’s revenue ) which I believe has a secular growth, known risks and better margin protection against inflation compared to FMCG
Ajanta pharma remains a core bet as it is a bet on Industry + management. Abbott and Eris are more of a bet on industry
Portfolio allocation will be completed over next few months
Please refer to earlier posts where I have shared link of detailed investment framework I follow for selecting mutual funds.
When fund is underperforming, in my opinion, what you have to judge is - if process is broken or that particular style has gone out of favour. This judgment will decide your return profile over long term in MF as 2-3 years of underperformance is guaranteed
Mutual fund house which have robust processes does not need star fund managers. I believe Axis, Mirae, PPFAS and DSP have robust processes. The criteria I used to to judge the robustness is - how many funds from the fund house’s bucket are beating benchmark over long term. If proportion is higher then I believe that is a good indicator and change in fund manager will not make much difference.
Also if fund house is following same philosophy across funds then judging the robustness of the process becomes even easier
Did you reach any conclusion regarding exiting the mf which are not managed by the ones who are under scrutiny. I also have couple of schemes i.e. mid cap and small cap but they are managed by other managers and hence I’m confused what impact it’ll have on those schemes. Whether this is an isolated incident or it is there in the entire Axis AMC.
Also, wanted to know your thoughts on Quant AMC. Did you ever review it?
The issue case is that, they did not misuse the AMC Funds. They tried to buy and sell securities in their personal portfolio, just before the AMC was going to take a position in those same securities. Investor’s Funds are safe. Also Axis Mutual Fund has suspended these Managers, so need not worry.
I understand that they were front running and investor’s funds are safe but it is more of a trust issue now. Also, not to mention that it is illegal and unethical. AMC came forward and issued the statement when there was noise in media. I would have expected them to come up and share this voluntarily when they were getting this audited since feburary.
I think trust is of utmost importance when you are managing someone’s money.
I stumbled upon your valuepickr page and could not switch for 2 hours straight!
Since I have a very limited attention span (unfortunately), this was a great experience, thanks to your style of writing and the content.
Request you to elaborate a bit more on how you evaluated whether the fund’s style was out of fashion or its process was broken.
It would be helpful to apply it from time to time funds in my portfolio. E.g. To Parag Parikh funds after the recent drawdowns.
