Thank you for the comprehensive answer. A few comments.
[…]
Personally I don’t think a Star Rating means much, if anything. Morningstar even sort of admitted it themselves in a recent post on the Franklin Templeton situation. The funds that shut down all had 5 star ratings from Morningstar, I believe.
How is “AMC size” different from “Fund AUM”? And how does one quantify reputation?
I was hoping for some sort of scuttlebutt about the AMCs. All the AMCs cannot be equal - there have to be some dodgy ones.
Oh, and PMC is not an AMC. It’s a cooperative bank that went under.
I completely agree. The list of decision criteria I provided was just a sample list. Not a thorough/well-thought-out one. (In fact, the rating column was blank in my post for that reason)
Actually, stepping back, my meta point was this
You first use a simple set of quantitative criteria to rank the funds. (like Age, Fund Size etc.) and select the top X-percentile (say 25% percentile)
You then select a further subset using qualitative criteria (like Portfolio composition, Fund manager longevity, AMC longevity etc.)
You validate the list to ensure there are no issues (bad press etc.)
Then, looking at the selected list, you decide the mechanism of investing - AMC portal vs CAMS vs MFU vs Demat purchase etc.
If you look at the hastily selected list in the previous post.
step #1: you find that the top X-percentile are the same set of funds, with just ordering changed a little bit.
step #2: you want to select 10 funds, #2 might not be applicable. Of the 40 odd overnight funds, the top 25-percentile (10 funds) are mostly the same. If you wanted to select 4~5 funds, you will have to start looking qualitative criteria and narrow down further.
step #3: you will notice that the the list has all well known AMCs. I have not looked into the portfolios/managers but I think you wont find any red-flags.
step #4: my suggestion was CAMS but you can take a call here.
Absolutely. The objective of the above workflow is not to find the dodgy ones, just avoid them (Step #3). At the end of the exercise, you get a list you want to invest in. You might not get an answer to the question of which ones are dodgy…
Fund AUM is for a particular fund. AMC size is the cumulative AUM for the AMC. Again, something to look at and know about. If either values are low, might be worthwhile to see why and if it decreased drastically due to some event.
I dont know. Hence this is a qualitative criteria…
Really disappointed to see your experience with these individual websites. One possible easier option to invest in all from single place and track them and also have them in your dmat is via your dmat which is through depositories…eg just open a 3 in 1 account in any leading bank or maybe 2 say sbi, hdfc or icici and then via its dmat login you can buy any debt fund…as it is debt, the expense ratio of the depository should be negligible and worth the amount saving you from multiple hassles.
Pls note above is no recommendation but just a perspective after reading your experience. Thanks
That’s correct. Yes ,both allows us to track the funds via their website . Icici direct does not allow you to purchase direct funds and they charge a fee ( I think 1-1.5 % annually I think ) .You can invest in direct funds through Zerodha. So I think Zerodha is a better option. I have invested in 4 OF’s. My main intention is to park the money that I intend to invest in the stock market. If you want slightly better returns Liquid funds are a better option.
Thank you for the further comments. It’s helpful to get someone else’s perspective about this. A few stray comments.
I didn’t originally notice the Star Rating was blank. Now I did.
Thank you for the clarification.
I’m not sure how one would go about finding red flags about an AMC, other than random searching, which is never very useful. And I haven’t found any negative information about AMCs that way. And Indian review sites are borderline useless, not to mention the worse than useless Mouthshut, whose business model is apparently posting negative reviews about businesses, and asking them for money to take them down. This sounds incredible, but I’ve read this in numerous unrelated places, and it’s the only good explanation I’ve seen for the disproportionate number of negative reviews on Mouthshut.
The only information that is obviously available about an AMC is size, which is a proxy for how many people trust the company. Also, if things go south, at least you have company.
One final question. Do you have opinions on the relative safety of a bank savings account/FD vs an overnight fund?
I agree, it’s always disappointing when things don’t work well. But It is unclear how much one can read into such website dysfunction. If one is paranoid, as one is entitled to be, it’s possible to read all sorts of things into it. As worst, one might question the quality of the company. But I don’t have evidence of any such connection. Though it still seems strange to me that a company managing so much money cannot allocate some of it to ensuring a smooth website experience.
Regardless of the web sites quality, It’s probably still better to use them directly, because in general the fewer intermediaries the better, and creating accounts for a few web sites is not a high burden. But I have not tried any of the services which are designed to allow investment into and management of funds from multiple AMCs. Some of which people have mentioned here.
I am not sure if it happens automatically. I do not see mine in the demat account since I have not submitted the required conversion form to convert to demat.
Have not looked up yet.
Invested in equity funds for a long time. My risk profile has changed over the last couple of years, but am okay with a bit of risk… So, have chosen Ultra Short and Low Duration funds in a couple of AMCs (ICICI and Kotak). After a few years, when my preference changes to being completely risk-averse, I plan to invest in FDs/overnight funds.
Thanks for all your queries in this forum around the risk caused by AMCs. I had never thought along those lines. I too am searching for answers. Looking back, the primary reason for not having thought about this is that I have stuck to the big names and never experienced any issues.
In my limited knowledge, the Mutual Fund industry has not had any “scams”. Of course, there are lots of issues, which we can mitigate overselves - (1) benign issues like expense ratios/mis-selling can be completely avoided by directly purchasing online (2) portfolio risks (Franklin Templeton kinds) can be reduced by closely monitoring the portfolios/manager [or opting for Index funds] (3) AMC stability risk can be reduced by opting for large AMCs.
Scams like cooking books, diverting money etc. have not happened (I think). Hence the paucity of news items on this.
(PS: Thanks to your inputs, I too am planning to diversify to multiple AMCs. My debt portfolio was concentrated to the the two AMCs mentioned above)
As I understand, dmat account to shares/MF units is what bank account is to cash. If units not in dmat and the fund house collapses, which can be a valid possibility considering frequent financial houses collapse in India, where are actually the MF units now? Also I remember nsdl or csdl disallowing Karvy or some other broker to trade and sell some stocks of customers to get hold of some money Karvy claimed they owe to them…so here the depository acted as a strong custodian of the actual owners of those shares. With MF units not in dmat, where they are and what are its implications? Thanks
That would be the RTA (Registrars & Transfer Agents) - Mutual Funds Registrars Cams & Karvy | Coverfox. The RTAs serve the role of book-keepers. (They also serve the role of customer support, distributors etc)
There are three main RTAs in India - CAMS, Karvy and FTAMIL, in the decreasing order of share.
Fund houses can collapse/get taken over etc. Specific schemes too can get wound-down (like the 6 Franklin Templeton debt schemes). When that happens, the portfolio is liquidated and the unit holders are paid back. Of course, the quantum of loss and time taken to get back the money is unknown. That is the risk involved.
AMCs ownership change is fairly frequent. Scheme wind-down is rare and that is why FT episode caused a lot of waves. There is uncertainty around the process too, due to this. AMC collapse has never occurred.
The Association of Mutual Funds of India has a nice website with these details - https://www.amfiindia.com/
I am surprised to see an institution like Karvy here which was not in good news several time. Also surprised that bookkeepers are brokers. If I am not wrong Karvy is a broker also. Custodian of units should be independent institutions whose only virtue should be of being a custodian and act in favour of unit owners rights. Just like how the case for stocks is, except of course the Karvy power of attorney broker episode that happened in stocks also. Therefore don’t you and others think that MF should also be always dematerialized and kept with depositories so that no one can sell on your behalf…
To clarify, CAMS/Karvy/FTAMIL do not handle (or) own the shares/debt-instruments purchased by equity/debt mutual funds… The mutual funds are institutional investors and they own and transact the shares/debt-instruments. (That’s the reason, in the Annual Reports of companies, you will see shareholding pattern section specify individual AMCs like HDFC AMC etc.
All that CAMS and others do is the book-keeping of the units of the individual schemes - things like manage investor KYC, folio management (units bought/sold), respond to investor queries in these areas etc… AMC completely handles the money, instruments, portfolio decisions etc.
In a manner of speaking, that is what is happening here. CAMS are independent institutions from the AMC themselves. AMC handles shares/bonds/portfolio and publishes the NAV. CAMS independently manages investors and their ownership of the units.
It so happens that Karvy has a separate business unit which offers stock brokering services and that was involved in the scam. I doubt the Karvy RTA services unit handles any shares related to AMCs.
I think we will end up there eventually. Both NSDL and CDSL provide for holding MF units in demat form. NSE and BSE facilitate transactions. RTAs would still have some work to do - KYC etc. Analogous to what DPs do for shares.
True, just one addition - we are already there if we buy MF units via depository participants of any leading bank like ICICI, SBI etc. And I believe even when you buy directly with AMC it should go to depository because in CAS statements issued by NSDL the units bought directly from AMC or some aggregator are to be seen (as confirmed by a known contact who uses some aggregator). I think as long as that is happening, it should be fine, although I do not trust any aggregator (who would worry for any hassle of them running out of business or because of lack of solid processes their employee indulging in any fraud) so would prefer either direct AMC or via bank trading account for cases where expense ratio is very less.
I’m unclear on how this could happen. While I don’t dislike the idea of having overnight fund “units” stored in a demat depository, aren’t mutual funds distinct entities from equities? How can one “mix” them?
See my discussion of overnight funds vs savings accounts/FDs earlier in the thread, starting with:
It looks like overnight funds have the edge overall.
Thank you for your thoughts on the matter, and the encouragement. It seems better to think about possible problems in advance of experiencing them, though of course one cannot cover all eventualities.
I am also not aware of any mutual fund scams as such. However, there have certainly been problems like the recent Franklin Templeton issue. For example, there was an example with Taurus Liquid Fund in 2017 (a search for “taurus liquid fund crash” shows some relevant links). It’s easy to talk about “closely monitoring” the portfolios, but how practical is that really, given that the fund can presumably change the portfolio whenever it wants? (Maybe it can’t - I’m not aware of the exact rules, if any). It’s hard enough to keep track of ones own portfolio, Having said that, even a bad debt fund situation looks better than the bloodbath that happens when a bank (in India, usually a cooperative bank) collapses. In that situation, it’s entirely possible to lose most or all of ones money. This is one inherent benefit of the diversification of a fund.
As regards the discussion of who or what is actually holding the units of a Mutual Fund, here are my thoughts.
First, equities of companies are safe from the DP who handles them, because they are held by a depository. Provided, that is, you don’t sign a POA. Brokers really seem to like POAs. Even though they are not required, and everyone will agree they are not required, they still use a variety of tactics to get you to sign them. Typical India, ugh. As I’ve mentioned elsewhere on this forum, POAs are a really bad idea, in part because of the overly broad terms the brokers use. I think they may copy and paste it from each other, and I doubt even they understand the legal implications of the wording. If you have given a POA to a broker, take a look at the wording, and ask yourself if you understand the limits of the POA. I think you’ll find you don’t. Anyway, modulo the POA, the DP can’t legally do anything to your equities without your permission. Of course, there is the occasional outright criminal that will do that anyway, but we’ll disregard that edge case for the purposes of this discussion. Most problems I’ve heard of seem to stem from people handing out POAs when they shouldn’t.
Anyway, Mutual Funds appear to be a different beast altogether. Because of a fund’s hybrid nature, the AMC itself defines the value of a unit of the fund by virtue of its portfolio, which is of course handled by the AMC. There is obviously still some value in a third party holding the assets (MF units) for you, regardless. From the above discussion it sounds like the AMCs themselves normally hold the MF units, though perhaps it is better if you give them to someone else like a depository to hold, if that is possible. As long as the holder is someone who we can be sure will not touch the units, like a depository like NSDL or CDSL. It does sound part of the job of the RTA is to track the individual portfolios of clients.
I’ve heard that some MFs can be exchange traded. Perhaps it is those that can be held by a depository? I’m not sure. Presumably not all MFs can be exchange traded, though.
I’m also unclear why RTAs exist. Why don’t the AMCs just handle all these functions inhouse? Are they an extra security feature to keep the AMCs honest, so they aren’t tempted to get creative with the MF units? Or something else?
These are the entities who provide services to Mutual Funds. RTAs are more like the operational arm of Mutual Funds. Since the operations of all Mutual Fund companies are similar, it is economical in scale and cost effective for all the 44 AMCs to seek the services of RTAs. CAMS, Karvy, Sundaram, Principal, Templeton, etc are some of the well-known RTAs in India.
I think the problem with 3 in 1 accounts with Banks and also with stand alone brokers is that they always ask PoA and without giving that, it seems trading would be a headache with our trading account as for every trade, we will have to give a consent maybe in form of email or signed letter. Actually, I am not sure how it works and would like to know about it if we can deny PoA to the banks with which we hold trading and dmat accounts and still seamlessly buy/sell shares. Also, if buying/selling shares via our trading account is easy even without PoA, how can we nullify any PoA that we earlier already gave to the banks? Thanks, your in depth posts and in detail questions triggers many important aspects that we always neglect and take for granted, unless one fine day one of us becomes a victim. Thanks
As far as I know, one has the option of using the NSDL and CDSL electronic demat share/equity delivery systems, called SPEED-e and EASIEST respectively. The only legitimate use for a POA is for a broker to take shares from your account and put it in the brokerage pool account. And those services take care of that.
This was actually mentioned in an NSDL advisory notice that was sent by email dated 5th December 2019, after the Karvy thing happened. I’ve linked to an online version which has essentially the same content as the email version. Before that I had not heard of it, or if I had I didn’t understand what it meant. Apparently these services have been in existence for a long time, but not a single broker I have ever talked to has ever mentioned the option. They always tell you that you need to sign a POA, which appears to be a lie. I’m trying to get it to work for me, but have been experiencing a fair amount of resistance from various directions. Lots of double talk. I.e. “why do you want to use this, giving us a POA makes is so much easier for everyone and ensures a smooth trading experience” . That kind of thing. And NSDL customer service also seems to be fairly dire. Big surprise. Of course the whole pandemic situation in Bombay is not helping.
I wrote about this in another thread, and someone came along (from Zerodha?), and said it was very risky for brokers to sell shares without having the shares with them. You can see my post at
and also see the following responses. The gentleman in question who responded to me, @Nikhil.A, also mentioned a post about “CDSL TPIN”, whatever that is, but I have not yet looked into that.
See also the thread
Ask the bank to cancel the POA. This actually happened to me. I told Standard Chartered that I wanted to use SPEED-e (they use NSDL). They were not happy, but said that if I wanted to do that, I needed to cancel my POA with them. I was fine with that, because I signed it back in 2018 without really reading and understanding it, and didn’t want a POA anyway. They made the whole process quite difficult - they also have terrible customer service - but I hope it is finally processed. Remember that you can always submit demat slips manually. That’s the ultimate fallback.
(In fact, the rating column was blank in my post for that reason)