India’s worst fund houses and the importance of benchmarks

Expense Account, Mint

Last week, Securities and Exchange Board of India (Sebi) chairman U.K. Sinha, speaking at the Confederation of Indian Industry Mutual Fund Summit, said something that took many of us by surprise. It is not often that a capital markets regulator speaks about the performance of products, the lack of it and how the regulator was going to deal with it. Regulators largely stay with removing systemic risk and the risk of fraud, leaving investors to deal with market risk on their own. Why would Sinha, then, point to nine fund houses that were beaten by their own benchmarks over the last three years and promise to take this up with the companies? Is this the start of micro-managed regulation?

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Inside the head of a first-time mutual fund investor

Expense Account, Mint

At some point I decided that to get a real flavour of what a mutual fund investor goes through, I need to stop using my agent and begin on my own. That was some time back, but the lessons from then still are sharp. And each time I facilitate somebody into using the mutual fund do-it-yourself (DIY) route to investing, the journey is repeated. Those proficient in the art of mutual fund buying should ignore this piece. It is for the first-time investor who is ready to take the leap of faith from fixed deposits and insurance into this new territory and is just a bit skittish.

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S&P downgrade threat and a government in denial

Expense Account, Mint

India is at risk of losing its investment grade rating, which would make it the first BRIC (Brazil, Russia, India, China) economy to have its rating reduced to junk status. On 11 June, the US rating agency Standard and Poor’s (S&P) released a report titledWill India be the first BRIC fallen angel?, warning of the possibility. The outlook on India’s rating had been reduced from stable to negative in April this year. The positive-negative-stable outlook that rating agencies use is like an early warning flag that tells the market what could lie ahead. A stable outlook says that the current sovereign rating of the country will not change in the next few months. A negative outlook means that there is a danger of the rating getting downgraded; the positive one is the reverse—the rating may get better. India moved to the investment grade rating in 2007 and has been stable at an S&P BBB-, but this changed in April with the stable outlook changing to negative. If India’s rating slides a notch, we move to the highest grade in the speculative grade ratings, or a BB+. It usually takes between six months and a full year before the outlook change translates into a rating change. The S&P report, coming so soon after the change in outlook, has taken the market by surprise.

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Pre-2010 Ulips need a product recall

Expense Account, Mint

How long have you driven your car? How long has that toaster lasted? I’d assume that unless you bought some untested Chinese brand that is built to self-destruct on one use, they’ve lasted a reasonable time and you’ve not had reason to take them back to the store. And assuming you bought a “good” brand, any large-scale manufacturing level defect would have been solved by a product recall—the way Honda recalled its cars last year or Apple products are replaced without a question on defects and now even chocolates at airports are taken back if white and brittle (I kid you not, I managed to do that, though I thought the surly guy behind the counter at Chennai airport would hit me, even as an awestruck, chocolate-deprived teenager watched). What is it about financial products that we do not think about product recalls as an option?

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