Old Bridge Capital Management recently got an approval to run a mutual fund house. Last month, Helios Capital also got a similar nod from the capital markets regulator to roll out its mutual fund. Besides, Groww also entered the fray upon securing an approval to launch the first index fund.
Although the mutual fund sector is cluttered with nearly four dozen asset management companies (AMCs) vying for their space in the market, the new ones are geared to enter the fray at the same time.
But have you ever wondered what impact does the choice of a fund house have on the scheme’s performance, or on the investors’ portfolio?
There is a widely-held perception that some of the schemes, particularly the passive ones, have a predefined ratio of stocks, so the discretion of fund manager and that of fund house is insignificant.
Experts, however, point out that even passive schemes have a tracking error which can be minimised through robust processes. And there is no doubt that the choice of an AMC is more critical in case of active mutual funds.
“Passive funds could also have tracking errors, which can be minimised through robust processes and an experienced team, and thus may also be important for passive funds. In the case of active funds, this may be even more critical as the benefits of the size of scheme could help in lowering expense ratios, and also in hiring and retaining good talent on the research and fund management side of the business,” says Vishal Dhawan, CEO and Founder of PlanAhead Wealth Advisors.
Some experts argue that the reputation of a mutual fund house is also vital since the corporate governance rules are getting stricter, and the quality of management varies from one fund house to another.
Sridharan S., Founder of Wallet Wealth, says, “The choice of fund house matters because the quality of management is crucial since corporate governance rules are getting stricter. On the top of it, investment processes are vital since the fund house must give leverage to the fund manager.”
To illustrate his point, he cites the example of several non-financial companies which entered the business of mutual funds but had to finally sell it off. For example, L&T – despite being good in the construction business — eventually sold its mutual fund business to HSBC, he says.
Deepak Gagrani, Founder of Madhuban Finvest, says that selecting the right AMC is crucial. The right set of people managing your money can go a long way in nurturing your portfolio in the long run.
“Every AMC has its own unique traits and investing strategies. While selecting one, it is important to make sure it has a well-rounded team, not just a one-man army,” he says.
So next time you opt for a mutual fund scheme, don’t just opt for a scheme and the category it falls under, make sure to choose the fund house with the same seriousness and caution — if not more.