An indispensable guide

I have known Dhirendra Kumar since 1997 when I joined the mutual fund industry and, over the ensuing 21 years, the kind of work that Value Research has put in analysing mutual funds, educating retail investors, informing distributors and propagating the cause of the industry, is legendary. In a manner of speaking, though Value Research appears to be a small team that may not be in the league of Morningstar or Lipper, yet it has managed to bring in the same rigour into its analysis and recommendations.

One such initiative that Value Research is known for is the Mutual Fund Yearbook, which it has been publishing annually for the past 10 years. It is an invaluable guide not just for mutual fund investors, but also for the industry. As the Yearbook 2017 states, the mutual fund universe is large, messy and ill-organised given that there are over 4,500 mutual funds. Even if one counts the direct and distributor-sold versions of each fund as one, there are still over 2,400 mutual funds available for investors to choose from. Value Research has taken the effort to narrow down the basket to 131 funds cross 31 categories, through a clear and simple methodology. As the book states, the underlying principle is to slice the universe along a risk-return continuum. In doing so, it goes on to address the needs of diverse profile of investors – right from an investor who is aggressive to someone who is downright conservative.

While it helps mutual fund investors to learn the basics of portfolio planning and choose a hand-picked set of investment-worthy finds, I believe some of the discussion that happens in the book has invariably gone on to shape the industry at some point of time. 

In today’s context, consolidation of mutual fund schemes is a key issue and Value Research has been unequivocal in saying that there are far too many schemes. I believe it’s time to simplify them and pave the way for a few large schemes. Over the next two to three years, I am sure we will see some steps being taken by the market regulator, Sebi, towards addressing the issue.

While the overarching objective of the Yearbook is create a portfolio that will go a long way in ensuring that an investor’s investment goals are achieved, the regulator should also consider allowing the MF industry to use the ranking published not just by Value Research but other rating agencies as well. Today, if a fund house has a five-star rated fund, it cannot advertise the same. Even independent financial advisors don’t have the means to do the right research. So, if AMCs are allowed to use the study of independent and credible institutions — with due checks and balances — it will go a long way in ensuring a win-win for both the investor and the mutual fund industry.