On May 6, 2022, Axis Mutual Fund removed Viresh Joshi, head trader and fund manager and Deepak Agrawal, equity research analyst and fund manager from the fund management team over allegations of front running. Front running is when a broker has exclusive details of a stock being bought or sold in large quantities and trades that stock to benefit personally from it.
Axis Mutual Fund launched its first scheme in October 2009 and since then it has grown strongly. As of March 31, 2022, out of total 43 Asset Management Company (AMC), Axis Mutual fund is the 7th largest, managing 2.60 lakh crores of assets of 98 lakhs+ investors in 53 schemes. Three years ago, as on March 31, 2018, Axis mutual fund was 9th largest out of 42 AMCs managing about 0.9 lakh crores of assets.
Learning:
1. Integrity vs. Cost savings or higher return
Warren Buffet has rightly said “Honesty is a Very Expensive Gift, Don’t expect from Cheap People”. In wealth management, integrity and honesty are extremely important. For 1% of cost savings or higher return, you cannot take risk on remaining 99% of investments.
It is critically important for investors to understand (1) whether an Registered Investment Advisor (RIA) or mutual fund distributor (MFD) will be better able to manage his/her wealth and (2) where the loyalty of RIA or MFD lies – with the investor or with the mutual fund company. And, work with the advisor that is more trustworthy.
2. Process over past return for selecting funds
As per research, most retail investors follow rank / performance and select mutual fund schemes based on past 1 year return. It is impossible for a mutual fund to consistently be the top performing fund over a long term. While investing in mutual funds, criteria for shortlisting and process of selecting a mutual fund is more important than the past return or rank.
3. Diversification among various categories, style and AMC
Certain things in life cannot be predicted and there is always an unknown factor when it comes to investing. No one can predict what is happening in the mind or life of a well-recognized trader and fund manager with 10+ years of experience.
Summary:
Diversification is important not only among various investment categories and investment style but also the asset management companies. No matter how great an AMC is, you should never invest more than a limit you are comfortable with (e.g. 15% or 20%) in one mutual fund company.
