Ruffling Feathers – the Ajit Dayal Interview

Most mutual fund distributors that I have come across online (I have been used to invested direct even before Direct was a option, so no offline distributor friends) rarely talk about a fund that has in its category been the best across 10 years and for good reason. This was a fund that until recently decided to ignore distributors, the champions of the Mutual Fund Industry and tried to touch base directly with the Investor.

For the trouble the investor took to invest on his own, the fund ensured that they charged the lowest fee (this before the onset of Direct) since no commissions needed to be paid to anyone.

The low fee structure has also meant a lower salary base for fund managers. While top fund managers of other funds earn Salaries of Crores (+ Stock Options which aren’t disclosed), the Salary of Atul Kumar, head of Equities at Quantum for instance is one of the lowest among Mutual Fund Managers with AUM > 500 Crores.

Last week fund investors received a letter bidding adieu from the founder, Ajit Dayal and suffice to say, other than those invested, don’t think anyone barely gave it a thought. But on September 1, ET published a Interview with him, where he called out the fund industry on the question of Integrity.

No one likes their Integrity questioned and least of all fund managers who believe they have done yeoman service to investors who have been able to get better returns even after paying a much heftier fee and in a way, they are right.

What Ajit Dayal set out to do when he started Quantum was similar in thought of what John Bogle tried with Vanguard or what Eon Musk is trying out with Tesla (Selling Direct to consumer to eliminate costs). As Robert Frost wrote in his splendid poem, “The Road not Taken”

I took the one less traveled by,
And that has made all the difference.

Quantum took a path that differed from what the rest of the Industry had taken. But taking a different road in itself doesn’t lead to success. To call those who didn’t take a similar path of dishonesty is asking for trouble. After all, unlike say Vanguard which has proven over time that Index Funds / ETF’s are the best instrument, Quantum hasn’t been able to sell as to why one should invest in its fund versus other funds which have given better returns post higher expense ratio’s.

A key reason given out by Quantum as to why it avoided Distributors is lack of transparency. But that could have easily solved by showcasing the commission that is given to the distributor as its now compulsory rather than eliminate the distributor completely.

Another class of people who are looked at with scorn are Stock Brokers .While there have been many Stock Brokers who have cheated their clients, not everyone is or was a cheat (Disclaimer: I am a Sub-Broker). Every Industry has its share of black sheep, but to call the entire herd black is stretching one’s own credibility.

Mutual funds on a whole manage around 6.3 Lakh Crores in Equity alone. Of this Quantum manages around 1000 Crores or 0.16%. Its way stretched to think that Industry could get here by just mis-selling to retail investors.

Mutual fund industry under pressure from SEBI started with Direct funds around 5 years back. Yet, the amount that comes through Direct is minuscule. The simplest explanation for this would be that the guys who are selling regular – Distributors / Financial Planners are providing some value which makes the end investor appreciate and willing to pay (in-directly of course) for the services rendered.

As I have written many a time, lower the fees, better the returns on the longer term. But if you have no clue about finance and aren’t willing to learn, it could turn out to be far cheaper to pay a advisor than try to do in oneself.

Quantum was a nice experiment and if they continue to adhere to their beliefs I do think they can make it big. Their Long Term Equity fund became the Best performing fund among Large Caps in October 2016, a position that they continue to hold.

Finally, its all about returns over the long term that matters. As long as the are able to achieve that, my money will prefer them over others. Ajit Dayal deserves praise for starting something different, yet he is as human and fallible as the rest of us. So, thank you Sir for the venture and Best of Luck for future endeavors.

Those who really deserve praise are the people who, while human enough to enjoy power, nevertheless pay more attention to justice than they are compelled to do by their situation. – Thucyclides

Read the full interview here: We have done all that we said we would do: Ajit Dayal