Compliance-wary fund manager skips inter-scheme transfer

Also resulted in transferring the headache of one investor to another; was seen by mutual fund trackers as a practice which reflected poorly on the fund house

During the financial crises, mutual funds were said to have often transferred illiquid assets from one scheme to another to meet redemption requests. This is also said to have resulted in transferring the head ache of one investor to another and was seen by mutual fund trackers as a practice which reflected poorly on the fund house and the way it discharged its responsibility towards investors.

The memory of those days must have hit home recently, when a fund manager needed to liquidate certain debt market securities to meet some redemption requests in one of his funds. At the same time, he had cash in a liquid fund waiting for deployment. If he had gone in for the inter-scheme transfer, he would have saved brokerage costs without compromising on his investor’s interests.

However, compliance requirements would have meant that he would have ended up spending the next couple of days explaining his action to his compliance and other officials in charge of looking at internal procedures.

He played it safe and sold the security in the open market while buying something for his liquid fund in the same way and paid transaction costs for the trades.

This meant that the fund manager was happy, and so was his compliance officer. Happiest of all, perhaps, was the intermediary who collected the transaction costs for the trades.