Fidelity to focus on returns, not asset size

The domestic mutual fund industry is keenly watching Fidelity Investments entry, but the financial giant itself seems unconcerned and, according to its officials, "we are not under pressure to reach a certain size."

"Our attitude is - build it over the long term," said Rick Spillane, executive vice-president, Fidelity Management and Research Company, US. The asset management company is willing to wait even 20 years to make it big in India. India was cased out for nearly four years by Fidelity before it decided to commence its asset management operations.

Fund manager Arun Mehra made it clear that the fund's focus would be on generating returns for investors. "There is no pressure to chase assets and we do not propose to offer any incentives to our distributors over and above the commissions paid out to them."

He also said that their policy was to tap savings of investors and for this it would have to work closely with public sector banks, the largest repository of such savings.

Fidelity's first equity scheme will invest in around 70 to 75 stocks, while analysts will be working on the BSE 200 stocks, which is the benchmark index for the scheme.

While advocating long-term investments, Fidelity itself plans to have an average holding of a year. Spillane said globally the average holding period for stocks were going down. "Historically churning has been increasing."

A reason for this is the fast changing economic environment which has an impact on sectors and finally on companies and stocks. So as to avoid this risk, a year is seen as a sufficiently long period.

Mehra said some stocks may be held longer depending on their fundamentals and growth opportunities.

Fidelity's offer document has a warning clause that investors found entering and exiting the scheme often in a short period would be barred from further investments in the scheme.

Mehra made it clear that any investor whose activities destabilised the fund and adversely impacted returns of remaining investors would be penalised and barred from the scheme.

Incidentally, this is a first for the Indian mutual fund sector where there are no restrictions on investor activities.

Mehra also said that the fund's strong point would be its research process - "which has been a demonstrated success worldwide" - and its global network.

Interestingly the fund's bottom-up stock picking approach has worked to its advantage everywhere and Spillane said a fund manager with a 66 per cent strike rate in this would be considered a "star" within the Fidelity family.