Fund managers shying away from their own credit-risk schemes, show data

Fund managers of credit risk funds have little or no money invested in the schemes they manage, in a period when such schemes saw a steep erosion in their net asset values. Data assessed for different periods over the past year show that 11 of the 20 credit risk schemes had nil investments from their respective fund managers. 

Eight schemes had investments totalling Rs 8.1 crore, about 70 per cent of which were investments from fund managers of Aditya Birla Sun Life Credit Risk Fund. The category has assets of over Rs 80,000 crore, meaning the fund managers' total investments came to a mere 0.01 per cent. 

The data is based on disclosures till March 31, 2019, and does not take into consideration investments in other debt categories.  Credit risk funds invest a minimum of 65 per cent of their assets in papers rated 'AA' or below. The one-year returns of this category is 3.3 per cent, the second-lowest among debt categories, according to Value Research. HDFC Credit Risk Debt Fund, ICICI Prudential Credit Risk Fund and Reliance Credit Risk Fund are the largest funds in the category. 

While current norms do not mandate fund managers and employees to invest in their own fund house's schemes, fund managers act in a fiduciary capacity and investing in one's own fund can inspire confidence among investors, said experts. The likelihood of taking rash investment decisions also decreases if one’s own money is in the scheme.

“Investing your own money is like eating your own pudding. If you have a restaurant but are not willing to eat there, it can raise some questions,” said Dhaval Kapadia, director (portfolio specialist) at Morningstar Investment Advisors India. According to him, investing in your own funds, especially if there is a higher element of risk involved as is the case in equity funds and credit risk funds, can add to the confidence of investors. 

In 2016, the market regulator asked all fund houses to disclose aggregate investment in schemes, which includes investments made by board of directors, fund managers, and key employees. “Sceptics will claim a manager investing in his fund doesn’t guarantee performance. But it demonstrates the manager’s conviction in his investment approach and acumen, and speaks volumes about his commitment,” added Vicky Mehta, a mutual fund expert.

Most fund houses that Business Standard reached out to did not respond to emails requesting a comment.  “Most of my investments are in Axis MF but there is no compulsion or any specific policy that mandates investing in our own funds. All of our investments are in accordance with existing norms and the fund managers have the discretion to choose the amount they want to invest. Some funds may have a policy to invest in their funds, but there is never a mandate to invest in a specific category of funds,” said Devang Shah, deputy head of fixed income at Axis MF. 

Some market observers believe that fund managers not investing in their own schemes should not necessarily be viewed negatively. This is because fund managers’ investments could differ based on individual goals and asset allocation. Also, unlike equity investment where the goal is usually long-term wealth creation, the objective of debt investments could vary significantly based on the risk profile and liquidity needs. A manager who did not invest in his own credit risk fund may have chosen to invest in any of the other 15 debt categories, said experts. 

“We do encourage all employees to invest in the funds managed by the fund house. However, every individual needs to ascertain the right asset allocation based on individual risk profile and cash flow,” said Alok Singh, head of investments, BOI AXA MF. 

According to Vidya Bala, head–MF research at FundsIndia.com, more skin in the game may not necessarily improve the performance of debt schemes or help the schemes tide over crisis situations, akin to the one that surfaced after IL&FS’ default in September 2018. Instead, the processes that the fund house has put in place, its investment philosophy, risk management practices, and adherence to regulations are factors that might have a greater bearing on how the scheme performs.