Quantum MF on profitable path amid industry woes

Notches up profits with low-cost model and without distributors, while other fund houses stagger

Quantum Mutual Fund, one of the smallest fund houses in India, with assets under management of barely Rs 200 crore, has bucked the sectoral trend and emerged as a consistent profit-making house. It is set to remain in the black in the year ended June as well.

At a time when the fund industry continues to struggle, Quantum’s low-cost-model and zero dependence on distributors makes it stand apart from peers. The seven-year-old fund house, founded by Ajit Dayal, former deputy chief investment officer of US-based Hansberger Global Investors, posted its first net profit, though a meagre amount, of Rs 0.17 crore in 2009. This moved north in the following years, to Rs 3.5 crore in 2010 and Rs 4.9 crore in 2011.

Sector officials are unanimous that lower penetration of MF products, equity ones particularly, are increasingly becoming a function of the low fees paid to distributors, as little as 20-50 basis points, thanks to abolition of entry loads in August 2009. This, they say, is creating a hurdle in reaching out to potential investors and, as a result, barring a select few big names in the fund management industry, none is profitable. However, Quantum seems to have defied this belief. Its equity assets are 60 per cent of its overall assets under management.

“Investors are bothered about returns and not costs,” says Jimmy Patel, chief executive officer of Quantum MF. “If I charge my investors 25 bps less but give 50 bps higher return or which is comparable with my peers, investors look at me.”

Quantum has eight schemes in its kitty — four in the equity category, two gold funds and one each in the hybrid and liquid segments. The much-hyped expense ratio on these products ranges from 25 bps in gold funds to 1.25 per cent in its long-term equity fund. This attracts attention, as in an active diversified equity fund, this is the industry's lowest expense ratio.

Dhurva Chatterji, senior research analyst at Morningstar India, says, “A higher percentage of equity assets help fund houses and Quantum is benefiting out of it, as fees are higher in equity schemes.”

Fund tracking firm Value Research has given its highest rating to Quantum’s long-term equity fund, which puts the scheme amid big names of the industry.

"Though MFs are still a push product in India but we don't push our products. We erect stalls, participate in exhibitions to meet potential customers and communicate to them what equity investment is all about and then send informative and educative articles to customers," explains Patel. After two to three months, the fund house does a re-check with customers to get feedback and if they show interest, one-on-one communication is arranged.

"As a result, an investor comes to us and starts in a small way. We have a small ticket-size of Rs 500 for a first-time investment. Later, we ask whether they would like to do a systematic investment plan (SIP) or a systematic transfer plan (STP). We found that people start with Rs 500 and then they convert themselves into an SIP or STP and get married to us," he says.

Dhurva Chatterji, senior research analyst at Morningstar India, says, “A higher percentage of equity assets help fund houses and Quantum is benefiting out of it, as fees are higher in equity schemes.”

Fund tracking firm Value Research has given its highest rating to Quantum’s long-term equity fund, which puts the scheme amid big names of the industry.

“Though MFs are still a push product in India but we don’t push our products. We erect stalls, participate in exhibitions to meet potential customers and communicate to them what equity investment is all about and then send informative and educative articles to customers,” explains Patel. After two to three months, the fund house does a re-check with customers to get feedback and if they show interest, one-on-one communication is arranged.

“As a result, an investor comes to us and starts in a small way. We have a small ticket-size of Rs 500 for a first-time investment. Later, we ask whether they would like to do a systematic investment plan (SIP) or a systematic transfer plan (STP). We found that people start with Rs 500 and then they convert themselves into an SIP or STP and get married to us,” he says.