Why SEBI’s Guidelines on Mutual Funds’ Categorization and Rationalization are Flawed

Market regulator SEBI has issued a circular defining categories for mutual fund schemes, and the number of funds permitted under each category. Consequently, fund companies will be forced to either merge or liquidate all additional schemes.

For some time now, there have been rumours that SEBI has been nudging fund companies to reduce the number of schemes on offer. By issuing a circular, SEBI has forced fund companies to act.

I have no hesitation in saying that several Indian fund companies have been poor stewards of investors’ monies. They have been guilty of recklessly launching funds (often with poor investment rationale) with the sole intent of shoring up assets.

Furthermore, I believe that SEBI acted with the best of intentions, to aid investors make informed decisions by easing the selection process.

That said, I’m afraid that SEBI’s solution is flawed because it lacks nuance, and is unlikely to result in an improved investment experience for investors.

Is fewer options necessarily better?

Clearly, the guidelines are aimed at (a) reducing number of funds and, (b) bringing uniformity among funds in each category.

So, if the new fund offer (NFO) launch spree resulted in too many funds (read choices) for investors. SEBI's solution is on the other end of the spectrum—extinguish a number of funds, thereby sharply reducing choices available to investors. I'm not convinced that the latter is necessarily in investors' best interests.

Let's take an example to better understand why limiting choices need not be a good idea.

With the exception of three categories, the guidelines state that one fund is permitted per category. Hence each fund company can have say, one Large Cap fund.

Even a cursory glance at the present large cap funds reveals that there exist funds of different hues and colours.

There are funds that take cash calls, and others which are fully invested at all times; some which adopt a buy-and-hold stance and others that churn the portfolio rapidly; funds with benchmark-agnostic and benchmark-aligned portfolios.

Many of these contrasting investment styles can be found in the same fund company. Each investment style is apt for an investor with a distinct risk profile.

However, SEBI's guidelines could result in investors not having access to funds that are apt for them.

In a move that is seemingly at odds with what the guidelines aim to achieve, categories such as Dividend Yield Fund and Value/Contra Fund have been permitted. But how does one define what constitutes a dividend yielding stock, or a value/contra pick for that matter? One can’t since, there is no universal definition.

In effect, fund companies have been handed a loophole that they can freely exploit. Such a scenario can negate SEBI’s intent to ‘standardize characteristics of each category’.

Status quo for close-ended funds

In a major gaffe, the guidelines are applicable only to open-ended funds. The close-ended funds segment, which is a hotbed of questionable funds with little differentiation, and rampant mis-selling will continue to thrive.

I won’t be surprised if we see a large number of close-ended NFOs being launched in the days to come.

Bloated asset sizes of merged funds

To my mind, not many funds will be liquidated in light of the ‘one fund per category’ rule. Liquidating funds means loss of assets, and in turn, loss of revenue for the fund company.

Instead, we will see a record number of mergers. In several cases, the merged fund will have a bloated asset size making it unwieldy. Liquidity management issues could crop up, adversely affecting the performance. 

All in all, the guidelines may have been well-intentioned, but I fear this will end up as a case of throwing out the baby with the bathwater.

Should Investors Fear Debt Funds Taking Credit Risk?

In October 2008, fixed maturity plans (FMPs) were in the news for all the wrong reasons. The financial crisis had set in, and equity markets had crashed.

Debt markets weren’t spared either: it was feared that papers issued by some real estate and broking firms, among others would default. Several debt funds, including FMPs were heavily invested in such instruments. Amidst tight liquidity, there was a run on fund companies, which in turn led to distress sales, and net asset values (NAVs) crashing. The latter fuelled more panic, and further distress sales.

Roughly nine years hence, I see a similar narrative playing out in the context of debt funds taking credit risk. Admittedly, the level of fear isn’t even remotely comparable as yet, but make no mistake, the narrative is similar.

Every time a credit rating agency downgrades the rating on an instrument, it makes headlines. Media lists which mutual fund portfolios hold the downgraded paper, alongside the allocation. Words such as default and loss are liberally tossed around, leading to fund investors hitting the panic button.

So should investors fear debt funds that take credit risk? Let’s find out.

The strategy of taking credit risk (or high-yield investing) entails investing in securities with a lower credit rating. Such instruments offer a higher coupon rate (versus securities with a higher credit rating). Furthermore, there is a possibility of the price appreciating if the credit rating is upgraded.

Does this investment strategy involve risk—indeed, it does. There is risk of the issuer defaulting on the payment of interest and/or the principal. Often such bonds can be illiquid which further accentuates their risk profile.

Given the risk, should investors shun funds using a credit risk-based strategy? No, and here’s why: The strategy of taking credit risk is as legitimate as any other. Several portfolio managers (both in India and globally) have plied it successfully and delivered pleasing long-term results. A strategy doesn’t become faulty simply because it entails risk.

Some experts argue that investors should only invest in debt funds deploying the duration strategy. That’s a weak argument because failing to read the direction in which interest rates will move, can also lead to losses. A case in point is the performance of debt funds in February 2017, when contrary to expectations, RBI kept policy rates unchanged.

Also, this is a case example of missing the woods for the trees—mutual fund investing is not without risk. Sure, some strategies are riskier than others, but risk is omnipresent.

Investors will do themselves a huge disservice by treating debt funds with a credit strategy like pariahs, and hitting the panic button in reaction to every news story. Instead, a prudent approach will be to acquire an unambiguous understanding of the risk involved, and then decide if they are comfortable taking on the same.

It's worth noting that when investment decisions are based on a combination of fear and ignorance, the results can be rather unpleasant.

When The Portfolio Manager Exits…

Last week, it was reported in the media that portfolio manager Manish Gunwani has quit ICICI Prudential AMC. The recent past has witnessed a fair degree of churn among managers; media reports suggest that more exits are on the cards.

A portfolio manager’s exit is an eventuality that mutual fund investors are bound to encounter at some point. Given that the manager helms the fund, expectedly, his exit can have a bearing on investors.

On their part, investors must evaluate how the manager’s exit will impact the fund. More importantly, they must determine if the fund should continue to find place in their portfolios.

Sadly, investors’ task tends to be complicated by rather diverse perspectives.

Perspectives

From a fund company’s perspective, a portfolio manager’s exit is often treated as a non-event. Typically, the reaction will be: “we have robust investment processes in place; hence manager XYZ’s exit will have no impact on our fund’s performance”.

To be fair to the fund company, it is in its interest to say so. One can’t expect a fund company to admit that a manager leaving is a loss, and that investors could be in for troubled times.

On the other end of the spectrum is the portfolio manager-centric perspective. The latter stems from the belief that the manager is the be-all and end-all for the fund. Hence, all bets are off.

As is often the case, the truth lies between the two extremes.

Individual Brilliance versus Institutionalised Skill

Let’s understand how the investment process works at a typical fund company. The investment team comprises of products specialists, risk management professionals, research analysts, and portfolio managers. Each group performs a specialised task utilising an array of tools and resources.

Investment ideas are originated, debated and vetted before making it to the fund company’s ‘approved’ investment universe. Paper portfolios (also referred to as model portfolios) are created and tracked as an internal guideline. Often each fund is backed by a unique template listing guidelines.

Though the portfolio manager is the first among equals when it comes to running a fund, at times, investment committees also have secondary oversight on funds.

As is evident, a fund company deploys considerable resources to institute investment processes. Hence their typical reaction in response to every manager exit.

So does that make the portfolio manager redundant? Can investment processes eliminate the need for a manager? The answer is--No!

To begin with, not every investment process is necessarily robust. It takes a skilled manager to capitalise on available resources and process. Indeed, in some cases, the manager’s individual brilliance can deliver pleasing results, despite the presence of a less-than-robust investment infrastructure.

The truth is that if processes in isolation could have guaranteed success, then every buy and sell decision would have been made using algorithms, and the portfolio manager would have been an extinct species.

Conversely, those who believe that the manager is the be-all and end-all, must not forget that without the fund company’s resources and instituted processes, a manager could find himself disadvantaged, and perhaps unable to play to his potential. Though the manager is the face of the fund, the forces behind the scenes shouldn’t be overlooked.

Simply put, both investment processes and the manager’s skill contribute to the fund’s success. It would be imprudent to discount either of them.

One Size Doesn’t Fit All

Each fund company has in its arsenal, different investment processes and managers possessing varied skills. Hence the key is to determine which factor contributes more to the fund’s success.

For instance, a combination of a robust process plus a skilled incoming manager can make a manager exit, a non-event. Conversely, if a fund’s success can be largely attributed to the manager’s presence, then his exit should raise a red flag, irrespective of what the fund company claims. In other words, the impact of a manager exit needs to be evaluated on a case-by-case basis.

Admittedly, understanding the nuances of a fund company’s internal workings can be difficult for an investor. That’s where the investment adviser has a part to play in helping the investor make an informed decision.

All in all, a manager’s exit merits consideration, and investors’ response should be based on an in-depth understanding of the facts of the case.

Do Indian Portfolio Managers Eat Their Own Cooking?

For some time now, The Association of Mutual Funds in India (AMFI) has been running an ad campaign “Mutual Funds Sahi Hai”, to propagate the cause of mutual funds. Incidentally, these are good times for Indian asset managers with industry’s assets soaring to record highs. Clearly, investors have taken to mutual funds in a big way.

I thought it will be interesting to find out if portfolio managers who run mutual funds have taken to them as well. To my mind, a manager investing in his fund speaks volumes about both, his commitment to the fund, and confidence in his abilities.

In 2016, market regulator SEBI made it mandatory for fund companies to reveal information about investments made in each fund, by the fund’s portfolio manager, and other key personnel.

I compiled a list of the 50 largest equity funds (excluding hybrids) to study portfolio manager investment patterns. These funds account for roughly 61% of the industry’s equity mutual fund assets, making them a representative sample.

Some disclosures are in order: In the hunt for most recent information, I have perused various documents—Scheme Information Document, Statement of Additional Information, and Key Information Memorandum. However some fund companies continue to disclose information as on 2016, while others have released updated numbers.

Another area of inconsistency is the investment figures. It is apparent that several fund companies have disclosed the current value of manager investments, rather than the sum invested (which is evidently more relevant). The only fund company which stands out in this aspect is SBI Mutual Fund, for having unambiguously disclosed both—the sum invested and current value of investment. This is an area where SEBI needs to step in, to ensure that manager investment are disclosed in a uniform manner across the board.

To analyse the data more efficiently, I broke down investments into the following ranges: 0, INR 1—INR 20,00,000, INR 20,00,001—INR 40,00,000, INR 40,00,001—INR 60,00,000, INR 60,00,001—INR 80,00,000, INR 80,00,001—INR 100,00,000 and over INR 100,00,000. The results are interesting:

Indian Portfolio Managers Don’t Eat Their Own Cooking

Out of the top-50 funds, 20% have no investments from their portfolio managers.

The INR 1—INR 20,00,000 range is the most populated one, accounting for 27% of the top-50 funds.

Cumulatively, the bottom two ranges (no investment, plus INR 1—INR 20,00,000) account for a staggering 47% of the top-50 funds. This is disappointing to say the least.

It can be safely stated that several Indian portfolio managers have little or no confidence in their investment abilities.

Defending the Indefensible

At this point it must be stated that manager remuneration disclosures reveal that an annual compensation of roughly INR 1 crore (INR 10 million) is common even at mid-sized fund companies. So the defence that managers don’t have monies to invest in their funds doesn’t hold water.

Managers can’t take refuge under the pretext of low tenure either, since 80% of the top-50 funds have had their present lead manager at the helm for over two years.  

Finally, a portfolio manager helming a niche fund (such as a money market fund or a sector fund) is perhaps justified in having a small investment. However, the top-50 list is comprised of conventional equity funds, which means that there is no excuse for having zero or tiny investments.

The Counterview

Sceptics might claim that a manager making a substantial investment in his fund doesn’t guarantee performance. But, it is an undeniably important evaluation tool, which demonstrates the manager’s conviction in his investment approach and acumen, and more importantly, his commitment to the fund.

I fail to see why investors should invest in a fund that the manager isn’t entirely committed to. I am certain that like me, most will be wary of the chef who doesn’t eat his own cooking. 

On a final note, perhaps AMFI should initiate an ad campaign targeted at portfolio managers to convince them about the benefits of mutual funds.

Sensex @ 30,000: What Experts Won’t Tell You

The S&P BSE Sensex has breached the 30,000 points mark. Celebratory cakes have been cut, and anchors of business channels have experienced bouts of ecstasy on live television. The print media has published statistics on markets' journey and performance. Clearly, these quarters are abundantly excited.

With investments delivering handsomely, investors have reason to cheer as well. However, not every investor shares the excitement palpable in the media. For some, markets touching record highs has led to anxious moments. These investors have been singed by markets in the past, especially after sharp surges.

For such investors, the all-important question is: Where are markets headed next? Will they continue to surge, or is another crash on the cards?

As is often the case, investors are seeking answers from experts who routinely feature in the media. However, even a cursory glance at quotes and op-eds reveals that experts have chosen to tread the middle path.

For instance, they strike an optimistic note by mentioning India’s strong fundamentals, conducive macroeconomic environment, expectations of robust flows. Simultaneously, they sound a note of caution by speaking about how earnings have failed to keep pace with markets, expensive valuations in certain market segments, and global factors such as the US Fed's stance.

It is evident that investors who are seeking an unambiguous answer from experts will be disappointed.

And, here’s why—No one knows where markets are headed in the near-term. While experts can make reasonable estimates of how markets will play out over the long-term, predicting near-term movements is anyone’s guess.

The trouble is that no expert will risk losing his ‘halo’ by publicly saying “I don’t know how markets will behave in the near-term”. Likewise, no print publication or channel is interested in quoting an expert who says so, or simply advises investors to focus on the long-term.

As a result, investors are subjected to convoluted and non-committal views from experts.

What investors must do

On their part, investors would do well to look inwards, instead of relying on experts.

Investing is a personalised activity. In other words, a ‘one size fits all’ approach doesn’t work. Hence, investment decisions must be made in line with one's risk appetite, temperament, and investment goals.

For instance, investors who are overly worried that an imminent crash might wipe out their gains, shouldn’t hesitate to book profits. In particular, investments that don’t agree with their profile; now is a good time to exit them at a gain.

Investors who are at ease with the vagaries of markets should continue to invest in line with their plans. For such investors, any downturn will present an attractive investment opportunity. 

Investors who find themselves between the extremes, can consider adopting a wait and watch approach.

The key lies in making a choice that works for you, and standing by it. That will lead to a far better investment experience, than relying on an expert who speaks half-truths.

Of Bollywood, Mutual Funds, and INR 100 Bn AUM

Some of my friends are Bollywood aficionados. They are informed of not only which movies are being screened, but also their box office numbers. As a result, even I have become familiarised with terms such as “the 100 crore club”. For the uninitiated, apparently box office collections of at least INR 100 crores (INR 1 billion) is a parameter for a movie to be considered a success.

Oddly, a somewhat similar scenario is brewing in mutual funds. Thanks to a combination of steady inflows and rising markets, several equity-oriented funds have an asset size exceeding the INR 10,000 crores (INR 100 billion) mark.

However unlike box office numbers, growing assets of mutual funds are giving some investors and distributors sleepless nights.

Is the evaluation parameter apt?

An evaluation parameter must be based on sound logic for it to be relevant.

Let’s consider the 100 crores mark for movies. Say movie “ABC” costs INR 30 crores to make, and its box office collection is INR 70 crores. Compare this with movie “XYZ”, which costs INR 90 crores to make, and clocks proceeds of INR 110 crores.

Now if grossing INR 100 crores is the benchmark of success, then “XYZ” has succeeded, while “ABC” is a failure. However, if cost is considered, it is apparent that “ABC” is more profitable (hence, more successful) versus “XYZ”.

Clearly, selecting an apt benchmark is vital. This principle holds good in the case of mutual funds too.

Does size matter?

Asset size can matter because a mutual fund operates within the restraints of liquidity, market cap, and availability (listed stocks). That said, jumping to a conclusion such as “large asset size=bad, and small asset size=good” would be naive.

Let’s consider small and mid-cap funds. Here, a large asset size can pose challenges in the form of market-impact cost, the opportunity cost of having to spread trades out over longer periods, and liquidity management.

Conversely, a large asset size offers economies of scale. In India, regulations ensure that the expenses charged to a fund reduce, as size grows. In categories such as liquid funds wherein margins are wafer thin, a competitive cost structure aids the investor’s cause in no small measure.

Furthermore, in certain segments of debt markets (such as government securities), the minimum lot size is substantial. As a result, a small-sized fund may not be able to invest in it, thereby depriving investors of a wholesome investment experience.

Simply put, no blanket rule can be applied. The relevance of a mutual fund’s asset size depends on the individual specifics of each case.

Is INR 100 billion a sacrosanct number?

It’s hard to figure out why there is so much focus on the asset size of INR 10,000 crores for equity funds. To begin with, that number isn’t backed by any reasoning. Furthermore, as we learned from the case of the “100 crore club”, a number in isolation means little.

Let’s take the case of a large-cap equity fund with assets of INR 17,000 crores (INR 170 billion). In absolute terms, one might be inclined to believe that the fund’s size is substantial.

However, the size amounts to roughly 0.36% of the S&P BSE 200’s (an apt benchmark index) free-float market cap. In other words, the fund isn't really large.

Conversely, a small-cap fund with a size of INR 5,000 crores (substantially lower than the "hallowed" INR 10,000 crores) could struggle to freely invest without hampering performance.

What investors must do

Instead of focusing on the asset size in isolation, investors would do well focus on the consequences of a growing size.

To begin with, not every portfolio manager is skilled enough to manage a large-sized fund; neither is every investment style adaptable to a large fund.

Look for signs of stress—the manager’s investment style changes sharply, the portfolio acquires a tail which doesn’t add value, the long-term showing consistently falters.

A growing asset size could result in the fund’s character undergoing a fundamental change. For instance, a fund that made its mark as a small/mid-cap fund could end up becoming a large-cap fund.

In such a scenario, investors must evaluate if the fund yet merits a place in their portfolios. If the intention was to invest in the small/mid-cap segment, then corrective steps are in order.

Finally, in cases wherein despite a growth in asset size, there is no discernible change either in the portfolio manager’s investment style and the fund’s character, investors should ignore all the noise and stay invested.

Why Investors Shouldn’t Deify the Portfolio Manager

In the recent past, debt mutual funds have witnessed two significant events. Oddly, these seemingly unrelated events have evoked an identical response from investors.

In the first week of February 2017, RBI’s Monetary Policy Committee unanimously voted in favour of keeping policy rates unchanged. It was widely anticipated that the central bank would cut rates in keeping with the accommodative stance it has adopted over the last two-odd years.

Debt markets reacted negatively to the pause in rate cuts, with bond yields surging sharply.

Several portfolio managers running debt mutual funds had increased the maturity of their portfolios, to capitalise on the anticipated rate cut. Expectedly, their performance took a significant hit.

Last week, some debt funds from Taurus Mutual Fund were in the news on account of their poor showing; the funds posted losses ranging from 7% to 12% in a single day. The reason—they were invested in debt instruments from Ballarpur Industries. A credit rating agency downgraded the issuer’s long-term rating, on account of “delays in debt servicing by the company”, among others. The episode brought back memories of similar instances that have occurred in recent times.

In both the aforementioned instances—RBI keeping rates unchanged, and Taurus Mutual Fund’s credit bets—it is evident that portfolio managers were pursuing distinct investment strategies. In the former, managers were engaging in duration plays, while in the latter, taking credit risk was central to the strategy. However, both strategies came a cropper to the chagrin of investors.

Deifying the Portfolio Manager

Since then, I have had conversations with several investors. The most common refrain was that portfolio managers are to blame. But the grouse wasn’t along the lines of the justifiable “portfolio managers need to take responsibility for poor investment decisions”.

Rather it was akin to “how could the portfolio manager make a mistake?”

On digging deeper, I learnt that their rationale was: The portfolio manager is an investment expert. He gets paid a sizeable compensation for running the fund. Hence he shouldn’t be making a mistake, and as a result, exposing investors to a loss.

I was surprised to note that many investors view the portfolio manager like a superhero who cannot err. And therein lies a fundamentally flawed line of thought.

Selecting the Portfolio Manager

Admittedly, the portfolio manager plays a significant part in determining the fund’s fortune. Also, it must be stated that portfolio managers encompassing the entire spectrum—mediocre to supremely talented—exist in the mutual fund industry. Hence, the importance of selecting the right portfolio manager cannot be overstated.

One would expect the manager to be skilled, and have proven his mettle over the long haul. He must have successfully plied his craft across a market cycle. Furthermore, he needs to demonstrate confidence in his abilities by investing substantial monies in his funds alongside investors.

Simply put, the portfolio manager must indisputably earn his stripes before investors can entrust him with their monies.

Pragmatic Expectations and Evaluation

On their part, investors must be pragmatic while evaluating the portfolio manager. Investors would be justified in expecting the manager to get more calls right than wrong. For instance, a manager running an active strategy is expected to beat the benchmark index over the long haul.

However, expecting him to never err, or deliver a positive return consistently is unrealistic. Even the best of managers, can and will make a poor investment decision at some point. That is par for the course in market-linked investing.

Idolising the manager can also hurt investors by preventing them from making an accurate evaluation when the manager hits a purple patch. Consider the case of a manager who takes on unduly high risk to clock superior returns.

The Flipside of Deification

There’s a marked difference between holding the manager to high standards, and having unrealistic expectations. The latter can lead to disenchantment, and investors turning their back on mutual funds.

Sadly, investors whom I interacted with seemed to be leaning in that direction. They have jumped to the conclusion that since the portfolio manager cannot guarantee success, they are better off investing on their own. For most, that isn't the right course of action.

What Investors Must Do

Investors would do well to understand how portfolio managers operate, and then devise an evaluation system that works for them. A manager who fails to retain the investor's confidence should be penalized.

But deifying the portfolio manager and expecting him to deliver in a like manner is neither rational, nor in the investor's interest.

Why Union Budget 2017 Must Give the Nod to Target-Date Funds

In its February 2014 board meeting, market regulator SEBI alluded to “a long term product such as Mutual Fund Linked Retirement Plan (MFLRP)” as a part of its 'Long Term Policy for Mutual Funds in India'. Since then, some fund companies have launched their versions of retirement funds.

However, the regulator is yet to issue guidelines to pave the way for a defined MFLRP product. With Union Budget 2017 on the anvil, one hopes that the MFLRP segment is promulgated in the form of Target-Date Funds.

What are Target-Date Funds?

As the name suggests, target-date funds focus on a pre-set year of retirement. For instance, if you are 30 years of age, and intend to retire at the age of 60, then you will invest in a fund with a target date of 2047.

Target-Date funds are structured as fund-of-funds. They operate on the principle of asset allocation. In their initial years, target-date funds focus on wealth accumulation by largely investing in a combination of domestic and global equity funds. As the target-date approaches, the portfolio acquires a conservative bent with equity allocation being trimmed in favour of fixed income funds.

Simply put, a target-date fund can be a one-stop shop for accumulating a retirement kitty.

In the US, several billion dollars are invested in target-date funds. It certainly helps that target-date funds are often the default choice under defined contribution plans such as 401(K).

Retirement Planning and India

While awareness about retirement planning has grown over the last decade or so, it continues to be a bit of an alien concept for several Indians. Perhaps one can chalk it up to cultural factors. We have been a country of joint families wherein post-retirement, parents are provided for by their children. But thanks to a combination of factors such as growth of nuclear families, higher life expectancy, and cost of living, the need for retirement planning is real.

Successive governments have nudged citizens to independently provide for retirement as well: From opening up the National Pension System (NPS) for all citizens in 2009, enhancing its tax sops in Union Budget 2015, to launching the Atal Pension Yojana for those in the unorganised sector. The message is clear: Focus on retirement planning.

Tax Treatment and Benefits

The allure of tax benefits can be a strong motivator while making investment decisions. Let’s take the example of Equity Linked Savings Schemes (ELSS), a niche segment in the Indian mutual fund industry with assets of INR 501 bn (3% of industry assets) as on Dec 2016.

From Dec 2011 through Dec 2016, assets under ELSS have risen at an annualised rate of roughly 20%. That is no mean feat considering that the investments are subject to a three-year lock-in. To put things in perspective, over the same period, the broader category of other equity funds has grown by 25%.

So, what makes the niche ELSS category tick—tax benefits! Investments in ELSS are eligible for deductions under Section 80C of the Income Tax Act.

To enhance the appeal of target-date funds (and thereby facilitate retirement planning), it is pertinent that investments therein be made eligible for Section 80C deductions.

Another area which must be simultaneously addressed is the tax treatment of fund-of-funds. In India, fund-of-funds never took off. While the latter can be attributed to a variety of reasons, none is more significant than tax treatment.

Irrespective of their underlying investments (equity funds or fixed income funds), fund-of-funds are taxed akin to fixed income funds. Since the tax treatment for fixed income funds is more punitive (versus equity funds), fund-of-funds have been at a disadvantage.

Hence the need for regulatory intervention to ensure that target-date funds enjoy the same tax treatment as equity funds. And what better platform than the Union Budget to iron out these regulatory matters, and launch target-date funds on a strong footing.

How the Investor Wins

Presently while planning for retirement, investors can choose from NPS, small savings schemes (Public Provident Fund) and retirement plans of insurance companies. Target-date funds can effectively close the circle of retirement-focused avenues. 

The potential for ancillary benefits—inflow of long-term monies into mutual funds, greater influence of domestic institutional investors in markets, multiplier effect of higher consumption from retirees—is strong.

Hopefully, the Finance Minister will agree, and give the nod to target-date funds in Union Budget 2017.

The Corporate Jungle Book

“It's a jungle out there

Disorder and confusion everywhere

No one seems to care

Well I do

Hey, who's in charge here?

It's a jungle out there”

Title track – Monk

Written and Performed by Randy Newman

My young nephew is quite fascinated by wildlife. Often, he picks a pictorial book and educates me about various species of animals. Over time, our conversations got me thinking about uncanny similarities between wild animals and humans. Oddly, several human variants of the ‘animal’ kind can be found in the workplace, making the latter a corporate jungle.

Here’s a list of creatures you are most likely to encounter in the corporate jungle:

The Vulture

Vultures are scavengers i.e. unlike predators which hunt their prey, vultures feed on dead animals hunted by predators.

The corporate jungle is full of vultures who feed on others’ work and accomplishments. Vultures exist across hierarchies—from those who steal credit for work done by their co-workers, to managers who feed off their subordinates’ achievements. A variety of factors ranging from incompetence, insecurity, lethargy to malevolence can give rise to the corporate vulture.

Have you encountered a colleague or manager who is nowhere in the picture when a project is initiated and the hard yards are being put in. As the project approaches completion and success is in sight, he suddenly appears. Thereon, the corporate vulture is firmly in-charge and hogs the limelight and accolades.

Finally, here’s a tell-tale sign of a vulture in a leadership role: Even when he’s speaking for the team, he always uses ‘I’, rather than ‘we’.

The Chameleon

Chameleons have the ability to change their colour in response to environmental conditions such as light and temperature. In other words, the chameleon can assume different avatars at different occasions.

The corporate chameleon focuses solely on self-preservation. To achieve his goal, he always swims with the tide, and is committed to being non-committal.

Consider a sales manager who in his meetings with the engineering department agrees that their product line is the best-in-class, and that there’s a need to impress the same upon customers. When he meets customers, the sales manager rues that his engineering department’s products aren’t in line with customer requirements. Furthermore, he will enthusiastically support the CEO’s proposal to shut down the engineering department and migrate to a different business segment.

The Queen Bee

The queen bee is at the centre of a bee colony. She leads a charmed existence and is both followed and protected by other bees. To be fair, she does her bit for the colony by producing the workforce.

However, the corporate queen bee can be put on a pedestal despite being the most unproductive member of the workforce. She draws her power from proximity to someone in the top brass. For instance, she can be completely clueless when it comes to her work, however, she will be unambiguously aware of the CEO’s favourite cuisine, colour and birthday.

If you come across an HR professional dishing out instructions on acquiring clients to the sales team, or a marketing manager tutoring the tech team on how to write codes (and, the inane advice being gleefully lapped up), you’ve encountered the quintessential corporate queen bee.

The Bear

Despite the notion suggested by cuddly teddy bear toys, bears can be ferocious beasts. Not only is their size and demeanour intimidating, a charging bear can make even the bravest skip a beat.

Similarly, the corporate bear relies heavily on intimidation. His walks and talks aggressively for no apparent reason. Even a routine conversation can be laden with threats. His belief stems from the line of thought that “bullying is the mantra to success”. Like most bullies, the corporate bear is a coward deep inside, using his ‘tough guy’ demeanour to hide his insecurities and inadequacies.

Here’s an example of a corporate bear in action: For an opening wherein holding an MBA degree is listed as a prerequisite, the CEO starts the interview by declaring “I hate MBAs and think all MBAs are dumb”. Another classic trait: a honcho who uses every annual performance review to put down his employees, even if they’ve beaten their targets by a handsome margin.

The corporate bear is most likely to use the phrase: “Because I said so”.

The Chimpanzee

Chimpanzees spend most of their time in treetops away from the rest of the jungle population. They are largely harmless to other species. Also, despite their ability to use tools, they are perceived as clowns, thanks to stereotyping.

The corporate chimpanzee goes through the motions, neither causing any harm, nor being particularly productive either. He will typically be the faceless and voiceless individual who follows the crowd. He is most likely to say “I agree” in just about any scenario.

Identifying the corporate chimpanzee isn’t difficult. He’s the one who regularly gets walked over; the one routinely transferred from one department to another for no logical reason. When things go south, he finds himself in the line of fire; oddly, when things pan out, he never gets any credit for the success. The evolved corporate chimpanzee is aware of his precarious position and tries hard to fly under the radar at all times.

Disclosure:

All the corporate animals and incidents mentioned in this article have been drawn from real life. Any similarity to actual events or persons is intentional 😊